PFSweb, Inc.
Q2 2015 Earnings Call Transcript

Published: 11 Aug 2015

[Operator:]

Good Morning and thank you for participating in today's conference call to discuss PFSweb's financial results for the second quarter ended June 30, 2015. Joining us today are PFSweb's CEO, Mr. Mike Willoughby; and the company's CFO, Mr. Tom Madden. Following their remarks, we'll open the call up for your questions. Before we go further, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call, other than historical facts, are forward-looking statements. The words anticipate, believe, estimate, expect, intend, will, guidance, confidence, target, project and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to risks and uncertainties and other factors that may affect PFSweb's business financial condition and operating results, which include, but are not limited to, the risk factors and other qualifications contained in PFSweb's annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by PFSweb with the Securities and Exchange Commission to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. PFSweb expressly disclaims any intent or obligation to update these forward-looking statements. During the call, we may also present certain non-GAAP financial measures such as the EBITDA, adjusted EBITDA, non-GAAP net income, service fee equivalent revenue, merchandise sales and certain ratios that use these measures in our press release with the financial tables issued earlier today, to which your attention is directed on our website at pfsweb.com. You can find our definition of these non-GAAP financial measures, our reconciliation of these non-GAAP financial measures with the closest GAAP measures and the discussion about why we think these non-GAAP measures are relevant. These financial measures are included for the benefit of investors and should be considered in addition to and not intended of GAAP measures. I would like to remind everyone that this call will be available for replay through August 24, 2015, starting at 7.30 p.m. Eastern Standard Time this afternoon. 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 www.pfsweb.com. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of PFSweb, Inc. is strictly prohibited. Now I would like to turn the call over to the Chief Executive Officer of PFSweb, Mike Willoughby. Please go ahead, sir.

[Michael Willoughby:]

Thank you, Danny, and good afternoon, everyone. As you saw earlier this afternoon, we issued a press release announcing record second quarter results for service fee equivalent revenue and adjusted EBITDA for our quarter ended June 30, 2015. These results reflect continued strong execution for our new and existing clients, in addition we benefited from higher margin incremental project activity in our digital agency and in our technology services businesses. Our second quarter results were highlighted by the acquisition of MODA, which expands out offerings into the UK and adds integration capabilities with the Magento software platform. Our continuous execution, very high level of client referenceability and expansion of agency and technology service offerings are validating our position as a leader amongst commerce service providers. The breadth of our agency and technology service offerings has been significantly enhanced through our recent acquisition Crossview that we announced just last week. The Crossview acquisition broadens our platform offering to include IBM WebSphere Commerce and SAP hybris, enabling us to bring a full service B2B commerce solution quickly to market and provide a robust lift of mar key clients to add our growing client portfolio. Before commenting further I’d like to turn the call over to Tom, to discuss our financial results. And following Tom’s remarks, I’ll return to discuss some additional highlights, provide a business development overview and then we’ll open the call for your questions. Tom?

[Thomas Madden:]

Thanks, Mike and good afternoon everyone. As Mike indicated I’ll spend some time providing additional insight on the second quarter results reported earlier today as well as our outlook for 2015. Before doing so, I’ll remind everyone again that when we provide discussions about our financial results, we often discuss our service fee equivalent revenue performance. This non-GAAP metric is calculated by taking our service fee revenues which is the primary business activity we perform and adding the gross profit on our product revenue business, so that both businesses can be measured on a similar service fee basis. With that as a backdrop let’s quickly review the second quarter numbers. Our second quarter service fee equivalent revenue increased to a record Q2 level of 39.8 million, an increase of 40% compared to the same quarter last year. The increase was primarily due to new and expanded client relationships. We continue to see strong growth from our existing clients in the direct to consumer business activity and once again this quarter saw our clients growth merchandize revenue increase at a rate of over 20% versus the prior year for clients we operated during both periods. The service fee revenue increase also includes the benefit of our US Mint contract which started in the September quarter of 2014 and is currently on track to generate approximately $20 million of annual service fee revenues during calendar year 2015. The June quarter is a little higher period of activity for the US Mint based on the timing of their larger coin drops. Additionally, our service fee revenue increase reflects the growth in our technology services and digital agency services businesses, including the impact of our acquisitions over the past year and certain incremental projects which generated revenue this past quarter. Our service fee gross margin in the second quarter of 2015 was 31.8% compared to 30.0% last year. This 180 basis point increase was driven by a higher proportion of professional and technology services in the 2015 quarter. Note that we’ve historically targeted an overall gross margin on our service fee business of between 25% to 30% for the year with an objective to be at the higher end of this range. As we continue to add higher margin professional services activities to our revenue mix, we’re now targeting this gross margin to be at approximately 30% for the year, but may have some variability during the quarters based on the split of infrastructure work versus professional services and technology related activity. While we’ve been slightly above this range in the first two quarters of this year and expect to get some further benefit from the Crossview acquisition, we expect that the gross margin overall in the fourth quarter will be somewhat lower than other quarters during the year due to the expected higher mix of service fee revenue in the fourth quarter coming from lower margin infrastructure services. SG&A expenses during the second quarter of 2015 were 14.7 million compared to 11.5 million in the year ago quarter. As a percentage of revenue SG&A was 23.2% compared to 21.3% in the prior year, with the increase attributable to the impact of the new SG&A cost related to the 2014 acquisitions, higher noncash stock compensation expense in 2015, incremental acquisition related and restructuring charges during 2015 and the planned increase in sales and marketing expenses. With all this taken into accounts, our adjusted EBITDA in the second quarter increased to a record Q2 performance of 4.1million, an increase of 138% compared to the prior year quarter. As a percentage of service fee equivalent revenue adjusted EBITDA increased 430 basis points to 10.3% compared to 6.0% in the year ago quarter. In our financial targets we have to discuss the objective that as we grow we’re working to drive increased leverage in the business and generate an improved adjusted EBITDA margin. We are pleased the results for this June quarter reflect that improvement. Now turning to the balance sheet, at June 30, 2015 cash and cash equivalents totaled 15.7 million compared to 18.1 million at December 31, 2014. Total debt decreased to 9.5 million from 10.9 million at the end of 2014. As such our net cash position was approximately 6.3 million compared to 7.2 million at December 31, 2014. If you recall we’ve stated previously that our cash balance includes the benefit from this timing of certain cash collections received by PFSweb from our clients customers that are then later remitted to our clients. This benefit continued during the June quarter, but was somewhat lower than at the end of our seasonally high December quarter. As we announced last week, with conjunction with our Crossview acquisition we also entered into a new credit facility with Regions Bank. While we’ve enjoyed our long relationships with our previous vendors, both Comerica and Wells Forgo, we’re excited about this new partnership with Regions. The credit facility provides us with an initial $30 million revolving loan facility and an initial $10 million term loan facility. We have the ability to increase the revolver from 30 million up to 35 million and the term loan from 10 million to 20 million as well as the ability ultimately to increase the total loan facilities to 75 million. This agreement provides us more flexibility to finance our global working capital needs as well as our acquisition strategy. On a pro forma basis if I apply the Crossview acquisition including certain transaction related expenses and the new Regions financing facility into account as of June 30, 2015, our debt balance would have been in excess of our cash by approximately $30 million as of that date. Now, let’s review our 2015 outlook. As announced last week in our acquisition communication, as a result of the strength of the PFSWeb business as well as the incremental expected contribution from Crossview, we’re increasing our 2015 service fee equivalent revenue guidance to range between 175 million to 185 million. This is up from our previous guidance of 160 million to 170 million and reflects now a growth percentage of 26% to 33% as compared to 2014. We are also increasing our adjusted EBITDA target range or target to range between 18 million to 20 million, up from 16 million to 18 million in our previous guidance. This reflects growth of 32% to 47% from 2014. For our product revenue business we continue to expect the decline of approximately 20% in product revenue compared to 2014 and our gross margin on product sales is estimated to be approximately 5%. Please note that our 2015 guidance does not include the impact of potential future acquisitions. Also we continue to expect our 2015 results will be strongest in the fourth quarter of the year as it will incorporate the strong seasonally activity of most of our B2C clients. However, there are few items to provide further clarity to this guidance. As we have discussed previously, our largest service fee client is the US Mint, which is expected to contribute approximately $20 million of service fee revenue this year. Unlike many of our other business to consumer client relationships, the US Mint does not generally have the large December quarter spike, but instead the service fees we earn from them are expected to be more evenly allocated throughout the year depending on the timing of the larger coin drops and have actually been a little bit higher at the end of the expected run rate in the first half of this year. We believe this is a positive force as it allows us to better manage the business during our non-holiday season periods, but it also impacts the expected quarterly results of our business as we do not anticipate the fourth quarter to spike up on a comparable basis to prior quarters as much as it had in the past. In addition and while this is impacted by the timing of our project work, our professional services business including both technology services and digital agency activities are generally somewhat stronger in service fee revenue and adjusted EBITDA contribution in the June and September quarters and then lower in the March and December quarters. This is true as well with our recent Crossview acquisition. As we look ahead we also plan to increase our current level of sales and marketing spend in the second half of this year as compared to the first half as we plan to capitalize on our newly acquired capabilities and areas for growth. We also plan to incur certain incremental expenses to applicable to our preparation for the fourth quarter holiday season. We expect our noncash stock compensation expense to continue to increase in the reminder of 2015 as a result of the timing and nature of our various incentive programs. Total stock compensation expense is estimated to range between $4 million to $5 million for calendar year 2015, but is dependent upon our share price activity as well as our financial performance. And lastly we do expect to incur acquisition, debt financing and restructuring related costs in the September quarter of approsimately$4 million which are been excluded from our projected adjusted EBITDA. With all that being said, we currently expect our September quarter adjusted EBITDA for our historical pre-Crossview acquisition business to continue to reflect improvements over prior year, but to be somewhat lower than the June quarter performance and then we expect the sequential improvement in the fourth quarter as the holiday season ramps up. In addition we’ll begin to add the benefit of Crossview results starting in early August, which will drive improved revenue and adjusted EBITDA performance for us on a consolidated basis for the last five months of the year. We do need to keep in mind however, that our fourth quarter activity is highly dependent upon the forecasted and actual volumes of holiday activity with our clients which is more difficult to predict than the rest of the year. We’ll continue to work closely with all of our clients in the forecasting and planning of their holiday season activity. Now, I’ll turn the call back over to Mike for some further comments on the recently completed quarter as well as an overview of business development highlights and closing remarks. Mike?

[Michael Willoughby:]

Thanks, Tom. Well, we find ourselves at a very exciting point in our business. As I mentioned earlier our acquisition of Crossview last week significantly enhances our business in our several ways, but before diving into Crossview I’d first like to highlight some accomplishments during our record second quarter. We continue to perform at a very high level for our clients with a high level of client referenceability across our ongoing engagements. Following up on a strong Q1, we continue to accelerate growth in our high margin agency and technology service offerings. Back just last month we announced the launch of a new Lifestyle Branded ecommerce Website for Ellen Degeneres. We briefly alluded to this and engagement earlier in the year during one of our conference call, however we were unable to provide much color at the time nondisclosure agreements. We’re very excited to be working with a new brand created by one of the world’s most iconic personalities and we provide a full range of services for ad by Ellen Degeneres and our LiveArea digital agency was instrumental in winning this engagement as they provided us with the exceptional design capabilities needed to close the end-to-end proposal. Since our last conference call, we’ve also launched three recurring revenue engagements with yoga brand Gaiam, beauty brand Anastasia Beverly Hills and performance multi-sport brand [indiscernible] Sports. Our strong distribution platform and international capabilities continue to provide a strong value proposition particularly for high end apparel and beauty brands. Moving on to our new business sales pipelines, since our last call we booked new technology and agency service projects for 19 clients worth $4.4 million in new project revenue. Many of the digital agency projects are short term, but are typically higher margin and can be part of a string of projects within a client engagement and provide the land and expand opportunity. The most notable of these projects was the signing of a large contract to build a new ecommerce site for a major footwear retailer on the Oracle commerce platform. The project included implementation on to the version 11 of Oracle commerce along with business user training and enablement and search engine optimization services out of our agency group. Go live is currently scheduled for Q2 of 2016. We’re very excited about all these new agreements and hope to share the brand names with you after their respective launch dates. Since our last call we’ve also booked three new recurring revenue service engagements worth a total about $8.6 million in lifetime contract value to provide ecommerce solutions in the US. First, we signed an engagement to provide two luxury cosmetics brands with Omni-Channel Operation services. Under the agreement we’ll be providing a full range of services for both brands in the US. Since these brands are existing clients for whom we’ve been providing technology and agency services since late 2014, this client relationship will in essence be upgraded to two end-to-end solutions that will go live in late Q3 of 2015, this new contract is a great example of our land and expand strategy in action. Second, we signed both a project and an engagement contract with a new beverage brand as part of an existing food and beverage client relationship. We’ll be building this brand’s new ecommerce website on the Demandware platform along with providing ongoing order management, payment processing and broad management services after the site goes live in late Q3 of 2015. Lastly, we signed an engagement to expand an existing outdoor luxury apparel client’s, Canadian end-to-end ecommerce solution into the US. Under this new agreement we’ll be providing a full range of services including order fulfillment out of one of our methods [ph] facilities, customer care from Dallas and the design, development and support of a new US ecommerce site on the Demandware platform. This solution is scheduled to go live in Q3 of 2015 and is another great land and expand example as we continue to expand existing client relationships with services additional geographies. Recapping our recurring revenue engagement bookings, since our last call we booked three new recurring revenue services contracts worth a total of $8.6 million in life time contract value. Two of these contracts are effectively end-to-end engagements. This is in addition to the seven new recurring revenue contracts we’ve announced this year which had a lifetime value of about $64 million. On a cumulative basis we’ve won 10 new recurring revenue engagements with about $72.6 million in lifetime contract value in 2015. We believe the lower recurring revenue contract bookings since the last call reflects the typical downturn from the summer selling season where large contracts that must be live for the next holiday typically must be signed and in progress by May in order to hit a September or October go live date. The selling season for 2016 should ramp up as we exist the summer period and this is reflected in the early stages of our sales pipeline today. I would also expect a focus on B2B engagements to have some impact on this selling season phenomenon in the future since B2B services sales cycles are less impacted by the Q4 retail holiday. As a reminder, moving forward we’ll refer to our global portfolio as engagement, which can be defined as a single ecommerce operation or a single brand with a recurring revenue stream from any of our services engagements. With the recent addition of our Crossview clients, we currently have approximately 150 active client engagements to provide services from digital agency, technology or operations business segments. These are separate from the one time projects that I mentioned earlier on the call that we booked in the quarter. Finally, moving on to Crossview, I’ve prepared some quick facts followed by a little bit more color on a few of the strategic points. First, we completed the acquisition last week for $38 million plus additional contingent payments of up to approximately $18 million based on performance against future EBITDA targets. The $38 million included $30.7 million in cash and $7.2 million in PFSweb stock equaling approximately 550,000 shares. Next, Crossview’s expect to generate approximately $35 million of revenue for calendar year 2015 and the Crossview team is targeting a level of approximately $5.5 million or above of adjusted EBITDA as defined in the purchase agreement for the calendar year. Crossview is targeting a mid-teens revenue and adjusted EBITDA growth over the next several years also as reflected in the purchase agreement earn out provisions. Based on the projected earnings, our purchase price including earn outs is in the range of seven to eight times their adjusted EBITDA expectations. Now, while we’re targeting mid-teens revenue growth rates for Crossview and the business has generated revenue growth in the past, the revenue results for 2015 compared to 2014 are relatively flat due to the company’s decision to retool for hybris and discontinue certain less profitable activities in 2015. We are supportive of the changes made in the business and we and the Crossview team believe the business is poised for growth exceeding 2015 as reflected in our earn-out structure. Given the recent investments in hybris and the strength of the hybris platform in the market, we expect the business to generate more hybris projects over the next 12 to 18 months while the WebSphere platform continues to provide the majority of the recurring menu services contracts which today contribute more than 40% of the annual revenues. This revenue distribution is reflective of the WebSphere and hybris market positions and does not consider our ability to increase the number and nature of projects and managed service engagements sold as a result of incremental B2C or B2B into end engagements. Our long-term objective would be for our client platform portfolio distribution to reflect the natural market penetration of each of the five supported platforms. With regard to the integration of Crossview, we’ll be coordinating sales and marketing efforts in order to maximize revenue synergies from up selling Crossview clients, on LiveArea digital agency services and PFSweb operation services as well as cross selling PFSweb clients on Crossview, hybris and WebSphere projects and menu services. We’ll also be supporting Crossview with shared services support including HR and finance. Otherwise, we’ll continue to operate Crossview as a wholly owned subsidiary using the Crossview branding for the foreseeable future. With regard to market position, Crossview solidifies our technology service offering with IBM WebSphere commerce and SAP hybris integration capabilities. With the ability to develop and support commerce solutions utilizing Demandware, Oracle commerce, Magento and now WebSphere commerce and hybris, we believe we’re now the only provider of end-to-end ecommerce technology solutions in the marketplace supporting all five major ecommerce software platforms. This provides us with a very compelling value proposition during the sales process as we’ll be the only end-to-end commerce service provider that can offer all five platforms. We’re also able to compete with an elite group of very large traditional commerce service providers such as, SapientNitro, Accenture Digital, Deloitte Digital and Razorfish Global. Our new platform breadth opens up the entire addressable platform market and also positions us to consult the clients on platform selection. Our competitors with limited ecommerce platform offerings are unable to provide this type of critical consulting engagement since they would obviously be bias toward the platforms they’re capable of integrating. We expect this differentiation to be a key focal point for us as we continue to gain market share and sign more clients both on an ala carte basis as well as an end-to-end engagement basis. Crossview also provides us with a robust business-to-business front end ecommerce platform which I believe when combined with our strong B2B order fulfillment, customer care and financial services capabilities creates a very unique B2B offering. The B2B market is one of the fastest growing segments in ecommerce. More manufacturers are seeking to leverage ecommerce technologies particularly in support of their small to medium sized SMB customers which are two small for traditional EDI connections. The smaller customers are also difficult for these large manufacturers to support with order fulfillment services due to the relatively small orders and the relative technical immaturity of the SMB segment. PFSweb has always had the ability to support SMB, business-to-business order fulfillment and on occasion we’ve deployed ecommerce solutions in support of our manufacturer clients in conjunction with a direct-to-consumer end-to-end program as we’ve accomplished with Burts Bees, which is a Clorox brand. In these cases the B2B ecommerce functionality, we were able to deploy - was limited by the customizations that we could build on the B2C organic Damandware platform or with an entirely custom solution. With the Crossview acquisition we now offer three platforms, Oracle commerce, WebSphere commerce and hybris that each offer premium out of the box B2B features targeting multiple different vertical markets. Crossview has a mature frontend B2B practice and a referenceable client portfolio including manufacturers and distributors such as SnapAV, Tony Expressnet, [indiscernible], stock building supply and advanced auto parts. By combining Crossview’s comprehensive B2B frontend practice with our robust B2B order fulfillment solution, we’re able to bring to market a unique and powerful full service commerce solution that I believe could help us accelerate growth across our enterprise. I also believe our full service B2B capabilities strengthen our ability to engage only as a frontend partner or as an order fulfillment partner, once again creating land and expand opportunities. It’s also worth noting that unlike many smaller system integrators, Crossview has created a strong business around recurring menu services which today generate over 40% of their total revenue. This is similar to our existing professional services segments and means that we’re not required to recreate the vast majority of our annual professional revenues in the form of short-term projects as is the case with most of our smaller SI competitors. With regard to Crossview’s technology while they provide best of best [ph] technology for system integration similar to PFSweb model, Crossview also has proprietary in house technologies complementary to our own iCommerce agent, iCommerce subscription and iCommerce PCM products that we can leverage for some of our existing services. This includes Omni-Channel support software, in store point of sale technology and various customer service modules. These proprietary components of our technology ecosystem have the potential to create revenue synergies and further improve the profitability of our technology service revenue streams. Although we’ve not yet began to quantify those potential improvements. Given the many avenues for growth that Crossview provides, including significant cross sell opportunities, we plan to ramp up our sales and marketing initiatives even more than we already have. This includes adding more staff across our inside sales teams, new field sales talent to focus on B2B opportunities, managed services on each platform practice as well as some incremental marketing spend at major tradeshows across the globe including the upcoming Shop Dot Org Digital Summit in October. These tradeshows provide us with the opportunity to showcase our capabilities across our three different client basing segments and we expect the sales bandwidth that we’re building will put us up in a much better position to generate leads internally and not be as dependent upon outside channels to drive new business. Even including the new sales and marketing spend in the back half of the year, we’re increasing our adjusted EBITDA guidance and I’m truly excited about our prospects to accelerate growth at a very interesting time in our competitive industry. That said our focus for the rest of the year remains as always, to provide value and execute for all of our clients which we believe gives us the ability to create value for our shareholders. Through our strategic acquisitions and continued growth as a premier ecommerce enabler, we expect to carry our momentum through 2015 and then beyond. At this time, Tom and I would like to open up the call for question and answers. Danny back to you?

[Operator:]

Thank you, sir. [Operator Instructions] And our first question comes from Mark Argento from Lake Street Capital Markets. Please go ahead, sir.

[Mark Argento:]

Hi, good afternoon guys. Congrats on the acquisition and another nice quarter. Just kind of drilling down a little bit into the guidance that you guys provided for the second half in particular, Tom can you walk through the seasonality aspect to the - both the revenue and the EBITDA line for Q3 and Q4? I think you made a comment about sequentially - sequential movement of EBITDA, I just want to make sure I understood that.

[Thomas Madden:]

So the guidance I provided was that as we look at our historical PFS business activity excluding the impact of the Crossview acquisition, I would expect that the Q3 would be down somewhat as a result of some additional spend on sales and marketing activities, some money is allocated towards getting ready for the upcoming holiday season as well as somewhat lower levels of project work in our technology and digital agency services area. So the decline is somewhat applicable to those factors on that pre-acquisition, pre-Crossview acquisition activity. And then as we would expect our fourth quarter would take a seasonal increase for both the service equivalent as well as adjusted EBITDA as we are able to support our clients strong holiday season activity for them. Then on top of that we’ll be able to add the Crossview acquisition impact. We talked about in many of these technology service and professional service areas that we have; their heaviest period of time during the year is generally related to the June and September quarters. Many times clients don’t like to go live with the new site after kind of that late September, early October timeframe, so there’s often a big rush work to get done during the June and September quarters in order to provide the clients the right timing of getting things up and running for the holiday season. So we usually we a little bit of a spike during those quarters and a little bit of a downturn in the fourth quarter for those business segments. So that kind of offsets some of the growth on our infrastructure services components as we deal with a large uptick in actual gross merchandize value that we’re supporting for our clients during that period of time.

[Mark Argento:]

Okay, so the - obviously some seasonality and increased spend sets EBITDA a little on a sequential basis [indiscernible] Crossview, so I was a little confused earlier that the aggregate numbers what you were talking to, but that makes a lot of sense. So Corssview is incremental what you’re speaking of?

[Thomas Madden:]

That’s correct.

[Mark Argento:]

Okay.

[Thomas Madden:]

And the other point that I mentioned was that the US Mint activity was a little stronger in the June quarter than what it’s forecasted to be during the remaining quarters of the year. Again that’s based on timing of when they do their larger coin drop, so that has a little bit of an impact on a flow. The updated guidance that we provided this year is related to really two factors, one just the strength of the overall PFSweb performance excluding Crossview and then we’ve also added on top an amount put to the Crossview opportunity as well.

[Mark Argento:]

Okay, great and then Mike, you had mentioned that you guys are going to press the gas part a little bit on sales and marketing spend in the second half. Now that you have the four - five platforms kind of a four robust offering, are you going to - are effectively just pushing the gas part all [ph] adding more sales people kind of trying to go little deeper or little wider with the sales offer, maybe you could quantify or give us your thoughts a little bit around the spend and the kind of the objective?

[Michael Willoughby:]

Sure, so I think there’s kind of three areas that we’re looking at stepping on the gas as you put it. One of them is with all five platforms, really just making sure that we have an appropriate go to market strategy for each platform. One of the benefits of the Crossview acquisition is that they do come with a pretty very built out sales organization, so we feel like we’ve got pretty good presence with the WebSphere commerce and the hybris market. We feel like we have a good presence with Demandware, both as a result of the work that we’ve done and also through the REV Solutions acquisition last year. I do think there’s probably some opportunity to invest somewhat in the Oracle commerce side, so we’ll be looking to add some field sales talent around that platform just to make sure that we can engage appropriately with the platform providers and also take advantage of any opportunity that comes in through our own lead generation efforts regardless of what platform. That’s probably the smallest for incremental investment. The other area where we’re going to spend some additional money is around the sort of consulting activity that I spoke to, the opportunity to get out ahead of platform decision and really engage with Chief Marketing Officers as they’re evaluating platforms. Frequently this is done in conjunction with the design engagement, we’ve been able to compete effectively for the design engagement because of our LiveArea capabilities, but we really haven’t been able to engage on a platform evaluation because we’re only supported to the platforms which would create kind of a perception of being bias legitimately. Now that we have all five platforms in our portfolio, we really believe that we can get out ahead and not only market the agency and design sort of engagements, but also really consult with the client on platform decision and so we’ll be looking at what’s an appropriate marketing spend, inside sales type investments and then ultimately at the right point probably next year what’s an appropriate field sales kind of organization to take that to market fully. And then the third component which I referenced in my comments was around this B2B opportunity. I’m really excited about the ability to take Crossview’s B2B capabilities on the hybris and WebSphere platforms as well as Oracle commerce capabilities that come with that platform and put a whole service B2B solution together for these manufacturers for their SMB clients where we can take care of all of their needs associated with that part of their channel. It’s kind of reflective of the deal we have with Clorox to support their B2B engagement with their SMB segment and I think as I have socialized this idea inside PFSweb and with our partners, I believe there’s a real nice opportunity to partner particularly with hybris and IBM and Oracle and their sales force that’s taking B2B solutions to the market to equip them with an end-to-end solution in their toolbox and we’ll be spending some sales and marketing expense to do that in the near term.

[Mark Argento:]

Alright, thanks guys.

[Michael Willoughby:]

Thanks, Mark.

[Operator:]

[Operator Instructions] We’ll move on to our next question from George Sutton with Craig Hallum. Please go ahead, sir.

[George Sutton:]

Thank you and great results guys. So as we think of these platform decisions and the five platforms you now support combined with your ability to get in front of that with the platform design capabilities, can you just give us a sense of - on what your total addressable market looks like today with those capabilities versus what it might have looked like six months ago or even a year ago?

[Michael Willoughby:]

Sure, so I’ll give you a subjective answer because I think it’s difficult to be objective. We believe at this point that any website build or re-platforming type opportunity that would come up in the US regardless of platform should be in our field of play. So with our capabilities to design to and implement on top of any of those five platforms, there’s no reason why we should be qualified out of that opportunity. And so for us to see those opportunities we need to both have good strong partnerships with the platform providers, which I believe we do and we’ll continue to invest in through the efforts of our Strategic Alliances executive John Huntington as well as really being able to generate our own leads through our marketing efforts and our inside sales efforts which will be ramping up in the back half of the year. And our objective then would be to hopefully see the majority of those re-platforming or new website build opportunities and then be able to qualify ourselves into or out of a deal based on the vertical market of the other merits of the deal. I would expect that given the market penetration behind the different platforms and just kind of the traction that platforms currently enjoy, that we would see an increasing number of hybris opportunities here in the US particularly as we take our end-to-end message into that marketplace where there’s not really an end-to-end provider today. I would expect to see an increasing number of Oracle opportunities because of the introduction of the Oracle cloud product and I just continue to see a strong Demandware pipeline given our capabilities to continue to work on that platform at the enterprise level. And I would also expect to see us continuing to sell menu services contracts for WebSphere even though that platform has probably got the fewest new installed in the market place today. However, we’re excited about the future potential with IBM as they also bring a cloud product to market and you have never count IBM out of any competition. So between those different factors, I just feel like we’re perfectly positioned to not only compete for the professional services, but once again bring that end-to-end value proposition for our market that in the case of hybris and WebSphere and even to extent Oracle really has not had an end-to-end provider backing their platform.

[George Sutton:]

Perfect, okay and I got a lot of confused questions from clients when eBay enterprise got sold relative to evaluation in particular. Can you just talk about how different you are relative to the brands that you support versus the retailers that they support and sort of trajectories of business?

[Michael Willoughby:]

Sure, so I’ll give you my opinion which is really simply my opinion, but I think when you look at that transaction there were a couple of things that play. One is it was a difficult transaction for the market to digest because both the Majento ecommerce platform and the traditional GSI BPO business were brought to market together which I think was a confusing message and which tended to dilute the value of the entire offering. There clearly was impairment to the BPO business because of the Toys "R" Us announcement that kind of affected probably the evaluation even at the final hour. But I think more than anything you see probably a near term sort of dismantling of their end-to-end value and a focus on the BPO business which has been historically very strong. So I would expect them in the next 12 to 18 months to really almost be more of a BPO competitor rather than necessarily seeing them as an end-to-end competitor as we historically have. That’s just based on the early indications that the Majento platform would kind of go separate ways from the GSI business and even some of those marketing services and technologies might be bundled up in a different way. And I think the evaluation between the distress that might have been there between the way it was brought out to market and also the fact that it visually kind of looks like a BPO business which tend to get between sort of six to eight times adjusted EBITDA evaluations in the market that that’s probably what you saw. We’re certainly I think on a much different journey. If you look at where we’re at today with all four platforms, with world class digital agency capabilities and a strong BPO business and over the next 12 to 18 months wanting to have those same capabilities in Western Europe, which we still have some work to do to have support for the all platforms in Western Europe, it really does put us in a position where next year we should be pretty close to a 50-50 revenue split between our operations segments and our professional services segments and I believe that makes us look a lot more like a commerce service provider like some of those large competitors I mentioned such as Accenture or SapientNitro than it does a large BPO operations provider. So I just think we look much different in the market, we provide a much different value proposition and I’m excited about our trajectory relative to our competitors in the market place.

[George Sutton:]

Okay. Mike, that’s really helpful, thank you.

[Michael Willoughby:]

Thank you, George.

[Operator:]

And our next question is from Josh Goldberg with G2 Investment Partners. Please go ahead, sir.

[Josh Goldberg:]

Good morning guys. Just a couple of quick questions, I guess first even if you take out the US Mint, it seems like your business on the service fee equivalent side is growing north of that 20%, taken the 20 million to buy anything by far [ph] - for even little more this quarter. I know you talked about being a teens growing [ph] at least I the first half of the year, you’re seeing greater than even 20% growth. I’m just curious obviously, it seems like the market is open for more re-platforming, there’s a bigger opportunity for some of your competitors flowing off and obviously now with the acquisition of Crossview, it would seem to me like you’re growth rate is on the clasp of maybe a real big inflection point. I just want - just curios if my numbers are correct and if you can comment on that as we kind of progress into 2016? And I’ve a follow up.

[Michael Willoughby:]

Hey, Josh I’ll speak to that inflection point and then let Tom talk to you about the numbers that you referenced. I do think that we have an opportunity to see an acceleration of growth. I think that there are things that we need to do to take advantage of it. I think we need to see the market place continue to deliver opportunities like you mentioned with competitors delivering re-platforming opportunities. I believe that there’s going to be a lot of re-platforming opportunities coming out of the eBay spend of the GSI business. They’re sun setting - I believe sun setting the legacy B11 platform and so all of those clients will have a decision to make about which of the other five platforms to choose and we should have a great position to compete for that business either as a standalone re-platform engagement or preferably as an end-to-end opportunity. So you can be sure that we will aggressively go after those opportunities with our marketing into their sales activities, but I think that we’re a little bit - it’s a bit early to sort of put those on the scoreboard clearly. That’s one of the reasons that we’re increasing the sales and marketing investment is that hopefully over the next six to 12 months we can actually put those on the scoreboard and show that kind of accelerating growth. Tom?

[Thomas Madden:]

So Josh only a couple of other components of our revenues change on a year-over-year basis, if you recall, we did two acquisitions in September of last year with the REV Solutions and LiveAreaLabs businesses and why we don’t break out those revenues as they become kind of an integral part of our overall PFSweb revenue stream. Those businesses together had about $15 million to $16 million run rate in revenue previously and so obviously they have an impact on year-over-year performance standpoint as we’ve brought those businesses into the mix and last year didn’t have that in that same quarter. The other thing that comes into play a little bit is - some of the headwinds put forward to are kind of foreign currency especially for the put for the Euro. If I look at last year’s second quarter numbers and applied a similar Euro number to what we - Euro conversation rate to what is actually out there today, it’s another $1 million to $2 million impact on a comparison basis between the periods. So I think that we’re still seeing good strong growth from our existing clients. As we indicated we’ve got nice strong growth merchandized value improvements on a year-over-year basis. We’re seeing contributions from new client activities including the US Mint, so we continue to be very excited about what our opportunities are going forward and the underlying growth rates that we feel are able to be achieved in the business.

[Josh Goldberg:]

Okay, great. The second question I had is on the Crossview acquisition, I think you said they did about $35 million of revenue and $5.5 million of adjusted EBITDA as their expectation for this year. That would be roughly around 16% EBITDA margin, what’s roughly their gross margin profile and as you become more 50-50 as you say, managed services or higher end solutions versus the lower end infrastructure, would you have the same ability to increase your EBITDA and gross margins going forward?

[Thomas Madden:]

Yeah, so on a historical basis Crossview has been operating somewhere in kind of the high 30% or 40% range, from a gross margin standpoint kind of fluctuates depending on the type of activity that they’re doing and the mix of their revenue on a quarter-by-quarter basis, but somewhere in that range. So it’s definitely a higher gross margin performance just like our PFSweb digital agency and technology services are operating at those levels. So on an overall basis, that mix of Crossview revenue will actually positively impact us from an overall reported gross margin standpoint as a result. And then if you indicate the 5.5 million on the $35 million - 5.5million of adjusted EBITDA and $35 million of revenue would indicate kind of a mid-teens percentage performance where we’ve been operating in kind of that10%. Our objective as we look to the future is for us to continue to leverage half the infrastructure of the business and generate an improving percentage of - our improving percentage of adjusted EBITDA as percent of service fee equivalent revenue as we go forward. So that’s kind of our expectation and we hope to do that by both adding these higher margin business components to it as well as being able to leverage off some of the infrastructure as we continue to grow the top line of our business. So we’re - we do feel like there’s some opportunities there, we do feel like it’s prudent to make some additional investments from a sales and marketing expense standpoint in certain other areas in order to really go after the growth opportunities that we feel are out there, but we’re - we do feel like there’s an opportunity for us, recognize that the infrastructure services component of our business, we do expect will continue to grow and well it might continue to represent just 15% or so of the overall business. That business is conducted on a lower margin basis, so the - while the overall mix gets us to that kind of 30% range, usually the professional services are at a higher level than that and the infrastructure services are somewhat lower. So it’s - we’re not just adding professional services to the mix, we’re adding a combination of professional services activities with [ph] infrastructure services, so not all incremental revenue will grow at that higher adjusted EBITDA contribution.

[Josh Goldberg:]

Right, but the mix is benefiting you next year [indiscernible] always benefiting a little bit. Here’s the last one from me is just - last one from is just - in your last call you talked about the largest of your $64 million lifetime contracts, a call center expansion for a consumer package goods client and that contract will go live in Q4 this year, with the contract lined for five years. Is that still planned to be on time?

[Michael Willoughby:]

Yes, we’re still looking for a Q4 launch.

[Josh Goldberg:]

So that should be a -

[Thomas Madden:]

And it’ll ramp up over a period of time, but that - yes, we’re still expecting the Q4 launch.

[Josh Goldberg:]

Okay, great. Thank you so much. Congratulations.

[Michael Willoughby:]

Thanks, Josh.

[Operator:]

And from B. Riley we have Scott Tilghman. Please go ahead, sir.

[Scott Tilghman:]

Thanks, good afternoon. Most of my questions have been asked already, but I just wanted to follow up with the one that hasn’t passed and that is on the product revenue side and you’ve been talking about the potential for contract renewals for multiple quarters now. Just wondering if you have any update there for us?

[Michael Willoughby:]

Not much update at this time, there continues to be some dialogue with the client in regards to that activity and our desire to hopefully migrate that contract eventually into a service fee relationship, but it - as we have - it is moving a little slower than I would like. We’re still focused on trying to have that migration occur. There will be - we’ll need to work with the client on meeting their financial objectives as well as our financial objectives as we go through the process. And yeah, we definitely understand and hear the message hard and clear that it would be great to clean up the income statement to not reflect that product revenue activity any more, but not a lot of progress over the last couple of months on that particular matter.

[Scott Tilghman:]

Do you have any sense of what the timeframe might be?

[Michael Willoughby:]

I don’t at this time.

[Scott Tilghman:]

Okay.

[Michael Willoughby:]

They continue to be a strong client for us, while the product revenue and it’s positioning on our financial statements does create a drag on our total GAAP revenue performance. It is a - a nice client from a service fee equivalent standpoint as well as adjusted EBITDA contribution standpoint. So we continue to take that into consideration as well, but we do clearly understand the complexity that it creates in our financial statement presentation.

[Scott Tilghman:]

Okay, thank you and again congrats.

[Michael Willoughby:]

Thanks, Scott.

[Operator:]

At this time this concludes our question-and-answer session. I’d now like to turn the call back over to Mr. Willoughby for any closing remarks.

[Michael Willoughby:]

Thanks, Danny. I’d like to thank everyone that attended the call today. As might have picked up from our tone, we’re very excited with the many developments on our business and we’re looking forward to speaking with our investors and analysts as we report our third quarter results in November and also as we’re out on the road at various conferences, look forward to engaging then as well, so bright future PFSweb. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. You may now disconnect your lines at this time and thank you for your participation.