pfsweb inc. financial market roadshow presentation
TRANSCRIPT
September 2012
® 2012 PFSweb, Inc. │ www.pfsweb.com
PFSweb Mark Layton, CEO
Tom Madden, CFO Financial Market Roadshow Presentation
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SAFE HARBOR
The matters discussed in this presentation, particularly information regarding future revenue, earnings, business plans and goals, consist of forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to the safe harbor created by these sections and involve risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. Such statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management’s assumptions and the Company's future performance are both subject to a wide range of business risks and uncertainties, and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially. The Company undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking information contained herein is subject to the risk factors and uncertainties described in the Company’s filings with the Securities and Exchange Commission, which risk factors and uncertainties are incorporated by reference as though fully set forth herein.
This presentation contains certain non-GAAP measures including Service Fee Equivalent Revenue, Non-GAAP Net Income (Loss), EBITDA, Adjusted EBITDA and Free Cash Flow. Service Fee Equivalent Revenue represents service fee revenue plus the gross profit earned on product revenue. Non-GAAP Net Income (Loss) represents net income (loss) calculated in accordance with U.S. GAAP as adjusted for income (loss) from discontinued operations, the impact of non-cash stock-based compensation expense, executive disability benefits, move related expenses and lease termination costs. EBITDA represents net income (loss) before income (loss) from discontinued operations, interest, taxes, depreciation and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation expense, executive disability benefits, move related expenses and lease termination costs. Free Cash Flow is defined as net cash provided by (used in) continuing operating activities less capital expenditures. Service Fee Equivalent Revenue, Non-GAAP Net Income (Loss), EBITDA, Adjusted EBITDA and Free Cash Flow are used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry, as the calculation of Non-GAAP Net Income (Loss) eliminates income (loss) from discontinued operations, the effect of stock-based compensation, executive disability benefits, move related expenses and lease termination costs and EBITDA and Adjusted EBITDA further eliminates the effect of financing, income taxes and the accounting effects of capital spending and Free Cash Flow which accounts for operating cash flow less cash paid for fixed assets, including capitalized software development, which items may vary from different companies for reasons unrelated to overall operating performance. Service Fee Equivalent Revenue allows client contracts with similar operational support models but different financial models to be combined as if all contracts were being operated on a service fee revenue basis. The non-GAAP measures are not intended to be considered in isolation of, as a substitute for or superior to our GAAP financial information. We have included reconciliations later in this presentation of the non-GAAP measures to the nearest GAAP measure.
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OVERVIEW
Company: PFSweb, Inc.
Symbol / Exchange: PFSW / NASDAQ
Share Price: $2.56*
Shares Outstanding:
12.8 million*
Market Cap: $33 million *
*As of August 28, 2012
PFSweb, Inc. About
5
ABOUT PFSweb
WEB COMMERCE TECHNOLOGY & SERVICES PROVIDER TO THE WORLD’S LEADING BRANDS
Founded 1994
Headquartered in Texas
1,600 Global Staff
Servicing > 65 Iconic Brand Client Programs
2011 Service Fee Equiv. Revenue - $107M @ 27% GP
5
6
PFSweb’s EVOLVING TECHNOLOGY & SERVICES OFFERING
eCommerce Technology Robust Platform. Powerful Tools. Fully Integrated
Order Management Oracle JD Edwards. Secure. Multi-Channel Integrations
Interactive Marketing Attract Shoppers. Convert Buyers. Nurture Loyalty
Financial Services PCI Compliant. Fraud Prevention. International
Customer Care Brand Centric. Web Enabled. Multi-Lingual
Global Logistics & Fulfillment Scalable. Premium Packaging. Highly Customized
Content Management (TBA)
PIM. Product Photography. Data Synchronization
An
alyt
ics
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KEY BUILDING BLOCKS OF OUR TECHNOLOGY & SERVICES SOLUTION
6 Global Distribution Centers
>1M ft2 of fulfillment capacity
Highly Automated
8M Annual Customer Shipments
5 Global Customer Care Centers
900 Global Call Center Seats
Voice, Chat, email
2.5M+ Annual Customer Contacts
Oracle/JDE ERP
IBM Power 7 Series Servers
PFSweb Technology ECO System
High Availability & Scalable
SSAE-16 SOC 1 , PCI Level 1 v1.2
1600 Global Personnel
> 250 Client Facing Professionals
>130 eCommerce Developers
>75 Client Mgmt.
PROFESSIONALS CUSTOMER CARE TECHNOLOGY LOGISTICS
PFSweb, Inc. Why do Iconic Brands Choose PFSweb?
The Massive & Evolving Universe of Commerce??
Universe of
Commerce
SCE & Affiliate
Flash Sale Sites
Daily Deal Sites
Publisher Deals
Secondary Markets
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PFSweb PROVIDES A FULLY INTEGRATED TECHNOLOGY ECOSYSTEM OF >100 “BEST IN CLASS” PROVIDERS INCLUDING:
eCommerce Technology
Order Management
Interactive Marketing
Financial Services
Customer Care
Logistics & Fulfillment
Our goal is to provide best-in-class capabilities across the entire technology stack. We achieve this by building and constantly reshaping a pre-integrated ecosystem that combines PFSweb proprietary systems with leading technology providers to deliver a comprehensive fully working commerce solution unmatched by our competitors.
JD EDWARDS WORLD
JD EDWARDS WORLD
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DEMANDWARE STRATEGIC PARTNERSHIP
Partnership formed in 2007 – First client launched in 2008
Industry’s only enterprise class Software-as-a-Service platform
Tightly integrated with PFSweb Oracle JD Edwards ERP system
Brand customized customer service suite application (CSS)
PFSweb is the Largest Integrator of Demandware technology in the world, providing a wealth of highly experienced technology development and support professionals
PFSweb, Inc. Who are your clients?
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CLIENT PORTFOLIO – CURRENTLY SERVING >65 ICONIC BRAND PROGRAMS
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As a previous client, L’Oréal USA came back to PFSweb looking for a solution that could leverage shared infrastructure and technology. Under a master agreement signed in 2010 L’Oréal USA chose PFSweb to service several of their brands with a full range of back-end solutions. These include customer care, financial services, product merchandising and order fulfillment.
CLIENT SPOTLIGHT: L’Oréal USA
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CLIENT SPOTLIGHT: Fifth & Pacific Companies
In 2008, PFSweb was awarded an enterprise-wide contract with Fifth & Pacific Companies to support their online brands. PFSweb provides all brands in their portfolio with an End2End solution. These brands include Lucky Brand Jeans, Juicy Couture, Kate Spade and Jack Spade.
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The P&G eStore solution is a unique model which was custom-built for P&G’s unique business needs. Launched in 2010, PFSweb purchases product directly from P&G via a subsidiary and then resells the product on the eStore website. Within the solution, PFSweb provides an End2End eCommerce solution to handles all facets of the operation. P&G initiated the eStore concept and collaborates with PFSweb for test concepts and programs. These valuable ideas and insights are passed back to P&G for future use.
CLIENT SPOTLIGHT: P&G eStore
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CLIENT SPOTLIGHT: LEGO Brand Retail
Since 2007, PFSweb has provided order fulfillment, advanced material handling systems and flexible warehouse management systems for LEGO’s online store. PFSweb also supports inventory replenishment for the 58 LEGO-brand retail stores all over the country. PFSweb’s story with LEGO is one of rapid growth as they reached their 5 year growth projection within the first peak season with PFSweb. The solution responds to dramatic seasonal spikes while maintaining above average industry standard order fulfillment performance. This helped LEGO achieve the 2012 Internet Retailer Hot 100 list.
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STRONG NEW BUSINESS PIPELINE OF OVER $50M IN ANNUAL SERVICE FEES
Sept. 2011
Aug. 2011
Mar. 2012
Feb. 2012
Sept. 2011
July 2012
Sept. 2011
PFSweb, Inc. What is driving growth?
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FOUR YEAR STRATEGIC GROWTH
We see growth opportunity through several strategic initiatives
YOY Growth Rates of Web Retailers (2010-2011)
28%
40%
29%
20%
7%
Web retailers overall
Manufacturer D2C
Multichannel (stores)
Pure play eCommerce
Multichannel (catalog)
Source: Forrester Research - The State of Retailing Online 2011: Key Metrics
• Strong web commerce macro-Industry growth in both domestic and international markets, particularly in manufacturer direct to consumer initiatives
• Organic growth from existing clients as well as new client additions particularly in our targeted industry segments of CPG & Fashion
• Bringing to market new Omni Channel commerce technology initiatives (iCommerce™)
• Broadening our range of services to drive higher margins and longer client life cycles
• Global expansion
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THE WEB COMMERCE MARKET IS CONTINUING TO RAPIDLY EXPAND
$177.2 $201.9
$226.3
$252.5
$278.2
$303.9 $327.1
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
2010 2011 2012 2013 2014 2015 2016
U.S
. b
illio
ns
($)
% change 14% 14% 12% 12% 10% 9% 8%
% of total retail sales
6% 7% 7% 8% 8% 8% 9%
Source: Forrester Online Retail Forecast, 2012 to 2016 (US)
U.S. Online Retail Forecast European Online Retail Forecast
12% Growth
Source: Forrester Research Online Retail Forecast, 2011 To 2016 (Western Europe)
€ 83.4 € 96.7
€ 110.8
€ 125.5
€ 140.4
€ 155.9
€ 172.0
€ 0.0
€ 50.0
€ 100.0
€ 150.0
€ 200.0
2010 2011 2012 2013 2014 2015 2016
Bill
ion
s (€
)
24
eCo
mm
erce
Mar
ket
Pen
etra
tio
n
eCommerce Market Size
High
Low Small Large
Growth eCommerce Markets
Mature eCommerce Markets
Music
Sporting Goods
Fashion & Apparel
Fashion & Apparel
Travel & Entertainment
Books
Technology
Consumer Products (CPG)
Consumer Products (CPG)
10% or less
20% or more
Source: Craig-Hallum Capital Group LLC 2010 – For Illustrative Purposes Only
SIGNIFICANT GROWTH POTENTIAL FROM LARGE, NEWLY ADOPTING INDUSTRIES
PFSweb, Inc. How will PFSweb evolve?
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PFSweb’s STRATEGY FOR THE FUTURE
iCommerce™ Hub
Digital Commerce & Order Mgmt.
Affiliate/Partner connections
Payment/Commission Engine
Network Dashboard
iCommerce™ Agency
Omni Channel Strategy
Digital Marketing Services
Custom Development
Operational Stewardship
iCommerce™ Operations Network
PFSweb Centers of Excellence
Client Operations
Network Providers
PFSweb aspires to be the premier global facilitator of digital and physical commerce transactions for the
World’s Leading Brands by providing strategic technology solutions that enable synergy and growth across all commerce channels.
PFSweb, Inc. Who is PFSweb’s competition?
Competitive Market Overview • Compete & Cooperate • Integrate & Innovate • Develop & Deliver
Delivering Best of Class Complete Commerce Solutions is our goal
PFSweb, Inc. Financial Overview
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Strong Service Fee Revenue Growth • CY 11 Service Fee Revenue up 35% • YTD June 12 Service Fee Revenue up 42% • Targeting Growth of 20% for CY12
RECENT DEVELOPMENTS
Improving Adjusted EBITDA results • CY 11 $6.1M
Q4 11 $3.9M (Record Quarter) • YTD June 12 Adjusted EBITDA $5.4M, up 253% • CY 12 Target of $9M to $11M
Exciting new business pipeline • Over $50M pipeline • CPG and Fashion Direct to Consumer (DTC) trend strong
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PFSweb CORPORATE SEGMENT OVERVIEW
Infrastructure Services (TARGET OF 25-30% GP)
eCOMMERCE TECHNOLOGY
ORDER / WAREHOUSE
MANAGEMENT
HIGH TOUCH CUSTOMER CARE
GLOBAL FULFILLMENT &
LOGISTICS
FINANCIAL SERVICES
Professional Services (TARGET OF 40-50% GP)
TECHNOLOGY
INTEGRATION/DEVELOPMENT
WEB SITE EXPERENTIAL DESIGN
WEB MARKETING
WEB ANALYTICS
USER EXPERIENCE RESEARCH
CONSUMER ANALYTICS
Direct to Consumer (TARGET OF 15-30% GP)
eSTORE RETAIL SERVICES
PROCUREMENT MERCHANDISING PRICING PROGRAM MGT.
Business to Business (TARGET OF 6-8% GP)
RICOH INFOPRINT SOLUTIONS
(Supplies Distributors)
PFSweb Services Merchandise Sales $1,580M(A)
GAAP Revenue $95M(A) Service Fee Equivalent Revenue $95M(A)
PFSweb Business & Retail Connect Merchandise Sales $162M(A)
GAAP Revenue $162M(A) Service Fee Equivalent Revenue $12M(A)(B)
PFS
we
b In
c.
Ente
rpri
se S
ale
s &
Mar
keti
ng
& C
lien
t Se
rvic
es
(A) 2011 Actual Results (B) Represents gross profit earned on product revenue
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HISTORIC FINANCIAL OVERVIEW ($ IN MILLIONS)
(A) Excludes Pass-through revenue
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
CY09CY10
CY11
$58.6 $70.6 $95.4
$183.0 $174.6 $162.4
Revenue (A)
Service Fee Revenue Product Revenue
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
CY09CY10
CY11
$72.8 $82.8
$107.1
Service Fee Equivalent Revenue (A)
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
CY09CY10
CY11
$3.5
$5.5 $6.1
Adjusted EBITDA
$241.6 $245.2 $257.8
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STRONG RESULTS FOR FIRST 6 MONTHS OF 2012 ($ IN MILLIONS)
(A) Excludes Pass-through revenue
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
YTD June'11 YTD June
'12
$39.9 $56.8
Revenue (A)
Service Fee Revenue Product Revenue
$124.0 $121.1
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
YTD June '11YTD June '12
$46.1
$61.8
Service Fee Equivalent Revenue (A)
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
YTD June '11YTD June '12
$1.5
$5.4
Adjusted EBITDA
$84.1 $64.3
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CY 2012 Overview
• Signed contracts recently implemented and contracts signed but not yet implemented targeted to contribute incremental service fee revenue.
• Certain incremental SG&A investments in personnel, facilities, sales & marketing and technology being made to support projected current and long-term growth.
• Substantial leverage ability allows for expanding Adjusted EBITDA margins as we grow.
• Service Fee Equivalent Revenue Growth 20%
• Adjusted EBITDA $9M to $11M
MULTIPLE DRIVERS FOR GROWTH
CY 2012 Targets
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SELECTED CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS)
Assets:
Liabilities:
Shareholders’ Equity:
Cash & Restricted Cash
Accounts Receivable
Inventories
Property & Equipment, Net
Other
Total Assets
Accounts Payable
Accrued Expenses/L-T Liabilities
Debt
Total Liabilities
$18,522
52,679
30,487
14,945
19,739
$136,372
$48,544
32,232
27,522
$108,298
$28,074
$17,835
39,172
27,060
25,574
15,370
$125,011
$35,658
37,071
25,480
$98,209
$26,802
December 31, 2011
June 30, 2012
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ILLUSTRATIVE FINANCIAL MODEL ($ IN 000’S)
Service Fee Revenue (Consumer Direct & Digital Connect) (2) $95,345 $175,000 $250,000 Product Revenue (Retail & Business Connect) 162,447 120,000 110,000 Total Revenue (GAAP) (2) $257,792 $295,000 $360,000
Service Fee Revenue $95,345 $175,000 $250,000 Gross Margin on Product Revenue 11,709 (3) 7,000 6,000 Service Fee Equivalent (“SFE”) Revenue (Non-GAAP) $107,054 $182,000 $256,000
Client Direct Operating Costs (Excluding D & A) (4) $72,810 $127,000 $179,000
Client Contribution $34,244 $55,000 $77,000
SG&A, excluding D & A, as adjusted (4) 28,159 $35,000 44,000
Adjusted EBITDA $6,085 $20,000 $33,000
Adjusted EBITDA Margin % of Service Fee Equivalent Revenue 6% 11% 13%
Run-Rate(1) Potential Financial Model
1. Based on CY 2011 financial results 2. Excludes Pass-through revenue 3. Product revenue of $162,447 less cost of product revenues of $150,738 results in gross profit of $11,709, or 7.2% of product revenue 4. Excluding depreciation and amortization, stock compensation and relocation related costs
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AN EXPERIENCED TEAM OF WEB COMMERCE PIONEERS LEAD OUR COMPANY
Mike Willoughby President
13 years of service
World Class Experience, Expertise, Passion
Cindy Almond VP 21 years of service
Liz Johnson VP 12 years of service
Dave Reese VP 13 years of service
Scott Talley VP 20 years of service
Lawrence Lubrano VP 12 years of service
Martijn Duynstee VP Europe
12 years of service
Gib Dawson VP 13 years of service
Tom Madden
CFO
19 years of service
Mark Fuentes VP 7 years of service
Mark Layton CEO
23 years of service
Michael Wright VP 12 years of service
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Global Commerce Leader • One of two full-service eCommerce solution providers offering an end-to-end solution
PFSweb PRESENTS A COMPELLING INVESTMENT OPPORTUNITY
Significant Barriers to Entry • Millions of hours to develop • $100M+ to replace • Global reach
Strong Growth Potential • Online DTC sales of manufacturers consumer products will drive next wave of growth • Significant growth potential from large, newly adopting industries
Iconic Brands validate the value of our services offering • Long-term contracts with recurring revenue streams • Relationship developed over years of service
Sound financial position • Approximately $18 million in cash and restricted cash as of June 2012
Highly Attractive Overall Financial model • Significant growth opportunities + improving margin mix + operating leverage = dramatically improving EBITDA potential
Thank you for your time!
PFSweb, Inc. Financial Exhibits
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ANNUAL EBITDA AND NON-GAAP NET INCOME (LOSS) RECONCILIATION FROM GAAP RESULTS
2011 2012
2009 2010 March June Sept Dec 2011 March June YTD
Cons Cons Cons Cons Cons Cons Cons Cons Cons Cons
Net Income (Loss) (4.6)$ (7.4)$ (2.3)$ (1.2)$ (1.8)$ 0.8$ (4.6)$ (1.3)$ (0.5)$ (1.8)$
(Income) loss from discontinued operations, net of tax (0.3) 4.0 0.6 - - 0.3 0.9 - - -
Income tax expense 0.3 0.5 0.1 0.1 0.1 0.1 0.4 0.1 0.2 0.3
Interest expense 1.2 0.9 0.2 0.3 0.3 0.3 1.1 0.3 0.2 0.5
Depreciation and amortization 6.5 6.1 1.5 1.5 1.5 1.8 6.3 2.1 2.2 4.3
EBITDA 3.1$ 4.1$ 0.1$ 0.7$ 0.1$ 3.3$ 4.1$ 1.2$ 2.1$ 3.3$
Stock-based compensation 0.4 0.8 0.3 0.4 0.3 0.3 1.4 0.3 0.4 0.7
Executive disability benefits - 0.7 - - - - - - - -
Move related expenses - - - - 0.3 0.2 0.5 0.6 0.3 0.9
Lease termination costs - - - - - - - 0.5 - 0.5
Adjusted EBITDA 3.5$ 5.6$ 0.5$ 1.1$ 0.7$ 3.9$ 6.1$ 2.6$ 2.8$ 5.4$
Net Income (Loss) (4.6)$ (7.4)$ (2.3)$ (1.2)$ (1.8)$ 0.8$ (4.6)$ (1.3)$ (0.5)$ (1.8)$
(Income) loss from discontinued operations, net of tax (0.3) 4.0 0.6 - - 0.3 0.9 - - -
Stock-based compensation 0.4 0.8 0.3 0.4 0.3 0.3 1.4 0.3 0.4 0.7
Executive disability benefits - 0.7 - - - - - - - -
Move related expenses - - - - 0.3 0.2 0.5 0.6 0.3 0.9
Lease termination costs - - - - - - - 0.5 - 0.5
Non-GAAP Net Income (Loss) (4.5)$ (1.9)$ (1.4)$ (0.8)$ (1.2)$ 1.6$ (1.8)$ 0.1$ 0.2$ 0.3$
A reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Non-GAAP Net Income (Loss) follows:
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CLIENT DIRECT OPERATING COSTS AND SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Reconciliation of (1) Cost of Service Fee Revenue to Client Direct Operating Costs, excluding Depreciation and Amortization, and (2) Selling, General and Administrative Expenses (“SG&A”) to SG&A, excluding Depreciation and Amortization, as Adjusted.
2011
Cost of Service
Fee Revenue SG&A
December 31, As Reported 71,751$ 37,512$
Less : Depreciation & Amortization (3,561) (2,783)
Stock-based CompensationStock-based Compensation - (1,402)
Relocation related costs - (548)
SGA Related to Direct Cl ient Costs 4,620 (4,620)
As Adjusted 72,810$ 28,159$
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RECONCILIATION OF SERVICE FEE EQUIVALENT REVENUE
2010 2011 2011 2012
Total Revenues 274,516$ 298,766$ 140,397$ 143,272$
Pass-through revenue (29,267) (40,974) (16,445) (22,228)
Stock-based CompensationCost of product revenue (162,485) (150,738) (77,877) (59,253)
Service Fee Equivalent Revenue 82,764$ 107,054$ 46,075$ 61,791$
Twelve Months Ended
December 31,
Six Months Ended
June 30,