PFSweb Inc. (NASDAQ:PFSW) Q3 2018 Earnings Conference Call Transcript

Nov 08, 2018 • 05:00 pm ET

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PFSweb Inc. (NASDAQ:PFSW) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good afternoon everyone, and thank you for participating in today's conference call to discuss PFSweb's Financial Results for the Third Quarter Ended September 30, 2018. Joining us today are PFSweb CEO, Mr. Mike Willoughby; the Company's CFO, Mr. Tom Madden; and the Company's outside IR Advisor, Cody Slach with Liolios. Following their remarks, we will open the call for your questions. I would now like to hand the conference over to Mr. Slach for some introductory comments.

Executive
Cody Slach

(Forward-Looking Cautionary Statements)

I'd like to remind everyone that this call will be available for replay through November 22, 2018 starting at 8:00 PM Eastern tonight. A webcast replay will also be available via the link provided in today's press release, as well as available on the Company's website at pfsweb.com. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of PFSweb is strictly prohibited. Now, I would like to turn the call over to the CEO of PFSweb, Mr. Mike Willoughby. Mike?

Executive
Mike Willoughby

Thank you, Cody, and good afternoon to everyone. Before getting into our business and financial update, as you listen to the call today, you will hear us provide additional insight into our two business segments, through which we deliver our end-to-end e-commerce service offering. As a reminder, our PFS segment provides operation services, including order fulfillment, customer care, order management technology, payment services and fraud management activities. This business is normally characterized by monthly recurring revenue, multi-year engagements and gross margins generally in the 20% to 30% range.

Our LiveArea segment provides professional services, including commerce and digital experience strategy, creative and digital marketing, and technology platform development and integration. While LiveArea does have recurring revenue characteristics from digital marketing and managed services retainers, as well as a high level of re-occurring projects with existing clients, it is primarily driven by project engagements that are discrete in nature. We generally target gross margins in this business to be between 40% and 50%.

Now moving on, during the fourth quarter, we continued to focus on -- third quarter, we continued to focus on higher margin engagement, and execute on our profitability initiatives set in 2017. As a result, this was our sixth consecutive quarter of year-over-year service fee gross margin expansion. Similar to last quarter, our PFS business outperformed our expectations, while we experienced softness in our LiveArea segment. For our LiveArea segment, we performed at a high level for our client, successfully sold a number of projects to current clients, and continued to benefit from a higher level of retainer agreement activity with both new and existing clients. However, we continued to experience lower-than-expected sales of e-commerce platform implementation projects for new clients.

We also continued to experience delays with a couple of large implementation project launches, that we expected to begin during the quarter, and now expect to be delayed into the early part of next year. Although, these delays and lower bookings have impacted the top line, we've responded accordingly with prudent