Q1 2020 Earnings Call
[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss P.F.S. webs financial results for first quarter ended March 31st 2020.
So as to date R.P.F.S. web C.E.O., Mike Willoughby the company C.F., Oh, Tom <unk>.
The general manager F.P.F.S. SEC domain.
And the general manager up in my area, Jim Butler.
<unk> very Mark will open the call for your questions.
Before we go further I would like to make the following remarks concerning forward looking statements.
All statements and this conference call other than historical facts or forward looking statements.
The word anticipate belief.
Tomato expect.
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Future opportunity potential continue playing.
Will.
Will likely result.
Right.
Should <unk>.
Could.
Can.
May God.
Guidance competence target.
Projects and other similar expressions.
Ugly are used to identify forward looking statements.
These forward looking statements are based on current expectations and consumption and assumptions that are subject to raise <unk>, uncertainties, which may cause actual results of different materially from the forward looking statements including.
The impact of the Kobe at 19 pandemic.
The full disclaimer relating to forward looking statements as well as certain <unk> matrix using our filings and this presentation can be found in the investors section of the P.F. as well with website under financial reporting.
Specifically the safe Harbor statement.
I would like to remind everyone. At this call will be available for replay through may 21st starting at eight PM Eastern This evening.
A web cast replay will also be available via the like provide it into days press release as well is available on the company's website at P.F.S. blip Dot com.
Any redistribution retransmission or rebroadcast of this call in any way without the express written consent P.F.S. web is strictly prohibited.
Now I would like to trying to call over two chief Executive Officer, a P.F.S. web Mr. Mike Willoughby like.
Thank you Lisa and good afternoon to everyone.
We hope you are all safe and healthy listening from the comfort of your home.
We are also participating in this conference call from our various individual home offices. So.
Technical difficulties or pet incursions arise please bear with us.
At the end of our last conference call on March 12th the day before President Trump declared a national state of emergency.
I outlined a set of measures we had already begun to take in response to the emerging crisis and the early warning signs he had seen from our European operations.
I don't believe any of us anticipate adjust how dynamic an uncertain the situation would be calm and how rapidly almost everything about our lives would've ball.
As I did on or March conference call I want to acknowledge again today the challenges that many people in our communities are facing as a result coated 19.
Our thoughts and prayers are we're all of those dealing with both the help and economic consequences of this pandemic.
We are grateful to the health care workers and the first responders for the work you're doing on the front lines.
And I'm proud of our team for their dedication to serving our clients. During these unprecedented times, while adjusting to working conditions that have evolved on a daily basis for much of the past six weeks.
From the moment engaged our emergency response plan on March 11th and formed our internal Coby 19 Task force.
Checked it has been to safeguard our employees work from home arrangements wherever possible.
And I'm thrilled with how rapidly and thoroughly our team was able to roll that program out.
Looting moving approximately 500 customer care age from around the world into work from home mode over the course of just two weeks.
By April 3rd we had moved every non fulfillment related employee into a work from home bottle, except for a handful of employees required to staff data centers or other support functions, where social distancing is now automatic.
[noise] with P.F.S. declared an essential support business and every region, we operate and with the necessity of maintaining operations in our fulfillment facilities in support of our clients.
Many of whom were also declared central businesses.
We have been very focused on protecting those facilities and safeguarding our employees.
During this time, we have worked to ensure that our ground teams have an array of personal protective equipment or P.P.E. and that they abide by strict <unk> cleaning regiments, and social distancing practices and our facilities.
We have also taking measures to perform daily disinfectant procedures after the last ship.
And I'm, especially proud of our own frontline employees traveling to work every day to work in one of our safe facilities to support our clients, who need us to support their digital channel, which for many clients has been there only operational sales channel over the past six weeks.
Despite the pandemic our global workforce continues to operate at full strength.
And we're proud to report that we have not per load more laid off any employees.
We have increased personnel in our distribution centres and in our work from home contact centre operations in response to the growth from our clients increasing customer demand.
We believe we have a cheese achieved a sustainable operating model.
Are prepared to operate.
For the foreseeable future as necessary.
Above all I.
I am grateful to have only had a small number of confirm or presumed cases of coded within our entire workforce all with relatively mild symptoms and none of our employees requiring hospitalization up to this point.
To be as transparent as possible, we're going to do our best to provide you with the latest information rehab available to us today.
Please understand we are all dealing with a period of uncertainty and it is not perfectly clear what the future holds.
With that coded introduction completed.
It's a real pleasure for me to highlight the results from our first quarter and 2020.
During the first quarter, we picked up where we left off last year with strong momentum that had is generated another quarter of record bookings in Liberia, and heightened fulfillment volumes and P.F.S. as well as growth in both service fee equivalent revenue and adjust Steve adopt for each business segment.
Our expectations for returning to growth in 2020 are being validated.
This marked the first quarter, we have generated SFP, rather than you and each <unk> each of our two operating segments.
Since we began reporting by segment in 2018.
Even a big the current pandemic. It is clear to me the investments we made last year in Liberia Mtfs are paying off.
Speaking of P.F.S., we have clearly benefited in Q1 from the new clients. We onboard his last year and we continue to see the benefits of the record bookings year for P.F.S. in 2019.
As we have been ramping those new clients and continue to implement brands we want in 2019.
On top of the benefit we expected to see in the first part of the year from these new clients consumer demand in late March and throughout April as unexpectedly driven our volumes to holiday high levels.
E. commerce traffic is booming as consumers, who previously shopped at brick and mortar retail stores order their products online in response to stay at home mandates.
Additionally, P.F.S. took on the distribution loads of several clients as they enacted their business continuity plans in response to local restrictions and classifications, which limited their own distribution operations.
Recall that we have very limited direct exposure to brick and mortar retailers in our P.F.S. fulfillment practice as the majority of R.P.F.S. clients are brand manufacturers.
So the ramp N.E. commerce volumes is related to their direct to consumer accurate.
Sack will be on the call later to provide more details on these heightened fulfillment volumes and how cold it impacts may play out for the P.F. This segments in the weeks and months ahead.
[noise] in Liberia, our record of bookings reflect the improvement we made in revamping our go to market strategy in sales pipeline.
Are momentum is strong and we are continually proving our value as a professional services partner as our clients look to bolster their e. commerce capabilities.
Jim will provide more detail on the momentum that he and his team of generate over the past quarter as well as the trends. They're currently seeing in Liberia with respect to cope with.
[noise] with overall consumer behaviour rapidly shifting towards E. commerce are in the in solution holds crucial value for our entire client base.
P.F.S. and Liberia are executing their joint go to market strategy and both segments Catija collaborate efficiently I'm prospects and leave even in this time of remote work.
We currently have 41 programs across 31 brands that take advantage of both our library at N.P.F.S. services.
And we will continue working to drive profitable growth for each business in the coming quarters.
Before commenting further I'd like to turn the call over to Tom to provide more details on our Q1 financial results and our outlook for 2020.
<unk>.
Thank you Mike in good afternoon every one.
I'll keep our first quarter comments brief as we realize that the world. We lived in in January February in early March is very different from today.
Unless otherwise noted all financial comparisons are to the first quarter of 2000 in 19.
For Q1, Arkansas pollinated service fee equivalent <unk> or SFP revenue increase to 5% to 54.7 million.
The increase was primarily driven by new quite wins and higher fulfillment activity and P.F. that.
As well as the benefit of our recent strong new booking activity with new and existing clients within our library you practice.
Just grow up with partially offset by the lots of SFP revenue related to to client bankruptcies in 2019.
Our overall service fee gross margin in the first quarter of 2020 increased.
210 basis points to 36.1%.
With the increase primarily due to improve performance in the P.F. that segment.
Slated to revenue mix.
No that gross margin for both segments continued to be within our guidance range of 25% to 30 per cent per P.F.S.
And 40% to 50 per cent provide barrier.
And we expect these ranges to hold in the month and quarter ahead.
S. G.N.A. costs were 19.4 million in the March 2020 quarter compared to 18.3 million last year.
With the increase driven primarily by incremental sales and marketing related spend an increase employee benefit costs.
In the midst of covert 19, we will continue to manage our expenses prudently.
And we are closely reviewing opportunities for cost savings on non essential spending as a precautionary measure.
As expected we have seen a reduction in travel expenses as a result of the current environment and we expect is to continue in the future quarter as well.
Adjusted even dot in the first quarter increase 19% to 4.0 million compared to 3.3 million in the year ago quarter.
Turning to the balance sheet and March 31 2020.
Cash in cash equivalents total $14.5 million.
In total debt, excluding operating leases was $40.4 million.
If results in a net debt position of approximately $25.9 billion.
We remain confident in our liquidity position as we navigate the current market conditions surrounding the pandemic.
As we have stated in the past a portion of our cash balance includes benefits from the timing of certain cast collections received from our clients customers that are then later related to our clients.
So there's always some variability on a quarter to quarter basis that is outside our control.
As mentioned not our last call one of our clients is transitioning away from utilizing this component of our servers operating so we continue to expect our cash balance to decrease later this year.
Our capital expenditures into March quarter were approximately 1.3 million.
<unk> 0.4 million, which were funded through debt financing.
We continue to expect their capital expenditure span in 2020 to be between $7 million and $9 million.
The majority of which is expected to be related to new client activity in the expansion of facilities to support existing client growth.
On the topic of government assistance, while we will expect some cash flow benefit from deferred tax payment opportunities available here in the U.S. and internationally, we do not planned to apply for the paycheck protection program or any other government subsidies at this time.
As we are fortunate to have this scale and tailwinds in our back in this environment that favors E. commerce.
Across both segments, we're working closely with our clients as they managed to varying impacts of covert 19 on their businesses.
And we are helping them manage contingency plans for their own operations.
While our client base has limited direct brick and mortar retail exposure.
Which helps mitigate or potential credit risk.
A limited number of our clients have communicated with us about short term flexibility in project timing pricing indoor payment terms.
Well, if you are clients as our partner and in the spirit of good partnership we are committed to helping them were appropriate during these unprecedented times.
Well this may have some limited impact on our short term project revenue gross margin in cash flow.
We believe these discussions are only strengthening our relationships and they increase our competency in the resiliency of our business.
We will continue to closely monitored the impact of covert 19 on our clients activity and financial position in an effort to minimize the potential impact of our credit risk.
Moving onto our 2020 hours.
[noise] overall, while there is an increase the level of uncertainty in our financial forecast there <unk> remainder of 2020 due to the macro economic uncertainty related to covert 19.
Continued to believe that we are poised for growth in both business segments for 2020.
This new environment only strengthens our positioning.
As such we're comfortable with our cash balance sheet positions today.
However, we will remain prudent with our costs controls liquidity as a precautionary measure.
For library business, we expect some short term impact on revenue in profitability in the second and third quarter of 2020 as a result of the client requested project to proclaim adjustments.
But we expect to have continued success in winning new or expanded client relationships that are expected to significantly offset this impact.
For our P.F.F. business segment, we are expecting overall stronger level of service fees from existing clients, who have migrated more of their business to the online channel that we support.
However, we expect some shortfalls versus our original expectations in when he knew P.F.F. client opportunities due to covert 19 related restrictions on our prospects abilities to adjust their business operations in the near term and implement such business within 2020.
Overall, we are reiterating or previously issued 2020 guidance, which has is generating consolidated SFP revenue growth.
Mid to high single digits compared to the prior year.
Coupled with an ongoing focus on costs. We also expect to improve adjusted either dot margin for 2020.
As we look forward to the June a quarter, we are expecting lower libraries service fee revenues and adjusted EBITDA profitability, then the March 2020 quarter.
While our peer fast segment is expected to drive relatively similar SFP revenue performance, but somewhat lower adjusted <unk> profitability as compared to our March 2020 quarter.
Including the impact of revenue mix, and certainly incremental Kobe 19 related spend.
We then expect improved secret sequential a performance.
From there in both segments as we look ahead to quarters three and four.
<unk>.
We are also cautiously maintaining or other 2020 expectations outlined on our last conference call, which include expectations for product revenue D.N.A. expense interest expense in tax expense.
These of course are subject to change given the uncertainty amid covert 19.
There's concludes my prepared remarks altering the call over does that to walk through operational highlights in P.F.S. <unk>.
Thanks, Tom.
Mike mentioned and his earlier comment.
Pandemic has shifted consumer behavior in recent weeks towards online purchases as many government authorities I guess you'd stay at home mandate.
As a leader in post what commerce operations.
F.S. event, an excellent position to continue to support and grow our clients brand.
The immediate term, but also as we look past the current pandemic.
Tenured focus is on ensuring that we perform at a high standard.
Our clients come to expect for each of P.S. core services.
Over the past six week, yeah, F.S. have been experiencing particularly high order demand across our global fulfillment centers.
Order volumes coming in at higher level, then they typically would this time of year.
The sudden unplanned upticking demand.
<unk> to demonstrate our duty as we have continued to launch new bran and service our clients customers. While also implementing besting class health and safety measures.
We are currently managing holiday height level or volume, while simultaneously maintaining strict queen regimens across all our facilities, which includes nightly flogging.
Which are applications that gets infected throughout all of our D.C.'s.
Again, I cannot overstate, how proud I animal the efforts are leadership team and each of our global operations centers.
Tireless efforts to both maintain business continuity for our clients and maintain of working a safe working environment for team.
As we look back to you one.
Are successful bookings from 2019 resulted in six new brand launches in the first quarter.
These new launches combined with strong Valentine's day promotional activity from existing clients.
If it in $33.8 million in service vehicles revenue into one.
<unk> thing service fee equivalent revenue from the same period a year ago.
While also performing at the top end of the target gross margin range or the P.F. as business and exceeding gross margins and the same period the year prior.
From a new sales perspective, and Q1, we booked for new engagements worth a combined estimated $3.7 million, an annual contract value or a C.V. compared to four new engagement worth an estimated $4.7 million at H.T.V. and a year ago accord.
<unk>.
Despite the the complications arising from managing a sales pipeline or physical operational services during a pandemic.
Continue to make progress and new quiet wind and remain committed to driving grow apart and new clients and the coming quarters.
Ratted perspective.
And April we still managed to launch to notebook on my client in the middle of this pandemic.
As we look ahead for the remainder of Q2, we have seen the momentum regenerated into one, especially during the last two weeks in March carry over into Q. too and we are currently expect and we currently expectancy at higher than expected volumes from new and existing clients within our fulfillment.
And contacts that our services.
Interrupt you too.
As a dramatic example, during April reprocess through our global fulfillment centres over 2 million orders with over 6 million order lines generating about $250 million and quiet gross merchandise values in sales.
Which is the third largest fulfill my mum in the last three years.
Barely behind November 2018, and about 16% lower than our record month and December 2019.
This is why we have been characterizing this time as holiday like in Oklahoma centers.
While we have not experience the same intent Thanksgiving day through cyber Monday weekly spikes and volume Yeah. Overall volumes are very similar to a holiday period, although somewhat more spread out and consistent.
I believe the widespread <unk> driven shift of consumer purchasing behavior to online channels will have lasting effects and it's highlighted the need for climb investments and their e. commerce capabilities.
Which presents a great opportunity for us to drive further value in those partnerships.
As we continue to engage started existing clients and potential new client.
We are seeking ways to ensure business continuity of their operations and solutions different operational scenarios for the coming month as brands in customers react to the change in reality based you know that's all.
As a result, we expect to continue to see opportunities from existing clients.
Spend our relationship and opportunities to win business with brands that have renewed focus on direct to consumer solutions.
Particularly an R.P.P.G. and health and beauty vertical.
And less of a near term emphasis on opportunities for apparel and business to business distribution.
Before passing the call over to Jim for his commentary alive area I wanted to reiterate that we are still making strong progress on our guys market strategy for both cloud pick and retail connect.
But the current environment, providing immediate opportunities for company to take advantage of a product like retail connect which easily enables chip from store and pick up in store functionality for many retailers.
<unk> recently launched this product for a retailer to enable shit from store capability ensured business continuity and we are actively engage with retailers looking to fulfill.
Inventory for their online channel with an additional launch schedule in the near term.
Oh now plastic all over the gym for an overview of live areas operations Jim.
Right. Thanks back in good afternoon, everyone.
[noise], our library bookings and pipeline have gained exceptional momentum over the past few quarters, culminating in yet another record quarter of bookings in Q1 this year.
This strong performance reflects the work and investments we have put into revamping our go to market approach.
As well as the early execution from our new sales and marketing teams.
I mean look forward to reaping further benefits from these investments and building upon the foundation and momentum we established throughout the last nine months.
Moving onto our results.
Q1, we both 54 projects with a combined estimated 13.1 million in project value.
This compares the 40 projects in a year ago corner.
They combine for a been estimated 7.3 million in project value.
We also have 19 engagements for library at worth a combined estimated 11.4 million annual contract value or a C.V.
This compares the 15 engagements worth it combining then estimated 6 million in a C.V. in a year ago corner.
To combine Q1 bookings performance, which is projects plus engagements of 24.5 million in a C.D.
A new record to Liberia, how performing our previous record of 20.6 million.
Last quarter.
Before moving on to Liberia.
Before moving on to our library outlook to the future.
Do you want to touch on the clear signs of the in process turn around.
<unk> within our segment results.
We reported quarterly service revenue above 20 million for the first time since queue for a few thousand 18.
And are adjusted even though was also the best result.
402018.
Every major financial metrics on my dashboard, he's relatively steady or improved quarter of a quarter and year over here.
In both comparisons [noise].
We have improved recognize revenue.
Help gross margins relatively steady.
Improve S.G.N.A.
And improved our adjusted even got margins to about 17%.
From about 13% in a year ago quarter and from about 16.5% in Q4 of 2019.
On our last call I spoke of the momentum building in the business.
And you can see that momentum delivering results and Q1.
Well the pandemic cast a shadow of uncertainty over our ability to continuing to continue delivering record results across the board in the near term or.
Or positioning as an E. commerce specialized agency and a strong client relationships.
Surging sales pipeline gives me tremendous optimism about the future and our ability to continue to where you turn to grow to library in 2020.
As we look to the future my optimism is supported not only by our Q1 results.
Strong sales nightline.
But also by the accelerating trends already evident during this pandemic.
So far drink you to our sales leadership is still driving our pipelining bookings and their efforts bolstered by the elevated consumer demand E. commerce at this pivotal moment.
Well the ongoing Kobe 19 crisis may impact some of our client accounts and may cause certain library, a project time lines to get delayed we're spread out beyond what we had originally planned.
We already seeing stability return to the decision making process as many of our clients as they doubled down on their digital channel.
She had some go is occur we anticipate on your turn backlog to soften compared to what we would have anticipated a couple of months ago.
At this time, it's difficult for us to forecast the effects of any virus impacts more precisely.
Especially as our clients reconfigure their individual planning horizon.
It's like attention volatility in a cue to backlog or outlook remain strong and I'd like to share a few reasons my optimism.
In General Coven is highlighted digital is the only reliable revenue stream for many companies, making it a top area for additional investment.
In some cases is exposed <unk> under investments such as water management, causing brass to scramble to figure out what image, where they have available and how to efficiently making available to their customers.
Also.
Friends are under significant stress.
Ready for the upcoming holiday season to make up to the expected losses in the first half of the year.
You may be aware Q2, and three aware brands typically invest heavily in digital for the holiday season.
<unk>.
We are expecting any current backlog delays due to coding, resulting heightened expectations and demand for my clients in the months ahead.
Hoping and aggressive timelines to deliver on their 2020 strategies.
We also.
We also seem interested in our direct to consumer channels across both traditional retail and consumer brands as well as historic we've nondirect vertical such as b. to be manufacturers distributors have to market parts. We expect this trends continue post recovery as B.B. companies try to get closer to the N. consumer.
Our experience in B.D.B. to see an end to end.
Uniquely positioned librarian to participate.
[noise] Leslie we extend that Coleman.
Will lead to a new round readiness audits and digital transformation investments.
Will enable brass to be more responsive to changes in the future.
We feel strongly that totally will drive he knew definition for digital cable steaks, requiring brands to meet or exceed those heighten consumer expectations.
Are experiencing delivering end to end transformational commerce experiences or certainly differentiate library from all their commerce agencies.
I'd be navigate coded Liberia demonstrated and efficient and nimble operating model.
Or attrition remains at record loads, a contracting resource pools assisted with maintaining our utilization targets.
In our experience working invert virtual models has allowed us to continue to serve our clients without any disruption.
I believe we have a lot to be optimistic about in the coming months without report, okay back over to Mike Mike.
Thank you again.
You know from the public debate throughout the call it should be clear that our business is strong.
And we're cautiously optimistic optimistic about the benefits from this challenging market environment in both the near and long term.
We have continued to move beyond our 2019 transition period, yeah make great progress and our quest to return to sustainable growth this year.
Despite the near term macro uncertainties at our global environment.
The trends in our business look favorable at this time, leading us to reiterate our prior expectations for consolidate 2020 S.F.B. revenue growth in the mid high just single digits compare 2019.
As well as adjusted EBITDA margin expansion for the year, there's time indicated earlier.
There's always time and I are happy to engage with our best to answer questions as to the U.K.R. exciting story.
And we're happy to make ourselves available by phone and video chat.
We will also be presenting and holding meetings during needham's virtual Tech and media conference on May 19th and hope to speak with some of you then.
Lisa will now open to call up for questions.
Thank you Sir.
This time outside twin farm every one if you would like to ask a question. Please <unk> and the number one on your telephone keypad.
It's a sex with dry your question press the pound key.
Our first question comes from the line of Mark I can tell this with like Street capital market.
[noise] Hello, Mark.
That's right into one is okay.
Yeah.
Airline is open Sir.
I'll put it looks like marks having trouble so maybe we should move to someone else from that mark vector.
For next question comes on line of Chore to set with quick out.
Good afternoon. This is Adam on for George can grab from the trick results guys.
I I was curious if you can comment on specifically, how Liberia labs, and P.F. <unk>, we have changed their approach going to to get.
Joint business from from customers D. decoded 19.
Oh, well, thanks routine that up and that's that's a question we would love to handle I'm Gonna I'm, an actually ask Jim to respond first it just talk about some of the changes that they've made in their approach.
Think Liberia is the tip of the spear from a strategy perspective, and often is in conversations early with clients and their decision making process. So I'd like him to start and then then Zack's you can just tag came on the back of that that'd be great.
Yeah, Great. Great question, you know I I saw this as when I joined last June I saw this is one of the you know one of the biggest opportunities for us as an organization and I think first we had to make sure that both you know there was good communication at the top and throughout the organization around the value of the end to end keep it.
Ability.
And as we looked at the the competitors didn't appear in library of stage right. Other digital agencies that a focus on commerce.
Yeah, there's there's [noise].
Lot of them that do exactly what we do however, what they don't have the ability to understand the entire evaluating an event and didn't understand what a client experiences post quick. So what I did was was made sure that the teams understood that as a differentiating value. In addition to that we may.
Sure that they were incentives in place that people on my team, we're actually looking out to bringing work on zack's team. So we have the right financial metrics in place and then we're seeing things such as retail connect as a really good narrative for us to open doors with clients that have really struggle during the the coldest academic around trying to.
<unk> inventory locked up in stores out two there to their customers. So so we're we're just really trying to fully understand the end to end capabilities and then bring that together with with solid leadership yeah. The thing too is we spend time.
That doing a cow planting across the organization, making sure that clients that are working with P.S.S.R. also fully aware of what services librarian can offer and vice versa. So that was another thing that we put into place sexually after I joined that.
Thanks, Jim you covered a lot of the the good things that we're doing across both of the organizations. I think it's also important to know that our end to end offering doesn't require that individual brand consume all of those services.
As we look at opportunities in the market and where I think we've done a particularly good job across that business segments is taking a new opportunities and looking for opportunities to expand the relationship irrespective of it's alive area opportunity or P.S. opportunity, if there's a real quiet need.
Age that real partnership with our clients as led to a lot of these planning expand opportunities.
Great. Thank you and and Jim I'll I'll direct this question back to you you you mentioned, how one of the biggest values you have is being able to see everything post clicked with a library lab customer who using P.S. offers as well <unk> are there any interesting insights you guys.
Found during the pandemic so far.
[noise].
I don't I can't think of anything that would come to mind, maybe Zack can but you know I think you know what we're more able to do is we're able to see.
First of all you know our upfront engagements with our clients in the library side, even if we're not.
They're not using ask whether it's a film side of the business.
Having that knowledge of what happens suppose click is really helpful. As think think through O.M.S. implementations and other other experiential things for for their brands, but nothing surfaces Zakum up you have anything at the top of your head on yeah, incisive, we have but it's a great question or something well you know hopefully.
Some more insights into as a as this hopefully brings itself to conclusion.
Hey, I'm I I think one thing that we're clearly saying is either the advantage that retailer has having already implemented a nominee channel strategy and leveraging inventory that spread out amongst stores or on the flipside to the extent that they have hesitated, making those investment.
They need to to really catch up fast and that shows up not only with opportunities like retail connect but strategy engagements on how to do that in tech technology upgrades to make it happened on the E. commerce stack and.
I expect we're going to see a lot of pent up demand ascendancy store start to reopen from two perspectives. One is a ton of inventory of the trap, Italy aging stores it needs to get moved out 'cause whatever channel. They can but also being ready for potentially a second wave to the extent that we open up and we see another a resurgence of virus and you know at least retail.
Can't be caught flat food again within a toy stuck in stores. So that's certainly one train were saying.
That's certainly helpful. One more question I'll go back and cute.
Mike in time, one of the biggest headlines and E. commerce about a month ago was when Amazon F.B.A. decided to prioritize essential items just wanting to know if you saw any impact on your business or what you've heard from customers over effective from that.
Yeah, Great question that I appreciate that there's actually been three different things that have come out from Amazon that are of interest and I think have some potential impact on our business you mentioned the first one.
You know early on they prioritize coming into their facilities that product is they deemed most important to consumers in dealing with the pandemic and you know I I applaud them in in doing that but by the same token. It put you know a lot of brands that we're using the marketplace significant disadvantage.
We heard from a lot of retailers that we're looking for alternatives I think there. There's some things that we could do in the short term, but in the long term. It really does point out the value and being a third party seller and having a third party fulfillment provider that's prime certified.
During your fulfillment that way, you're not necessarily prioritized by F.B.A.
In the process. So you might imagine that's certainly is opened up quite a few conversations.
The second bit of news that came out was the fact that you know not surprisingly Amazon uses data that they see going through the marketplace to position themselves with private label brands against some of their own clients.
And we've certainly suspected that was the case and it makes sense that it would be but many of our brand you know don't want to be selling you know then you were there to have the direct competitor, that's not only selling against them, but actually using their own data against them. So I expect that's also going to drive opportunities are on a library aside where it really need to to hedge their back and take care of their brand in there.
Data appropriately.
The final thing would be a bit of a surprise to me was great amount of money Amazon expect till the next quarter to invest in their fulfillment Center says day equip their fulfillment centres. This a tremendous amount of money I believe it's about $4 billion.
And it's an eye opener for us because we've been doing this as we've gone along incrementally in a way that takes much more pragmatic and less costly.
And I don't know, what they're doing but you know it's not anything like what we're looking at as far as the incremental cost and while there may be some slight impact on our margins from the investments that we're making way currently don't really anticipate any.
And in fact in most cases, our clients are working with US right. Now is we respond to these volume like they would during the holiday.
To make sure we have the right programs in place to have staff, where they need to be and the properly protected.
So I I would not expect to see that same kind of <unk>, our business, where where it has a a significant increase in s. genetic associated with us.
<unk>.
<unk>.
Thank you.
Once again, if you would like to ask a question. Please <unk> tend to number one on your telephone keypad.
Your next question comes from the line of Ryan and Mcdonald's with an E.M.
[noise] Yeah. Good afternoon, my common team I've been jumping on around to a a few calls so I apologize if somebody's were answered in the the prepared remarks, but.
<unk> some of the the healthy G.M.D. trends are thing into April and hopefully through Lake here. It just wondering as you're looking at the demand for on the P.S. outside for additional brands in retail is I want to come on and use their services you know given the heightened demanded that impact and all your ability to get.
New customers or expansions with existing up and running as you're going to the <unk>.
So I'll I'll take a first stab at that and then let's act provides coverage color I I think there's two things that we're dealing with.
First off what we're not really dealing with any internal constraints around managing watches were able to.
Has that mentioned in his prepared comments.
The project teams in the operations teams to onboard new clients effectively even the list. This crisis <unk> has done a great job is moving to work from home with batch of projects remotely or Memphis based teams in our teams in the U.K. in Belgium, we're doing a great job onboarding clients that were in progress.
We have as a as you might expect hexane some friction in our sales cycle a.
Where clients that are looking to move fulfillment operations or contact centre operations to a new provider would <unk> to to her up facility and see the environment and you know.
Basically see see the solution that they're they're going to be buying and travel restrictions have made that impossible and so we've been doing virtual tours and you're showing off facilities using.
Virtual you know technology solutions and if it had some success proposing and maybe to ourselves pipelines and things that we've done completely virtual eight which is.
Pretty incredible, but I do think that there probably is going to be some headwinds chronic sales perspective, even while we're experiencing these you know increases and current client man. So that you on adding color to that.
Yeah, I'll say that that's true.
Thing clients, we do see increased demand that certain where our focus is right now making sure that we that's served appliance that are currently with us, but also from a new quiet perspective, I think there's a little bit more hesitancy to do the large scale lifting shift so not projects and most most of the pipeline is probably going to be re shifted to business cotton.
Already opportunities, where folks are looking to expand incrementally and that's what we're seeing currently shape. The theirselves pipeline, but we still are moving opportunities and I've gotten quite created with average all tours. So we're we're still progressing down that problem.
<unk>.
And it could follow up to that before moving to a library question. You know it's been surprising to me how often in my conversations that this situation is exposing sort of a gap and fulfillment for a lot of brands is there anything that this heightened demand can create in in terms of additional demand for the for for.
I'm in as a service offerings, given sort of the more lightweight major there.
Yeah, I I, I think 100% Ryan and I would say that's two categories L.T. up for his act to comment on.
One is any situation, where a retailer has had a single note distribution solution I wear their inventories centralized in a single location.
Potentially exposes them to the risk from having a facility shut down. We're we're certainly blessed to have been deemed in the central business and clients that are deemed essential businesses as well. So that you know gave us certain protection work retail or on their own may not have had that benefit.
But that's one and I take a multi tier distribution network is a solution for that and the second one is what we've mentioned a couple of time richest retail kinetic I like that comment on exactly where we are kind of which opportunities and making both of those along with cloud pick help and in those two scenarios.
Thanks Bye.
So certainly with the first line of thought that Mike was discussing is really how do we create multiple modes of a fair amount or micro fulfillment centers that trend is.
My top of mind, along with the entire omni channel strategy. So brands that previous they weren't thinking about that seriously are certainly trying to catch up quickly in regard to that so we just the opportunity with our products like cloud pick that enable you know micro with them and our pop up that's on the options for the perspective quiet.
And then honestly when you look at retail connecting with that brings forward, particularly for brand that I've had or retail shut down they have inventory MIT right now that looks like an opportunity to move more through the direct to consumer channel and they're looking for efficient.
Ways to do that quickly and I think retail connect points directly at that and as such we've seen some immediate salesman. Then some found that that's helping with I go to market strategy on both of those products. So it's a frankly speaking D.F.S. is exceptionally good at being added on I think that's what's current situation points directly to our ability to direct quickly and leverage.
The products that were playing in the market.
Oh, great excellent. Thanks in terms of lies area just once you get a little more color on some of the project delays as you're going through those projects or third implementations or what you. Whatever you can you complete the majority if not all those remotely and that maybe the delays are more on the customer side.
And then as you look at the pipe, while we're just love to hear you know what commentary or what what Thomas because you're having and that's picked up as we've kind of moved through April one into May now.
Right right I'll I'll, let Jim respond to both of those correctly, Jim the work from home our ability to manage projects. There you know is there any friction on our side versus on the client.
Great. So the delays that we seen.
I really just and you know or organizations that we work with that.
Sign up for work and you know organizationally. They just had to you know there were other higher authorities, obviously with everything going on so we've seen some projects delayed not significantly but delayed and it's really has nothing to do with our ability to.
Deliver on those projects I'd say, we are you know we unlike many other companies out there are very accustomed to working exactly what I quit working right now deserve rating this message.
So yeah, we we we even looked at things like India Indian offshore and the ability to get those folks to be 100, <unk> productive out of their homes was just an amazing accomplishment, so where it's not a library thing. It's actually just our clients that are just making sure that they have their ducks and what are they can they can.
Why the right attention to the projects that they're investing large dollars, then and and but you know in the reality of our business is there are you know there are delays you know just like this from time to time and that's just the cost of doing business I think would just keeping an eye closer on any delays that are happening now just because of this.
Situation that we're in the second half of the question I think was around.
Like what was the second Brian was the second half of the question.
<unk>.
Yeah, just curious to see if you're seeing any any I guess recovery as we're going through Acorn in terms of discussions and pipeline.
Yeah. So we actually you know if you remember we this is the third record quarter sales bookings in Iraq right. So cute three q. for Q1 and between Q. poor and Q1, you know a nice nice jumping that and part if you want obviously was you know.
Acted by Cove, and we have seen and and the mode of operation similar to the next question earlier, you know we're doing everything virtually it writes all these meetings and pitches are done in a in a virtual model, which has been working out really well it can be very accustomed to doing that and I think our clients are the ones that are a little bit uncomfortable doing that but to be honest with you we see.
Mean business coming in through our regular channels almost is robustly as it has in the past and yeah. So I'm very encouraged as I said in my report I'm very encouraged about you know the the momentum that we haven't how that's going to care is through the balance of the year.
Hopefully that answers your question I I think you know a major brands right that are they I think it's you know they recognize they have to continue to do the important sort of digital transformation. Afterwards that are on their on their list. They can't just be paralyzed and you see these things moving forward, which is really encouraging.
Great. Thank you very much sure.
<unk>.
<unk>.
Your next question comes from the line of Mark origin tell it to make street capital markets.
Good afternoon, guys. What's the couple quick one two years show.
Maybe you could talk a little bit more about some of them you know more specific types. He didn't gauge run through that you don't.
The more you know web development and and digital marketing centric as little more back then you know capabilities.
<unk> type work maybe could.
Give us a little bit of can feel for what you know, what's really drive into the incremental boating.
Sure. So I would say is that you know our businesses predominantly.
On the system integration side right. So we do a lot of you know very large commerce technology Bill.
[noise]. So we have a couple of very very large ones that are underway.
Costs is a couple of major brands that you know continue to you know absorb any large parts of our our team, but so were seen yeah. It's really across the board, we're seeing a growth in our strategy engagement. So I brought in an individual to build a strategy practice. So we're starting to see the the green shoots associated with it wasn't.
<unk> and so we're getting a little bit further up the funnel as far as you know the engages we have with our clients, but if I were too I you know I think the digital marketing businesses tracking, whereas then I think the momentum has been largely on the you know the large commerce implementation projects that we've been doing.
Great.
<unk>.
Hey, Mark we've also so we've also seen a a nice increase and Oh M.S. implementations, we started to kind of build that practice, maybe towards the end of 2018 and didn't see attraction until Jim and his team got here and they really built some nice bridges with some of the Oh, a mess providers.
Jim indicating is prepared comments, that's one of the weak links that <unk> that that retailers, you're saying right now with you know being able to action inventory in their stores. It's just not have an L.M.S. platforms that can deal with.
Being in order to too yeah multiple from that location. So we're seeing an increase there and I think we'll see an increase as we look to the future cause that's a gap that needs to be plucked.
Mhm, yeah. The other the other couple air. Thank you, Mike that's definitely a key one for US you know we're seeing a lot more do you to be activity also when we're seeing a a bunch of marketplace activity also so you know those were both on our.
Strategy for 2022 really expand in those different areas.
And we definitely seen some momentum and both of those areas too.
They may no one <unk> back in terms of.
Yeah, the flexibility the platform I know kind of the micro you distribution points in in in two more innovation there are interesting.
But a lot of course, giving me environment a lot of focus on that allows smile on delivery you know the it's the codes for the world.
<unk>, yeah awaited the kind of the pop up for kind of might grow distribution in almost do you know direct to consumer fulfillment almost real punk fulfillment are plug into that whole phenomenon here is that on the road map.
Thus far what we've been using honestly in that application has been using retail connect and partnering with local delivery, so easy and store inventory to do so there is an opportunity. If you put clothes closet to think about an urban facility to launch in line with a promotion.
And then partner with the local Courier service to deliver that specifically we have had some conversations that we have not all that anything out to date on that.
Yeah, I think marched to to <unk> taxing that we'd need a real estate partner you know that that basically had footprint in a lot of metro areas you might recall, we've had some conversations with some.
Folks that have a real estate footprint I think we might end up seeing some of those conversations come back around cause. This is definitely going to impact your sort traditional retail center smalls et cetera, and I think there have to even more creative about just in that space and I think you're onto something there.
Well, it's one for me and my either you know really fruit in T.M., you get an opportunity and might do we wanted to it before but there's a lot of aging inventory sitting and bricks and mortar store is you know are close right. Now is there an opportunity to try to get some of that inventory out.
And you know and and get it back into an open fulfillment channel for for the lack of a better word.
Yeah, you know it's an interesting question you know we've as you might expect we spent a fair amount of time looking for the needles of opportunity and as far as big haystack of problems.
And one of them is is there any kind of interesting reverse logistics play here, where rather than you know take a traditional liquidator type approach, where you're going to get you know sense on the dollar could we help retailers kind of move inventory back and push it out through channel, where they can make more that's gonna be easiest for us to action with current class.
<unk> right now it's so some of those conversations are happening it's more difficult if they're not a current client but it. It does open an interesting question and I think there's an opportunity for a pack a practised offering starting with the current class. So yeah, you're you're definitely something there too.
<unk> Thanks Mark.
<unk>.
At this time just come close our question and answer session.
I would like to trying to contact over to Mr. Willoughby from <unk>.
[noise]. Thank you Lisa and thank you for every one that it's time to be on the call today as you can tell we're excited about the business cautiously optimistic that the current situation.
Well deliver tailwinds and we continue to managed to business day by day in response to the continuing evolving situation I hope that you all stay safe and healthy and look forward to sit near the near future. Thank you.
Ladies and gentlemen.
Teleconference. You may now disconnect guidelines at that time, Thank you for your participation.
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<unk>.
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