Shawn Mansouri - Investor Relations Mike Willoughby - CEO Tom Madden - CFO

Mark Argento - Lake Street Capital Markets Kara Anderson - B.Riley & Company

Please stand by. Good afternoon everyone and thank you for participating in today's conference call to discuss PFSweb's Financial Results for the First Quarter ended March 31 2017. Joining us today are PFSweb's CEO, Mr. Mike Willoughby and the Company's CFO. Mr. Tom Madden, the Company's outside investors relations Shawn Mansouri with Loyola is also with us. Following their remarks, we'll open your call for questions. Today's conference is being recorded. I would now like to turn the call over to Mr. Mansouri for some introductory comments.

Thank you Eric. Before we go further, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call, other than historical facts are forward looking statements. The words anticipate, belief, estimate, expect intend, will, guidance, confidence, target, project and other similar expressions typically are used to identify forward-looking statements. The full disclaimer relating 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 through May 24 2017, starting at 8:00 clock p.m. Eastern tonight. A webcast replay will also be available, via the link provided in today's press release as well as available on the company's website at pfsweb.com. A redistribution, retransmission or rebroadcast of this call in any way without the express written consent of PFS is strictly prohibited. Now I would like to turn the call over to the Chief Executive Officer of PFS, Mr. Mike Willoughby. Mike?

Thank you Shaun and good afternoon everyone. As you may have seen earlier this afternoon, we issued a press release announcing our results for the first quarter ended March 31 2017. As we previously indicated, we are very focused in 2017 on driving improved financial results and delivering optimal performance in support of our client relationships. During the first quarter we made strong progress towards achieving both of these objectives. Client satisfaction continued to be strong as evidenced in part by our three year contract renewal, we signed in March with our long time customer L'Oreal. We continue to experience a healthy level of bookings for new and expanded client relationships with nearly $20 million in new bookings during the quarter. Split, nearly half and half between higher margin professional service projects and the longer term contracts. These first quarter bookings included several new B2B driven engagements, which we believe although continuing to strengthen is still largely an untapped market for our company. We have carried a strong pipeline into the second quarter for projects, which is already delivering nicely. As we look to complete the direct to consumer sales season in early Q3. But before coming further I'd like to turn the call over to Tom, to discuss our financial results. And then following Tom's remarks, I'll return to provide some additional highlights and commentary and then we will open up the call for your questions, Tom?

Thank you Mike and good afternoon everyone. Jumping right into the results for the quarter. Total revenues in the first quarter of 2017 increased 5% to $78.8 million compared to $75.1 million in the same period of 2016. Our first quarter service fee equivalent revenue increased 16% to $57.9 million, with the increase primarily driven both by new and expanded client relationships. Between $1 million to $2 million of our service fee equivalent revenue increase was due to the accelerated timing of activities that we previously anticipated would have occurred in the second quarter of 2017. As expected our product revenue declined to $11.3 million compared to $13.6 million in the same period of 2016, due to ongoing restructuring activities by our last remaining client under this legacy business model and their discontinuation of certain product lines. Service fee gross margin in the first quarter was 30.9% compared to 34.6% in the same period last year. The expected decrease here was due to the impact of several large fulfillment claims that were implemented subsequent to the March 2016 quarter which continue to operate at a lower than targeted margin performance. Through various initiatives we are targeting to improve the financial performance of our omni channel operations activity while also continuing to focus on higher margin professional services engagements. We continue to expect gross margins to range between 27% to 32% percent going forward with margins targeted at the high end of the range over the next two quarters and somewhat lower during Q4 as a result of the higher proportion of lower margin fulfillment services commensurate with the holiday period. SG&A expenses during the first quarter were $21.7 million compared to $17.6 million in the year ago quarter. This increase was primarily the results of acquisition related, restructuring and other costs in the March 2017 quarter of approximately $2.7 million. As compared to a benefit that we recognized of $0.8 million in the prior year quarter. The $2.7 million expense in the March 2017 quarter includes two primary components. The first is a $1.4 million expense related to an increased earn out provision, a quick boat to our across few acquisition. As we have discussed previously, 2017 is the final earn out period left a [indiscernible] to our 2015 acquisition of CrossView. On a quarterly basis, we revalue the earn out obligation based on updated financial projections for that business. As a result of improving financial results the revaluation of the required earn out liability increased this quarter. The second component of this expense is primarily related to restructuring related employee severance costs. During 2017, we are striving to further integrate our acquired businesses and optimize our overall reporting and cost structure. In conjunction with this, during the first quarter, we eliminated certain executive positions in the overall PFS business. We expect to report further restructuring related costs in Q2 though at a much lower amount and we will continue to look for incremental opportunities to reduce our operating costs throughout the business. For the first quarter of 2017, adjusted EBITDA came in at $3.7 million compared to $3.8 million last year. As a percentage of service fee equivalent revenue, adjusted EBITDA was 6.3% compared to 7.5%. The expected decline in adjusted EBITDA margin was primarily driven by the decline in the service fee gross margin previously discussed. Now let's review our 2017 outlook. We continue to expect 2017 service fee equivalent revenue to range between $240 million and $250 million, reflecting growth of 5% to 9% from 2016. We are also reiterating our target for adjusted EBITDA to range between $23 million and $26 million, reflecting 26% to 43% percent growth from 2016. As we have stated previously, we are focused on driving higher margin omni channel operations activity in 2017. This will present a slight revenue headwind as we plan to utilize the related infrastructure capacity for more profitable engagements in the second half of the year. As a result of this and the acceleration of some of our expected Q2 revenue into Q1, we currently expect our service fee equivalent revenue to be down sequentially as compared to Q1. However we do expect to see moderate sequential improvement in our adjusted EBITDA profitability in Q2 and then expect further benefit from our profitability and initiatives taking hold in the second half of the year, including the full transition of a lower margin discontinued client off of our platform during the second quarter, making further adjustments to our overhead and operating costs and our focus on higher margin service offerings. So on an overall basis our updated projections for the first half of the year are generally in line with our original expectations. We just had a little acceleration of some of the activity in the quarter one. This concludes my prepared remarks and I'll turn the call back over to Mike. Mike?

Thanks Tom and before we move into the quarterly bookings, I wanted to comment briefly on a few press items. Hopefully you saw our press release a couple of weeks ago, announcing our new relationship with Yeti, the Premium Cooler and Drinkware brands selected our live area agency to design their new e-commerce site that is scheduled to go live later this summer. We're thrilled that this iconic brand with such a loyal following shows us to help them create their next e-commerce experience. In addition a few weeks ago it was announced that See's Candies won a Webby Award for best shopping website. If you recall last year we announced that our library agency did the redesign and implementation of the new See's Candie's e-commerce site. Since that new site launched the client experienced a significant year-over-year lift in both online conversion and revenue. We're extremely proud of the work performed for the client and to see other industry experts honor us with an award, makes it very special. Moving into bookings for the quarter as a reminder we are reporting bookings for the discrete quarter for which we're reporting in this case we will report bookings from Q1 to January 1st through March 31, 2017. In addition to disclosing the number of bookings each quarter, we will estimate the expected revenue from project engagements as well as the lifetime contract value for recurring revenue engagements based on client provided information as well as the expected length of the contract. You can review more detailed information or definitions of these metrics and terms on the investor page of our website or by referring to prior earnings calls. For those of you new to PFS, the first two quarters of the year along with Q4 from the previous year combined to create what we call our B2C selling season. When we typically sell all B2C projects and operations engagements that will be implemented prior to this year's holiday season. Bookings for B2B projects and operations engagements do not exhibit the same seasonality. With that said in the first quarter we booked 48 new agency and technology projects worth more than $9 million. We also booked for new recurring revenue service engagements worth approximately $11 million in lifetime contract value. The four recurring revenue engagement bookings include a variety of services ranging from retailer based agency services to fulfillment and customer care operations. The largest of these was a three year contract with an existing health and beauty client, to add two more brands from their portfolio. The first brand went live in March and the second is scheduled to go live in the second quarter. This three year engagement is worth nearly $10 million in lifetime contract value and will include merchandising, order management, customer care, order fulfillment and payment processing. It's very encouraging to bring on these two new brands and expand this enterprise client portfolio to 11 brands operating on our platform. It's also a great example of a continuing successful relationship with a long standing client that has grown through our executed land and expand strategy. Now with regard to the 48 project bookings. Similar to the last quarter these projects were a mix of technology and agency services for both new and existing clients, included in these are a variety of services such as new website build, define and design consulting services, ongoing managed services, digital marketing services and creative design services. To comment on just a few, first we signed a $600,000 contract with a nonprofit health care supply company to provide a variety of agency services, including creative as well as implementation services onto the sales force commerce cloud platform. We are also underway with contracts to provide them with additional operation services. The new website is expected to go live in the third quarter of this year. Some other notable project bookings include a $180,000 agency contract with a health and beauty brand to redesign their e-commerce site on sales force commerce cloud, a 2.5 million dollar contract with an existing apparel brand client to provide e-commerce development services on the IBM Websphere platform. A $260,000 contract with an existing CPG brand to redesign their subscription website, as well as a $500,000 contract with an electrical and industrial communications equipment manufacturer to provide e-commerce development services on the SAP Hybris platform. Now as a reminder we referred to our global portfolio as engagements which can be defined as a single e-commerce operation for a single brand with a recurring revenue stream from any of our services offerings. Based on that definition we currently maintain approximately 175 active client engagements to provide services from our agency technology or operation businesses. Overall, I am very pleased with the performance of our sales team more than halfway through the 2017 B2C selling season. Particularly given the healthy project pipeline we carried into the second quarter, as mentioned in my opening remarks. As you may recall from our previous quarterly updates, we have moderated our outlook for operations engagement bookings in 2017 compared to the unprecedented engagement bookings performance last year. Last year's performance was built by the signing of three large fulfillment deals, that ended up creating certain operational challenges for us in the back half of 2016. This year we are being more selective and I would anticipate signing more small to medium sized deals at higher margins that can occupy current available fulfillment capacity. It's also important to note that our current pipeline for both projects and recurring revenue engagements have the capacity to fulfill our financial objectives for the year as we maintain our 2017 adjusted EBITDA and service fee equivalent revenue guidance. As Tom noted, we expect our 2017 service fee equivalent revenue to grow mid to high single digits, with adjusted EBITDA growth of 26% to 43%. These anticipated 2017 results reflect our decision to transition engagements that do not meet our minimum level of profitability, freeing up resources for higher margin engagements to come online in the second half of the year. We continue to expect a return to a long term organic service fee equivalent revenue growth of 10% to 15% percent and we plan to continue performing at a high level for our clients to ensure an exceptional shopping experience for their customers. Tom and I look forward to engaging with all of our investors to answer questions and communicate over the exciting story and we'll have many opportunities to meet with you at various conferences over the next quarter. And as always we're happy to make ourselves available by phone. Eric, we will now open the call up for a question and answer. Q - Unidentified Analyst: Hey gentlemen good afternoon. This is Jason on for George.

Hi Jason, how are you.

Good. Good. Thank you. So you've seen very nice growth in the B2B pipeline over the last couple of quarters. Just wondering if you can give any more detail on where you're seeing that strength of it's being driven by any particular verticals or categories and maybe updated thoughts on how big you think that can be over time?

.: And the pattern that we continue to see is manufacturers that are supporting small to medium sized customers, typically supporting them with manual sort of cost intensive ways of processing orders and maintaining the relationship and by deploying in e-commerce site that can effectively support that same customer base much more efficiently and inexpensively and actually in the end provide a much better customer experience. And so it's not surprising that most of the expansion we've seen is been around helping clients to deploy e-commerce platforms in order to provide that customer service. One of the interesting things about B2B platform development is those projects tend to be larger and take longer primarily because you are implementing a higher level of custom functionality for the manufacturer compared to what you would typically see in a B2B website. So sometimes when we come out with a project it's $2.5 million or $3 million or higher. It really does reflect the amount of custom development that's being done to automate what in some cases are you know very custom business processes that the manufacturer may maybe supporting. As far as the size of the opportunity. We continue to be encouraged by the fact that as external research analyst like Forrester and Gartner look at the opportunity they see a much higher level of growth in spend around services spend against these e-commerce platforms over the next three to five years relative to that same spend against B2C opportunities. And so they continue to be very bullish about the opportunity. I think we are in position because of the fact that we're platform agnostic and we support all of the enterprise platforms including the two that have the best B2B functionality today to more than take our share of that market as it grows. The real question, it's hard to answer is how much account expansion opportunity is there beyond the technology services area for marketing services and for operation services. We still have a land and expand strategy with these clients and we are engaged with several in discussions about supporting their B2B activities with both agency type services as well as operations services. But I would caution you to kind of understand that the sale cycle it tends to be a little bit longer on the B2B side as you have maybe a more complex decision process with the manufacturer and more internal constituencies that you have to work with the kind of work through the implications of operation style engagement. So I'm going to be I guess cautiously optimistic as we look out over 2018, 2019 the next three to five years that we will start to see land expand creating some additional recurring revenue opportunities past these lucrative projects that we're seeing today.

Perfect. Thanks for the color on that. I just wanted to pivot a CrossView. Obviously we are seeing some nice improvement there over the last couple of quarters. Is there any more detail you can provide on where you're seeing that improvement? Is it particular platforms that are gaining market share or is it execution. Perhaps it's a blend of both. Any more color would be great.

It actually is a blend of both, compared to where we were this time last year. We are seeing you know strong performance with both platform supported. You may recall that when we acquired CrossView is was to add the IBM Websphere and the SAP Hybris platforms to our platform mix and that addition actually is what created our support for all 5 platforms that are currently in the market at the enterprise level today. Last year we saw a strong performing SAP Hybris platform especially in the back half of the year that is largely based on this B2B project activity. We continue to see very encouraging results in the SAP Hybris platform including the one of the projects that I even mentioned in my prepared remarks. They are even according to third party research analysts like Forrester and Gartner really providing the best B2B features and functionality out of the box and they also have a very strong B2C platform. But we've been encouraged by the performance of the IBM platform as well this year as largely through opportunities to help our current clients continue to invest in that platform. But we've also won some new clients that were already on the IBM Websphere platform, but we're consuming services from a competitor and have been able to dislodge a competitor and so the growth that we're seeing there, the performance that we're seeing there is largely from the existing install base of Websphere customers. That being said we have a very good relationship with IBM and I think are poised to be able to benefit should they see an uptick in new installs going into the market as well. But we also have seen just really good execution from that part of our business. Good cost controls we had made an effort last year to cross-train resources between those two platforms as well as our sales force e-commerce cloud platform and that is one fruit as we have been able to move resources back and forth between those platforms and that keeps our costs lower, as we are able to maintain a smaller bench than we might otherwise if we were only focused on one platform or had our resources sort of siloed on a single platform.

And our next question is from Mark Argento with Lake Street Capital Markets.

Hey guys good afternoon.

Hey Mark.

Just couple questions around the B2C side of the business obviously can I have a little bit of additional capacity that you like to fill in your transition one client off the platform. Are those going - are you focusing more on end-to-end type customers or you still willing to do just kind of an operations kind of pick pack and ship or how should we think about the you know, I guess how can you drive higher margins there and does it have to be end-to-end?

It doesn't have to be end-to-end. We are very focused on leveraging current client relationships and land and expand as a way to create end-to-end clients. As we've I think indicated over the past several conference calls, we see fewer opportunities come into our pipeline that are end-to-end as a starting point than we might have seen three or four years ago which I think just reflects the trend in the market to consume best of breed. We think we still have a very favorable answer to that trend in that each of our three business units because of the work that we have done and the acquisitions that we have done our best of breed. And so we can't engage in the either or best-to-breed or end-to-end fashion in the pipeline. But our best opportunity to create end-to-end clients is actually through land and expand. And I do think that the margin expectation that we would have when we're talking to an existing client there is a professional services client and we're up selling them on our operations services because we have the benefit of the overall relationship we might tend to see a somewhat higher margin profile on the operation side from existing relationship. But the primary focus for us is to make sure that we are targeting vertical markets where we have the experience and we have the economies of scale already in place and we have the features and functionality within the operation both technology and mechanical in order to limit risk and to enhance the margins. And so we're focusing on our traditional verticals of fashion and apparel, accessories, health and beauty, collectibles home fashion and CPG manufacturers where we believe we can have both predictable and higher gross margins for those verticals in the operations area. And that is largely what we are replacing that client that is moving out is with current client engagements in particularly the health and beauty vertical. And if you look at our sales pipeline right now it's primarily fashion brands and health and beauty brands which obviously we know a lot about and which slides very nicely into our operation with the existing capacity that we have.

That's helpful. And then just one follow-up. In terms of you know historically demand you guys did a lot on the B2C side with Demandware I guess B2B and B2C I guess but B2B in particular needs to be a big lead generator for you guys and bringing you RFPs. Now that the sales force is operating Demandware. I know it's still you know probably management for the most part you know the range or Demandware management the leads operations people are the same but are you still able to generate decent leads from what I guess now is called commerce cloud, now is that dynamic change, now that you know they've been in house that sales force for nine months now?

So we are actually very encouraged by the transition and the evolution of that relationship with sales force commerce cloud. We had put up our press release out at the very end of last year announcing what we called our full force solution which is really the productize combination of our support for sales force Commerce cloud and sales force Marketing Cloud. We productized and branded it connected commerce and because we are the only technology services provider within the sales force ecosystem that has that solution it has the full force certification. It really has opened up some interesting opportunities for us to receive additional referrals from sales force that we might not otherwise have had. Now that you have both the Commerce cloud sales force as well as the Marketing Cloud sales force effectively working on our behalf. That being said it is our aspiration and it's our current performance to generate at least half of the leads that we're pursuing with our own sales and marketing team and to be less dependent upon any platforms sales force to referred leads to us. And so you know at this time even though we have a healthy relationship with sales force and we are receiving lead referrals we're generating 50% or more of our lead opportunities right now from our own sales and marketing efforts. It gives us the ability to connect with the client and determine if they already have a platform, choice that's made or if they have a leaning towards one platform or the other, or if we can help them to evaluate their needs and recommend a platform based on you know their needs. You mentioned B2C and B2B sales forces is primarily today B2C platform we have implemented a couple of B2B businesses on top of the platform in conjunction with a B2C project for that same client. But at this point you work extra hard to make the sales force Commerce cloud platform perform with complex B2B requirements. And so if we're talking to a client for instance than both B2C and B2B requirements then we're in a position to cancel them on their best choice. Clearly we really appreciate that opportunity and wherever whenever we can get it. But we will hopefully have this year some very specific announcements with regard to wins on the sales force commerce cloud platform and we'll indicate where we've gotten those through referral. And I think you'll see that we continue to have a really good relationship with them and continue to be a premier provider in their ecosystem.

Great, that's awesome. Just also for Tom, I like the new format of the press release, so keep up the good work. Thanks guys.

Thank you.

Thanks Mark.

[Operator Instructions] And we'll go next to Michael Graham with Canaccord.

Hi it's Austin on for Mike. I have two questions please. You know last quarter you mentioned you'd be more aggressive in examining your client portfolio. So can you go into a little more depth on how that's been going and have you identified any other engagements that are perhaps not meeting your targets that you anticipate transitioning in the future. And secondly your comment on the half and half of your signings being high margin and longer contract. Can you just maybe say what that's been like historically tickets and context. I am wondering how much better that might be than in quarters past? Thank you.

So on the first question we have really I think completed the process of evaluating our clients and ones where we felt like there was an opportunity to improve margins or exit the client if there was an opportunity to change the pricing or our cost basis to improve the margin. And at this point in May, I believe we have identified those that we are transitioning out have done some work to renew contracts with some others. And our expectation at this point is that the guidance range that we have for both our service fee equivalent revenue and our adjusted EBITDA reflects all transitioning clients and the expectation we have for contract renewals. So without getting into details of which specific clients maybe transitioning. We do expect that the efforts we are making are going to yield the results that we were anticipating in that area. And primarily that work has been done in the operations area as we had indicated before where we felt like we had capacity that we were utilizing for a lower margin client where having freed that space up, we would be able to move a client in that would operate at a higher margin more consistent with the gross margin range we expect in that area of the business. So that's being successful at this point. The answer to the 50/50 question. So I believe if you look back to last quarter the service fee, the lifetime contract value would be I think similar for Q1 the project revenue would probably show a slight decrease, but if you look at the selling season overall which as we've defined is Q4, Q1, Q2 and just the very first part of Q3 and you look at Q4 performance in 2016 combined with where we are in Q1 and then if you look at if you were able to look at the strength of our project pipeline going into Q2, I am confident that we have a very good selling season in motion. And once again we've got the projects that we have either booked and are now working on or that we believe have the potential to book in the remainder of Q2 to meet the guidance expectations that we've set. I would say that as I said in my prepared comments you should expect over the remainder of this year for us to have a lower level of recurring revenue bookings for 2017 that we had in 2016 which is by design. And the expectation is that the ones that we do engage with will operate at much higher margins than the three large deals that we signed had so far operated. We are also very focused on working to make sure that the other two large contracts that we signed last year not including the one that we're disengaging from at this point in time, that we do improve the operation of those and move them up to contributing at a higher gross margin than they were at the end of last year.

And we'll go next to Kara Anderson with B. Riley and Company.

Hi good afternoon.

Hi Kara.

Hi. Just going off the last point actually that you made with regards to the two large contracts you signed last year. Is there any risk to losing those clients or disengaging them off the platform at this point?

No I don't - I wouldn't identify any particular risk at this point. I believe that you know we are working with both clients to look at the future and their future needs and plan for that future. One particularly particular client I believe is projecting higher growth than they would have at the start of our client and so their ongoing conversations about how to accommodate that growth which is a very positive indicator of the long term relationship. We still have work to do and are active in working to improve our overall operations there. But I would indicate that there is a heightened level of risk associated with either of those two disengaging at this point.

Okay great. And then, what was organic growth in the quarter. I guess after you consider the Conexus acquisition in June last year?

So the service fee equivalent revenue growth would have been about 3 points lower. So somewhere in the 13% range on a year-over-year basis, if we took out the Conexus impact.

Okay. And then there's been quite a few headlines lately around store closures. Can you talk about how that could affect your business whether positive or negative?

Sure. So I think generally speaking as retailers tighten their focus on their brick and mortar stores and if they are operating an online channel which obviously all of our clients would be we tend to see them refocusing and increasing their investment on their online channel. That obviously works to our favor two ways. One is that, we'll benefit from their increased investment in their e-commerce channel. They'll buy more professional services from us as they add more features and functionality and to the extent that they are operating on our technology platform where we have the opportunity to charge 8% of revenue fee or a quick charge associated with transactions that are flowing through growth in that area benefits us as well. And if it's an end-to-end client engagement than that benefits in increased transactions helps us in our operations area. But the second area where I think that we stand the benefit is as brands and retailers do shrink their store footprint. They're tending to focus on stores in major metro areas that you might call flagships stores where they do believe that they're able to continue to generate good traffic to those stores. It gives us an opportunity to help them to implement an omni channel solution to integrate those stores into the e-commerce experience and leverage those stores as a fulfillment point by providing their customers with the ability to order online and pick up in-store that same day or have that product courier delivered from that store, that same day, or even free freight you know by late in the day or next morning. In other words help our clients compete against the service level that Amazon is providing in major metro areas today as well. We believe that there is a great opportunity for us to help our clients to do that. Many of our clients we are engaged in helping them with their omni channel initiatives today and I think that's a growth opportunity for us as we look to the future and so we help retailers focus on how to cut their costs and how to compete against Amazon. The one thing that we do have to monitor and be careful about is taking on a retailer that their consolidation or their focus on their stores might potentially create financial difficulties for them that make them non-viable. We are very careful about taking on clients that are general merchandise retailers. That being one of the reasons and we want to make sure we engage with our clients as we were able to with BCBG one of our clients that is going through a restructuring process and making sure that we are protected in that process and that we're helping them focus on the online store which is the area where they can generate the highest returns for themselves as well. So that certainly is a focus area for us as we look to protect ourselves.

Thank you. That's it for me.

And we'll go next to Tom Champion with Cowen.

Good afternoon and thank you. On the expense side SG&A was a little higher than we had modeled. It seems like there were some one timers in there. I guess the question would be if there's any additional optimization of the platform you foresee or whether it's basically tailored appropriately at this point. And I guess secondly, I am just curious if you could expand on the B2B opportunity that you see longer term and maybe what that could be as a percentage of revenue? Thank you.

Okay. So from a SG&A perspective, our reported number for the quarter was about $21.7 million. As per my prepared comments that included about a $2.7 million incremental charge associated with restructuring and acquisition related activity which about half was the increased earn out provision for the CrossView earn out liability and the other half was some severance costs associated with kind of optimization and integration of our business models. So we've got a keen focus this year on evaluating all costs in the business and trying to create some efficiencies on our side to drive as much as we can out of the model. We will see some additional changes that will be happening during the June quarter that will you know provide further assistance there. But you know from both a cost to fee and SG&A perspective we are looking at all costs in the business in order to generate an improved EBITDA performance overall.

And then Tom an answer to your second question about B2B. So today about 15% of our total service fee equivalent revenue that classifies B2B oriented that would be the combination of both operations activities that we're doing for clients as well as the projects that we're doing that we classify as B2B. I think with the growth in B2B we can see that improved to 20% to 25% of revenues just based on project mix as well as being successful at land and expand where we take a project engagement and then start to help them with operation services whether that's technology type operations such as order management or even physical operations like fulfillment and customer care. The real opportunity to improve that percentage over the long term to something you know in excess of 30% maybe 30% to 40% even would come from additional innovation opportunities that we may look at where we could support a manufacturer with operation support services that are not necessarily tied directly to our physical infrastructure like the fulfillment center that releasing or a call center that we operate. We currently deploy our technology in our clients' environments selectively, such as moving our customer service application into a call center. The ability to put technology into a store for the omni channel type work. We're looking at the opportunity to extend that same technology support role into B2B activities and potentially provide B2B clients with technology and operations support say in a call center for B2B customer service or even in a fulfillment center for B2B fulfillment. If we are over a longer term able to execute on that than we might see an even higher take rate from this growth in B2B and our revenue mix might move you know as I said above 30%. We would think that as a favorable trend for a couple of reasons; one is, B2B activities in our operations would not have the same seasonality that B2C does, we have got this large ramp in Q4. Obviously that would be good, it was smooth out our financial performance and also gives opportunities for additional leverage of our workforce particularly our operations management workforce and then currently we would expect B2B engagement overall to be more profitable for us because of the additional complexity on the project side as well as certain opportunities to increase profitability by adding less labor and less least concrete factored into an engagement.

Thank you.

.:

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

Thank you Eric. And I'd like to thank everyone that attended the call today. I hope that it comes through in our tone that we are incredibly excited with the many developments in our business. We're also looking forward to speaking with our investors and analysts one-on-one, over the next couple of months as we attend a variety of conferences and we encourage you to use those opportunities to meet with us face to face. And then we'll be back in front of you reporting our second quarter results in August. Until that time, thank you for your support. We look forward to speaking with you.

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time.