Q4 2020 PFSweb Inc Earnings Call
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Good morning, everyone and thank you for participating in today's conference call to discuss PS web Financial results for the fourth quarter and full year ended December thirty first two thousand 20/20 yesterday RPF web CEO. Mike will be the company's CFO Tom Madden the president of PFF Zack Bowman. The president of lot area is Jim Butler and the companies outside investor relations adviser Sean in Surrey with Gateway investor relations following the remarks will open the call for your questions. Oh now like to turn the call over to them for introductory comment.
Thank you. 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 words anticipate believe estimate expect intend will guidance confidence Target project and other similar Expressions typically are used to identify phone statements the full disclaimer related to forward-looking statements as well as certain non-gaap metrics used in our filings and this presentation can be found in the investor section of the PFS website under Safe Harbor statement.
I would like to remind everyone that this call will be available for replay April 8th starting at 11:30 a.m. Eastern this morning a webcast replay will also be available via the link provided in today's press release as well as available on the company's website at pfsweb.
Any redistribution or retransmission or rebroadcast of this call in any way without the express written consent of pfsweb is strictly prohibited.
Now, I'll turn the call over to Chief Executive Officer pfsweb. Michael Willoughby Mike. Thank you Shawn and good morning everyone for beginning my prepared comments. I would like to congratulate both Jim Butler exact Omen on their recent promotions to president of their respective business units.
this recognition
Is indicative of our continued progress toward elevating rpfs and library of brands in the marketplace and further optimizing our operational and financial performance. Even off their promotions speak to Zack & Jim's amazing performance over the past year as they have partnered with me to lead our company through a truly unusual year and the most dynamic and unpredictable industry conditions. We have ever faced. I also think our clients for continuing to trust us with their brands and for working with us through the unexpected turn of them is beginning last March through all the planning required to prepare for a successful holiday.
The last year has proven the value of the true Partnerships we have with our client as opposed to the more typical customer vendor relationships in our industry.
Finally and most importantly I must thank our Global pfsweb team for all the hard work and Agility. They have demonstrated over the past year as we have implemented a massive changes to our organization in response to the COVID-19 crisis. The crisis has brought an abundance of challenges and opportunities and our teams have dealt with the challenges with Grace and perseverance while making the most of the opportunities to drive the unprecedented growth we've experienced in 2020 their performance over the past year has made it possible for us not to just survive the crisis but to thrive as we look to exit the worst of the pandemic this year.
Now turning to our fourth-quarter and full-year performance our results reflect the strong operational momentum. We built across both of our business units throughout the year song by robust e-commerce and holiday demand Tailwinds, we experience record fourth-quarter and holiday volumes in PFS and continue to execute at high levels in Lubbock area. Our teams have adapted to a rapidly evolving e-commerce lanscape carefully managing our costs and still preserved our usual high-quality service for our clients and their customers. I'm deeply proud of the excellent performance throughout 2020.
Due to the robust demand environment PFS was able to operate at a record level of scale last year, especially during the holiday season.
A record operational performance was due to the Strategic agility. We have built into our business model allowing us to quickly optimize and wrap the necessary resources.
Our two newest fulfillment centers perform very well during the holiday season successfully accommodating large holiday order volumes less than three months after they went live.
we also
So made significant progress in our product strategy with a deployment of a cloud cloudpick base solution into one of our clients European fulfillment centers and a rapid holiday deployment of retailconnect in five stores for another current client. We expect to provide an important update regarding our progress with retailconnect in very near future.
After focusing in twenty-twenty on providing the best possible service to our existing clients as they dealt with unprecedented demand and working conditions, but we enter this year with an expanded pipeline of Brands and prospective clients who have learned the importance of having a capable and experienced partner as they continue to emphasize Ecommerce.
We've already seen a healthy number of sales bookings to start the year giving us confidence in our ability to perform within our targeted range of 5 to 10% off or PFS service fee Revenue growth despite comparisons against a record-setting 2020.
We do expect continued COVID-19 related costs and higher fulfillment related labor rates as well as some incremental costs associated with opening our new Las Vegas facility need to temporarily pressure the adjusted ebitda margins for PFS and thus our Consolidated results.
Jack someone will be on later with more details on our Q4 operations and our outlook for this segment, but our ability to continue delivering safe and exceptional customer experiences in this high demand environment is a testament to the strong operational framework we have built
Zach to you Steve, Jamie and Mark. Congratulations on an amazing year and thank you for your hard work in Liberia, the Strategic Investments. We made during 2028 allowed us to bolster our Pipeline and the overall Suite of services and resources we can offer our clients.
With strength and sales and marketing leadership in place. Our fourth quarter bookings rebounded to their second highest level and Company history.
Liberia has continued to make a strong recovery from the pandemic related sales cycle disruptions. We faced in the middle of the year and with a record sales Pipeline and a very strong sales booking start to the year. We currently expect to perform within our targeted range of 10 to 15% for Liberia service fee Revenue growth with expanding adjusted ebitda margins for this business unit.
Jim will give us
Say more thorough overview of this recovery and the exciting momentum. We have built for the remainder of twenty Twenty-One and Jim to you and Steve Chris Peter Berry and a shame your entire team. Congratulations for an amazing year job. Well done.
Overall, our company has responded to an accelerating and evolving Commerce landscape with discipline flexibility and excitement across both segments. Our teams have made optimal and efficient use of our resources as well as key investments in support of our clients immediate needs are businesses long-term growth strategy and our continual preparations for the future of retail and e-commerce. Most importantly we have ensured that all our teams remain safe and productive during the past year.
I remote corporate and contact center teams have operated smoothly and we continue to invest in the sanitation and PPE resources needed to protect the help of our front-line fulfillment center personnel.
The adaptable and differentiated platform. We have strengthened throughout twenty-twenty has positioned pfsweb for continued strong execution as we look to the rest of the year.
We'll have more to share our progress in strategic priorities, but I'd first like to turn the call over to Tom provide more details on our Q4 Financial results as well as our outlook for the rest of 2021 Tom over to you.
Thank you, Mike and good morning, everyone.
Unless otherwise noted all quarterly Financial comparisons are to the fourth quarter of 2019 and I'll annual comparisons are choose a full fiscal year 2019.
For Q4 are Consolidated service fee equivalent revenue or sfe Revenue increased 29% to 81.5 million.
The increase was primarily driven by continued robust fulfillment activity in rpfs segment as well as growth from new and existing clients in our libraries.
Service fee gross margin in the fourth quarter of 2020 was 27.1% compared to 32.5% with the decrease primarily due to a shift in our Revenue mix towards a higher percentage of revenues generated from fulfillment services in PFS as well as increased fulfillment related US Labor and sanitation cost during the corner.
These costs caused gross margin to come in below our typical guidance range of 25% to 30%
Well library is gross margins remain within the mid-range of its typical 40% to 50% guidance raised during the quarter.
Let me provide a little more color on the PFS gross. Margin. There was some negative impact from our revenue and mix as the growth in our fulfillment activity resulted in a larger percentage of PFS Revenue being generated by this somewhat lower gross margin service category.
Additionally as we have discussed previously starting toward the end of Q2 of 2020. We began experiencing increases in our hourly labor a month for both permanent and temporary front-line workers at certain of our us fulfillment centers.
In the second half of 2020 we estimate that the labor rate increases impacted our costs by an incremental 3.3 million including approximately two point four million in the fourth quarter of old.
We also incurred an estimated incremental 1 million dollars of PPC related costs during the year.
Well, these costs pressured our margins during this period our top priority was preserving the health of our team and ensuring that we continued performing at high levels for our clients.
While we were successful in generating some surcharges from certain clients during the fourth quarter to partially offset these costs. There was still a negative impact on our health related margins.
Additionally our gross margin for the PFS segment was negatively impacted by reduced it related project start-up and Technology activities.
STNA cost 423.1 million in the fourth quarter of 2020 compared to 18.0 million in the same period of 2019.
these increases include expanded personnel-related costs including non-cash compensation costs and variable compensation as well as the increased Personnel to support our growth such a certain strategic hires aimed at expanding our service offering in the library has segment
The increase is also reflect the increased facility related costs applicable to the opening of the new distribution centers.
Adjusted ebitda in the fourth quarter of 2020 was 4.5 million compared to six point three million in the same period of 2019.
Our adjusted ebitda which came in slightly below are targeted expectations was impacted by the PFS gross margin pressure previously discussed as well as other person in facility related costs.
Turning to the balance sheet at December Thirty 12020 cash and cash equivalents total 10.8 million and total debt, excluding operating leases was 52.5 Million.
This resulted in a net debt position of approximately 31.7 million.
As a reminder our net debt level was negatively impacted by approximately 7 million dollars in 2020 from the discontinuance of a component of our service offering related to a credit card activity applicable to one client.
Overall, we remain comfortable with our liquidity position as we progress into twenty Twenty-One and we believe we are well-capitalized to navigate future changes in our industry environment. I made the pandemic
our Capital expenditures and the fourth quarter of 2020 were approximately 1.7 million primarily driven by the ramping operations at our new fulfillment centers Palm Springs are total 20/20 Capital expenditures to 8.9 billion including Capital expenditures funded through debt and capital leases which Falls within our previously stated expectations.
Moving on to our 2021 Outlook, we expect strong e-commerce demand to drive continued expansion of our service fees for both business segments off.
Invite of these Trends we expect to achieve 20-21 live area service fee Revenue growth of between 10% to 15% compared to 20 20.
For the PFS segment we expect you to generate 5% to 10% service fee Revenue growth compared to 2020.
With this Revenue growth in conjunction with our continued company who I focus on cost management, we expect to generate improved Consolidated adjusted ebitda margin expansion in 2021 compared to 2020 inclusive of our investments to support additional capacity in sales and PFS home sales and delivery resources in Liberia.
For the March Twenty One March 2021 quarter. Our current expectation is for overall service fee Revenue to increase in the 10% to 12% range compared to the first quarter of 2020. But we do expect a reduced ebitda level adjusted ebitda level due to some of the continuing incremental wage and COVID-19 cost. We outlined earlier as well as certain incremental costs to support our growth initiatives in Liberia.
A few other items to add regarding calendar year 2021 guidance. We continue to Target overall service fee gross margins in the 30% to 35% range relatively in line with the full year performance for 20 20 has always this will be impacted by the proportion of infrastructure-related PFS Services versus the higher-margin Professional Services and Technology product related service fee activities.
we
expect our product Revenue will continue to decline from the $23 that we generated in 2022 a level of 16 million to 18 18 million 8021
Are expected gross margin on this product revenue is expected to be in the 4% to 5% range.
We do expect an increase in cash based operating expenses in 2021 primarily related to sales and marketing expenses as well as incremental personnel and facility costs to support our targeted growth.
We expect our total DNA expense to range between 8 million to 9 million relatively consistent with twenty-twenty.
We expect a decrease to our stock compensation expense and twenty Twenty-One to approximately six million dollars to eight million dollars, but this is difficult to predict due to the ongoing situations in our market share price.
For interest expense we expect to maintain a relatively stable level as compared to twenty twenty and expect a moderate increase in income tax expense.
These of course are subject to change given the uncertainty of mid COVID-19 and we will communicate any updates to these expectations as necessary.
This concludes my prepared remarks. I'll turn the call over to Jim to walk through operational highlights in the library him.
Great. Thanks, Tom and good morning, everyone.
Well, I very continues to benefit from the study investments in our sales and marketing teams and the introduction of new Services which have fueled our recovery from the pandemic related disruptions experienced in mid year twenty-twenty. I'm thrilled that our sales bookings rebounded in Q4 as we as we achieved our second highest level of sales bookings and Company History Month are combined project engagement ACV total an estimated 22 million dollars during the quarter. We added nine new logos that have further fueled our Revenue backlog for 2020 off brands are placing increased emphasis on ensuring that their front and back office operations are comprehensive efficient and tailored to the customer needs as they respond to the obvious acceleration of e-commerce as the primary Channel.
To break our queue for performance down. We booked fifty-two projects worth a combined estimated 17.3 million in projects value during Q4. This compares to 56 project in the year-ago quarter where they combined for then estimated 11.5 million in Project value. We also book 24 engagements for library of worth of combined estimated 4.7 off the internet annual contract value or a CV this compares to 16 engagements worth a combined then estimated 9.1 million in a CV in the year-ago quarter off during to our yearly performance. We booked a hundred seventy eight projects worth a combined estimated 50.1 billion and project value. This compares to a hundred ninety-four projects and then exited 38.9 million.
our engagement bookings for the full year
Totaled $79 for an estimated 23.7 million and a CV compared to 62 bookings worth of an estimated 22.9 million this brings our total package bookings projects plus engagements for library at the 78.3 million compared to our then estimated 61.8 million and 2019.
As pleased as I am with our queue for performance and our sales team's performance through a very difficult COVID-19 year. I'm even more excited with the momentum. We have carried over into 2021 with the largest pipeline of Library opportunities in the history of the company. Our later-stage pipeline where we have been verbally awarded the work and are finalizing the commercial terms suggests that q121 will almost certainly set an all-time sales booking record topping our previous record in q1 of last year.
Regardless of whether the timing of the contract signatures all occur before the end of q1 the late-stage pipeline. It's such an early part of the Year suggest that 2021 will be another year of continued double-digit growth. We're also seeing an increase in follow-on projects with many of our launches follow-on projects can be even larger than the initial project and the add to that critical reoccurring component of our Revenue backlog, which provides us good visibility and confidence in the strength of our Revenue stream over the next several quarters attracting talented library is very critical to our growth strategy as we continue to rapidly evolve our service offering in Q3. We announced the addition of birth Fisk as our new SCP of Global Experience and Innovation to elevate our award-winning Design Services.
Various contributions and key for more substantial including the addition of three new service offerings next intelligence service design and product Innovation along with positioning or other services in the more structured service offerings of connected Commerce Performance, Marketing and orchestrated services.
To help deliver on the new services at scale. We recently announced the appointment of Rashmi as group creative director and head of our newly incubated Innovation lab and creative studio in Bangalore India long as we design and build prototypes and accelerators for Global clients. This new facility will act as a centralized hub for these initiatives and leverage other members of berries team across the game further it will establish a broader footprint for library and India and the APAC region.
As we look at a record sales Pipeline and strong backlog headed into Q2. We're seeing impressive strengthening and opportunities with our most strategic partner Salesforce. I'm very excited to see an increase in multicloud Opportunities which serves to strengthen our strategic value as a Salesforce partner. I'm also encouraged to see a bit of Rebound in sap off of what was known as ICP hybris opportunities with several large B2B projects in several in various stages of our Pipeline and an implementation.
With an eye to the ever-evolving platform landscape. We've also continued to deepen our Partnerships with Commerce platforms such as Bigcommerce Commerce tools and most recently yato in e-commerce marketing life-form provider librarian yato partner last year to build and launch a customer loyalty program for noon and Company a leading Sports hydration brand. We also recently announced that we've since expanded this collaboration into multiple experience redesigned projects for Nunes online store.
In addition to the great work, we're doing for noon and many others Library won Top honors in the annual a v a digital Awards competition as I've said in Pasco, I love to win and this recognition is a team win, which is the best kind of win that I can think of this year my team won a total of six Awards including for for client work off. I was thrilled that we are into gold awards for a work with Saks Fifth Avenue, which launched a new digital storefront built by live area on Salesforce Commerce cloud in timer 20, 20 holiday luxury detailed name Saks Fifth Avenue luxury retailer of the year for its adaptability and successful digital advancements COVID-19 and EMA, and it's certainly gratifying to be a big part of their success.
I'm also encouraged that our award-winning work should position us very well to continue to support sex as they embark on an exciting transformation focused entirely on their own now on Channel with the exciting initiatives. We have underway and the record sales pipeline momentum. We have built our team has done an excellent job of advancing our business development and proving arms capacity to offer premium Digital customer experiences around the globe.
We anticipate driving strong growth through the rest of 2021 and look forward to look forward to further leveraging our comprehensive platform to support our momentum. The future looks very bright for Liberia with that. I'll turn the call over to Zach to review highlights from TFS Zack.
Thanks, Jim as Mike mentioned at the beginning of the call. Our team outpaced our record cute volumes with a record fourth quarter and delivered on our client commitments to ship holiday season order volumes with Incredible speed efficiency and success. We quickly scaled and ramps or operational areas to meet our clients elevated order lunch and deliver a great customer experience at a time when many retailers in service providers struggled to deliver for Christmas. I am very proud of my business management and transportation teams to work very closely with the transportation Partners in our carrier Network to drive improve deliverability to ensure clients customers at a great fulfillment experience.
Executing for our clients during this entire COVID-19. But especially during Q4 has required unanticipated Investments, including the rapid launch of two new distribution centers you a temporary COVID-19. And especially in queue for these Investments enabled us perform at the highest levels required for our clients which led to our record Revenue results while these Investments have had and will continue to have an impact on our bottom line off till we fully exit the pandemic. I believe weathering this transient margin pressure is key to further strengthening the stickiness of our client relationships and our competitive position job market while setting us up nicely to capture future growth.
we then anticipate the
Profitability improvements to come as we move into a post COVID-19.
moving on to our holiday performance
as many of you saw in the queue for highlights. We published in January our fourth quarter Mark the largest order fulfillment quarter. We have experienced in our company's history relative to them last year. The total number of orders be fulfilled grew 88% to nearly eleven million orders during November and December we process over four million customer each month to filling over two million orders during cyber week alone.
For the full year, we processed over three billion dollars and gross merchandise value through fulfillment activity and an additional $400 million dollars for ordered a cash-only clients in our financial services operations, the total payment transaction value. We processed in 2020 increased 51% year-over-year to one point four billion dollars.
The Strategic Investments we made to expand or fulfillment center footprint and capacity as well as our distribution and contact center Personnel allowed us to swiftly address these elevated off holiday order volumes.
To elaborate on what Mike shared earlier about our two newest fulfillment centers. We had her new Dallas area DC operating at full capacity during the holiday season. This conveniently located Center allowed us to expand our daily output capacity fulfill orders for several existing clients for more than one facility and run. Programs for key Brands including Kendra Scott.
In Europe our new fulfillment center in liege Belgium also performed at high levels during the season allowing us to accommodate accelerating European volumes are about to get these facilities ramp and Performing so effectively less than three months after opening demonstrates, both our agility and our ability to scale that is core to our operation.
Now briefly to review our queue for bookings and PFS. We sign for new engagements worth a combined estimated, 1.7 million and annual contract value or a strong compared to three new engagements worth of been estimated 2.4 million of a CV in the year-ago quarter this brings our total 20/20 bookings for p f f m 14.3 million and a CV compared to 34.5 million and 2019 all current client engagement clearly Groove organically and expected in scope at an unexpected Pace new bookings did experience pressure do the complications related to COVID-19 throughout the middle of the year.
new opportunities
Again, the bill towards the back half of the year setting up nicely for 20 21 with anticipated q1 bookings showing a clear rebound back to levels. We saw in early 2019. I believe our sales cycle is currently benefiting from our strong performance with four clients in 2020 and are much improved PFS brand presence in the market as well as the object eCommerce demand Tailwinds.
As we uncovered in our recent study with Arlington research the 20 20 holiday peak season offered retailers and Urgent glimpse into the long-term trends that will guide our industry wage, even as brick-and-mortar retail gradually recovers from last year's pandemic related challenges Brands and retailers broadly recognized the need to shift their operations to a digital language approach and facilitate additional omni-channel Investments and Order fulfillment capabilities.
The current operating environment has validated the need for growing Brands to carefully choose their eCommerce partners and despite the complications. I am confident that our performance for our clients will continue to pay dividends for our growth.
In response to client demand, we have recently announced the opening of our newest fulfillment center in North Las Vegas, Nevada. Our new facility will expand our North American fulfillment found footprint. Seven facilities will be strategically located near the north Las Vegas Airport allowing us to improve our capacity for servicing clients with large West Coast customer bases in conjunction with this newest opening. We have signed a new contract with a large skin care company that is set to go live in Q2 of this year our services with those clubs will not only make use of our new North Las Vegas facility, but also our fulfillment and transportation management services from our Memphis and Toronto area fulfillment centers.
Expanding our utilization of three North America and PFS facilities for the skincare client and getting our newest facility ramp demonstrates that are operational momentum from 2012 that has already carried over into this year our ability to scale and optimize our existing infrastructure has allowed us to maintain our high quality of service for current clients and a dynamic environment. I'm extremely proud of our performance throughout 2020 and I'm very grateful for our distribution and contact center teams for their tireless work and deep dedication to our clients during holiday season are agile business model.