PFSweb, Inc. (NASDAQ:PFSW) Q1 2023 Earnings Convention Name Could 9, 2023 5:00 PM ET
Firm Members
Jackie Keshner – Gateway Group
Michael Willoughby – Chief Government Officer
Tom Madden – Chief Monetary Officer
Zach Thomann – Chief Working Officer
Convention Name Members
Adam Kelsey – Craig-Hallum Capital Group
Operator
Good afternoon, everybody, and thanks for collaborating in immediately’s Convention Name to debate PFSweb’s Q1 2023 Outcomes. Becoming a member of us immediately are PFSweb’s CEO, Mike Willoughby; the COO and President of PFS, Zach Thomann; the corporate’s CFO, Tom Madden; and the corporate’s exterior Investor Relations adviser, Jackie Keshner with the Gateway Group. Following their remarks, we’ll open the decision in your questions.
I’d now like to show the decision over to Ms. Keshner, for some introductory feedback.
Jackie Keshner
Thanks. Earlier than we go additional, I want to make the next remarks regarding forward-looking statements. All statements on this convention name, apart from historic details are forward-looking statements. The phrases anticipate, consider, estimate, anticipate, intend, will, steerage, confidence, goal, challenge and different related expressions sometimes are used to establish forward-looking statements. The total disclaimer referring to forward-looking statements in addition to sure non-GAAP metrics utilized in our filings on this presentation may be discovered within the firm’s 10-Okay and Traders part of the PFSweb web site below secure harbor assertion.
A webcast replay can even be out there by way of the hyperlink supplied in immediately’s press launch in addition to out there on the corporate’s web site at pfscommerce.com. Any redistribution, retransmission or rebroadcast of this name in any method with out the expressed written consent of PFSweb is strictly prohibited.
Now I want to flip the decision over to the Chief Government Officer of PFSweb, Mr. Mike Willoughby. Mike?
Michael Willoughby
Thanks, Jackie, and good afternoon, everybody. Our first quarter efficiency maintained our momentum from the report 12 months we had in 2022. We drove a 5% service charge progress and set a brand new all-time Q1 success exercise firm report, fueled by continued demand amongst premier and luxurious manufacturers in our core verticals. As well as, we delivered sequential and year-over-year service charge gross margin enhancements, reflecting the advantage of the productiveness enhancements and pricing modifications we carried out final 12 months. We consider this progress has put us on robust footing for the 12 months forward.
Our core verticals have remained largely resilient as our broader working setting evolves and our multinode success community continues to develop. Demand has stayed notably robust for well being and sweetness together with jewellery and collectibles. This resiliency is clear inside our present consumer portfolio and inside our gross sales pipeline, which delivered a robust gross sales reserving outcome for Q1, and the gross sales pipeline stays robust with encouraging gross sales reserving outcomes already early in Q2. Zach will in only a few minutes, have extra feedback on the resiliency of our core vertical markets, and our gross sales efficiency and optimistic gross sales outlook for the remainder of the 12 months.
As a reminder, we entered 2023 with our restructuring work largely full. This has positioned us to proceed optimizing the enterprise round our order success platform with the intention of driving larger price financial savings, additional bettering operational effectivity and supporting our progress as a stand-alone platform. Our ongoing work to rightsize our company prices and preserve a extra conventional degree of working liquidity additionally permits us to supply a clearer, extra clear image of our monetary efficiency whereas remaining open to further strategic pathways towards creating shareholder worth.
To this finish, we introduced our Board of Administrators’ authorization of our share buyback program close to the tip of the primary quarter. This system has an as much as 2-year period and permits us to buy as much as an mixture of 1 million shares of our widespread inventory. With our company restructuring work, and the cost of our particular dividend largely full, and given our robust begin to 2023, we consider the share repurchase program supplies further flexibility to help our progress and maximize shareholder worth. It additionally represents our confidence in our long-term alternatives and progress trajectory.
With our present confidence and primarily based on the continued energy of the patron success service and gross sales pipeline demand developments throughout our core verticals, we’re reiterating our beforehand disclosed 2023 steerage targets, which name for PFS annual service charge income progress within the vary of a minimum of 5% to 10%. We stay optimistic that we are able to obtain service charge income progress on the higher finish of this focused vary. As well as, we proceed to anticipate our 2023 complete firm consolidated adjusted EBITDA to be inside the vary of 6% to eight% of service charge income, inclusive of our remaining public firm prices.
Excluding the general public firm prices of roughly 2% of service charge income, we’re focusing on complete firm adjusted EBITDA as a share of service charge income to vary between 8% to 10% in 2023. We consider our give attention to complete firm adjusted EBITDA as a main monetary metric, along with service charge income is acceptable for our restructured and optimized enterprise in 2023. We additionally consider our estimates of complete firm adjusted EBITDA, excluding the remaining estimated public firm prices are extra aligned with the present dimension and focus of our enterprise. However they may nonetheless present an applicable comparability to the estimated professional forma PFS stand-alone adjusted EBITDA margin as a share of service charge equal income metric we’ve been offering over the previous 2 years.
Lastly, we proceed to focus on finishing our present strategic options assessment course of with our monetary adviser, Raymond James, earlier than the tip of this 12 months. Our strongest precedence is maximizing worth for our shareholders as we weigh potential pathways for our surging enterprise amid a presently difficult M&A market.
Earlier than we offer further colour on our progress and our strategic targets within the 12 months forward,
I will flip the decision over to Tom to debate our first quarter financials in larger element. Tom?
Tom Madden
Thanks, Mike. As you may see in our Q1 2023 monetary presentation, we’re reporting service charge income as our principal prime line metric, somewhat than the non-GAAP service charge equal income we’ve traditionally used. Bear in mind, we discontinued our product income mannequin with Ricoh after the distributor settlement with them was terminated final 12 months. This can permit product income to be finally eradicated from our P&L altogether going ahead.
Taken along side eliminating the discontinued operations presentation of the divested LiveArea enterprise, this has allowed us to trace in direction of discontinuing the time period “service charge equal income” and make further progress by clarifying and streamlining our monetary presentation with minimal anticipated influence on our consolidated adjusted EBITDA comparisons.
With that context in thoughts, our Q1 2023 service charge income elevated 5% to $47.6 million, in comparison with $45.5 million in the course of the 12 months in the past interval. The rise was primarily pushed by sustained progress throughout each new and current purchasers.
Our 2023 Q1 gross revenue margin elevated by 450 foundation factors to over 24% of service charge income in comparison with a gross revenue margin of roughly 20% within the 12 months in the past interval. This year-over-year and sequential enchancment displays the advantage of elevated productiveness and the implementation of a number of pricing modifications final 12 months, which started taking impact late in Q2 2022 and into early Q3 2022.
The expansion was partially offset by diminished higher-margin non-fulfillment-related service charge income, equivalent to technology-related providers and challenge exercise. With extra of our service combine comprising our core success actions, we consider our gross margin will proceed to be inside the typical vary for these providers, which is usually between 20% and 25%.
As well as, we drove a year-over-year lower in our SG&A because of diminished skilled charges and different associated bills associated to the prior LiveArea enterprise unit divestiture and the associated fee discount and restructuring exercise we’ve had underway since August 2021. This course of is designed to align our price construction and extra carefully aligned with our smaller fulfillment-oriented enterprise subsequent to that divestiture.
As we enter 2023 with our company restructuring work largely full, our remaining restructuring-related prices have comprised incremental bills associated to the strategic options course of {and professional} tax charges, together with sure severance prices. We’ll proceed working to drive further financial savings and implement additional productiveness enhancements, SG&A and company overhead price discount had been doable all year long.
Our consolidated adjusted EBITDA within the first quarter of 2023, elevated considerably to $3.0 million in comparison with an adjusted EBITDA of destructive $0.4 million within the 12 months in the past interval. The rise displays the continued advantages of our consumer progress, our gross margin enhancements and our ongoing price reductions and restructuring initiatives.
Our capital expenditures in Q1 had been roughly $1.1 million. As we additional help new contracts and the expansion of our success community, we proceed to anticipate our complete 2023 capital expenditures to vary between $8 million to $10 million. We anticipate our progress CapEx to be allotted in direction of the activation and ramp-up of our latest services over the approaching quarters, and Zach will share extra about our footprint enlargement shortly.
Our liquidity place as of March 31, 2023, consists of roughly $39.7 million of money and fewer than $100,000 in debt. This sequential enhance in our money stability relative to the tip of 2022, primarily displays the influence of changing a few of the seasonally excessive working capital necessities we had on the finish of December to money. As well as, we obtained sure monies associated to tax refunds from earlier extra estimated tax funds made because of our acquire on the LiveArea transaction. The rise was partially offset by our completion of $3.5 million in dividend equal payouts in the course of the first quarter. The remaining $3.8 million stability of our particular dividend is carried as a declining dividend payable on our stability sheet associated to numerous fairness awards.
Having considerably accomplished our dividend issuance and with the authorization of our 2-year repurchase program on March 20, we stay targeted on supporting the continued progress of our enterprise by sustaining an inexpensive degree of working money, together with evaluating the institution of a standard finance facility. Pursuant to the share repurchase program we put in place, we bought roughly 96,000 shares for roughly $0.4 million by the tip of the primary quarter, and we bought an incremental 138,000 shares for roughly $0.6 million in April. As we additional set up and retain a normalized degree of working money, we consider this optimizes our place to finish our strategic assessment course of this 12 months and execute on further progress alternatives for PFS.
I will now flip the decision over to Zach to assessment our Q1 operational progress and our 2023 targets. Zach?
Zach Thomann
Thanks, Tom. PFS has continued its momentum from our report order success and gross sales reserving 12 months in 2022. With the excessive success volumes we skilled in the course of the quarter, we set a brand new firm report for first quarter order success exercise. Now we have additionally continued to help a robust gross sales pipeline, recording 4 bookings with an estimated $6.8 million in annual contract worth or ACV throughout Q1, a quantity comparable with our Q1 2022 ACV worth and the buildup to a report reserving 12 months.
As client demand persist among the many premium manufacturers in our core verticals, demand for our multinode success providers has remained equally robust from present purchasers searching for renewals and expansions to new purchasers making renewed investments of their e-commerce capabilities. We stay carefully underway with changing consumer prospects in our gross sales pipeline to launches, and we proceed to see promising indications for each pipeline conversions and new gross sales alternatives this 12 months, leading to an rising variety of new consumer launches in Q2 and early Q3.
For our platform as a complete, we proceed to realize success on our three-pronged progress technique, which contains of the next initiatives: Primary, increasing our multinode success technique to higher serve our purchasers’ clients; two, changing our robust gross sales pipeline for continued progress; and third, driving our Achievement as a Service product providing to permit for extra dynamic and versatile success networks.
Beginning with our multinode success enlargement initiatives. Now we have made stable progress on broadening our home and worldwide success footprint. Within the U.S., we stay on observe to open our beforehand introduced second Dallas Space success middle in early Q3. This facility is designed to boost our current success capability for purchasers within the southwestern area of the U.S. in addition to provide larger flexibility for our DFW-based crew members and for the sorts of customer support agent fashions we provide.
Most just lately, we introduced that we entered right into a lease settlement for a brand new 70,000 sq. foot success middle in Fareham, England. This new facility is positioned 10 miles from our current Southampton success middle with further strategic proximity to the Southampton Airport and the ports of Southampton and Portsmouth. Along with permitting for handy transportation and delivery choices, our Fareham services location permits our management crew to supervise each success facilities extra simply, in addition to present cross coaching alternatives for workers to serve a number of purchasers.
We sought to open a second U.Okay. facility to serve the European purchasers in our unique facility who outgrew their present capability in addition to improve our flexibility to serve potential European purchasers who’re searching for to mitigate a few of the provide chain disruption that has resulted from Brexit. We anticipate to design the brand new Fareham facility particularly for well being and sweetness manufacturers whereas additionally implementing new sustainability initiatives. We worth this expanded alternative to serve manufacturers in our largest product vertical whereas advancing our sustainability targets, and we anticipate to launch our first consumer out of this new facility within the second quarter.
To elaborate on Mike’s earlier feedback, a lot of our new gross sales alternatives are inside well being and sweetness, and we proceed to see strong progress in each well being and sweetness and jewellery and collectibles, even relative to the expansion we generated over the previous a number of years. A March Circana report discovered that Status magnificence gross sales income and unit gross sales progress outpaced mass magnificence in 2022. And newer point-of-sale information from Circana revealed that Q1 2023 U.S. Status magnificence and trade gross sales elevated 16% year-over-year to $16 billion. Almost 1/3 of those Q1 gross sales got here from make-up, which grew 24% year-over-year inside Status channels.
Among the smallest distillations of luxurious have had outsized impacts on demand for these manufacturers with gross sales of things like designer lipstick, mini magnificence present units and fragrances persevering with to develop quickly. These developments revealed that clients view these merchandise as welcome treats even amid macroeconomic pressures on their budgets. This sample is in step with Leonard Lauder’s extensively cited lipstick impact. The present demand and spending patterns we have seen suggest that this impact stays very a lot in play.
Our current gross sales pipeline alternatives and gross sales efforts are remaining skewed in direction of success and transportation providers, reflecting enduring demand from our B2B and direct-to-consumer multinode success providers, which we proceed to anticipate will develop at double-digit charges. This combine shift and the demand that helps it have been underway for the reason that top of the pandemic. Taking along side our multinode, B2B and direct-to-consumer alternatives, these developments have facilitated a better ACV per reserving, including to the ability and promise of our pipeline all through the primary half of this 12 months.
For our contact middle providers, we proceed to see these as a supply of worth, each in our current engagements and in gross sales alternatives for potential upsells and bundles with our current success choices. We anticipate to see these providers signify a smaller share of our total income as we proceed to see larger progress charges in gross sales conversion in our pipeline for our success and transportation providers. Whereas our instant pipeline and gross sales efforts are largely geared in direction of success alternatives, we proceed to see alternatives for our contact middle providers with each new and current clients and we’ll proceed to optimize how we help and deploy our contact middle providers, monitoring developments in direction of lower-cost, nearshore markets and AI adoption and the next results these have on current consumer applications.
To additional complement our success choices and the energy of our multinode platform, we have additionally continued to help our Achievement as a Service merchandise. These merchandise improve the agility of our platform, which permits us to rapidly open a number of success facilities and quickly scale new consumer engagements and improve the innovation in our gross sales cycle. This agility and adaptability with each new and current purchasers has continued to distinguish our providers, fueling our progress and permitting our purchasers agile options, be it by pop-up success facilities, retail success or quickly scaling consumer options inside our personal facilities.
Our first quarter outcomes are a testomony to our strategic progress, and so they give us a stable basis to carry this momentum ahead into Q3 — Q2. Along with reiterating our full 12 months 2023 outlook, we consider we’ve refined our operational basis and our pipeline to facilitate sustainable double-digit progress over the long run. With these prudent and ongoing cost-cutting measures we’ve carried out, we anticipate our service charge gross margins to stay steady inside the 20% to 25% vary, in step with our fulfillment-oriented service combine.
With our ongoing work to handle strong buyer and success demand, ramp our multinode success capabilities for our rising consumer base and function from a leaner and extra streamlined basis, I consider we’re properly positioned to proceed executing on our progress targets by the stability of 2023 and past.
With that, we’ll now open up the decision for Q&A.
Query-and-Reply Session
Operator
[Operator Instructions] Our first query comes from the road of George Sutton of Craig-Hallum.
Adam Kelsey
That is Adam on for George. Mike, it appears like Q2 is off to a very good begin by way of the pipeline. I hoped you might present just a little extra element on that. What precisely are you listening to from purchasers? And why are you changing at such a excessive price in the meanwhile given the financial backdrop?
Michael Willoughby
Properly, I will let Zach provide you with most of that colour. I’d say from my perspective, we’re benefiting from a robust referenceability within the trade, notably within the well being and sweetness sector. I believe we’ve the correct to win each single time we go to bat for well being and sweetness model. I believe we’re additionally benefiting from just a few struggling rivals. We’re not going to call them, however they seem like giving us the chance to have severe conversations with a few of their purchasers. And I believe we’re benefiting from well being and sweetness manufacturers actually focusing their consideration on direct-to-consumer channel. It is develop into their most necessary channel. And due to that change, we’re seeing a better degree of funding and the bar is being raised across the expertise that customers anticipate.
Zach Thomann
Mike, I might utterly echo that remark. I’m going one step additional, simply because it pertains to actually the direct-to-consumer focus. I believe it goes again all the best way to the pandemic ahead. And we’re seeing plenty of momentum within the direct-to-consumer channel, particularly, plenty of funding there. Primarily as a result of it is probably the most worthwhile channel for our clients, and it ought to be after which on the lookout for methods to distinguish that channel, proceed to develop that channel, and we’re seeing that be the supply of plenty of the funding that we’re seeing within the channel, we’re rather well positioned to seize that. Additionally within the commentary, we tried to have some feedback because it pertains to actually what we’re seeing from well being and sweetness and jewellery and collectibles as a complete. With us actually focusing on premium and luxurious manufacturers, they’re proving to be fairly resilient. They’re proving to proceed to need to make investments and need to develop throughout this time. And as such, we’re properly positioned to seize that chance and transfer ahead.
Adam Kelsey
That is nice. And it appears like all the things goes based on plan with the two new services coming on-line. I hoped you might discover a method to assist us higher perceive by way of the potential income influence over time. When you have got a brand new facility, may you quantify how rather more income capability that will provide you with?
Zach Thomann
So we do not usually present direct correlation to how a lot income that’s. We do anticipate with these 2 services coming on-line actually in Q2 and early Q3, as we outlined within the script. We’ll begin to see an elevation by way of income that steers in direction of the steerage that we’ve for the total 12 months. That being mentioned, we additionally anticipate that we’ll proceed to see a necessity in out years to proceed to put money into extra services. And actually with the demand we’re seeing within the pipeline, that is one thing we have a look at as we head into ’24 for incremental alternatives as we attempt for double-digit progress charges subsequent 12 months.
Adam Kelsey
That is nice. After which one query for you, Tom. Clearly, it was a terrific quarter from a free money stream perspective. Granted, there is a large working capital profit, however nonetheless $2.5 million in any other case. I might like to get your perspective simply on how individuals ought to be fascinated by the money stream dynamics going ahead?
Tom Madden
Sure. In order we check out the enterprise this 12 months with our forecasted and steerage that we have supplied, we do anticipate free money stream to be round breakeven or barely optimistic for the 12 months. And that’s after contemplating the capital expenditure parts that we’ve in place, together with all the expansion CapEx that we talked about on the decision. So we really feel like we’re robust from a monetary basis standpoint so as to have the ability to help the continuing progress of the enterprise. We’ll proceed to search for alternatives of how we finance a few of these CapEx as as to whether or not we make the most of money or different sorts of financing devices may be put in place, to be able to correctly help the liquidity place of the enterprise each this 12 months and long run.
Operator
At the moment, this concludes our question-and-answer session. I’d now like to show the decision again over to Mr. Willoughby for closing remarks.
Michael Willoughby
Thanks, Crystal. I might prefer to thank everybody that attended the decision this afternoon. We’re happy you may inform from our tone, extremely optimistic concerning the enterprise and bullish on the longer term. Sit up for future time that we are able to spend with you. And as at all times, we’re out there to our buyers for calls, and we stay up for seeing you at some conferences sooner or later as properly. Thanks.
Operator
Women and gents, this does conclude immediately’s teleconference. Chances are you’ll disconnect your traces right now. Thanks in your participation.