Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Speed Commerce, Inc. (NASDAQ:SPDC)

F3Q 2014 Earnings Conference Call

February 5, 2014 11:00 am ET

Executives

Richard Willis - President & CEO

Terry Tuttle - CFO

Analysts

Mark Argento - Lake Street Capital Markets

Jared Schramm - Roth Capital Partners

Mike Malouf - Craig-Hallum Capital Group

Wilson Jaegly - Southwell

Steve Emerson - Emerson Investment Group

Operator

Good morning everyone and thank you for participating in today's conference call to discuss Speed Commerce's Financial Results for its Fiscal Third Quarter ended December 31, 2013. Joining us today are Speed Commerce's President and CEO, Mr. Richard Willis, and the company's CFO Mr. Terry Tuttle. Following their remarks we'll open the call for your question.

Before we continue we would like to remind all participants that during the course of this call that we may make forward-looking statements regarding future events or the future performance of the company which are based on current information are subject to change and are not guarantee of future performance. Speed Commerce does not undertake any obligation to provide updates to these forward-looking statements in the future.

Actual results may differ substantially from what is discussed today and no one should assume that at a latter date the company's comments from today will still be valid. Speed Commerce refers you to the documents that the company files from time to time with the SEC specifically the company's most recent Forms 10-K, 10-Q and 8-K which contain and identify important risk factors that could cause actual results to differ materially from those that are contained in any of the forward-looking statements.

I would like to remind everyone that a webcast replay of today's call will be available via the Investor Section of the company's website at www.speedcommerce.com.

Now I would like to turn the call over to Speed Commerce's President and CEO, Mr. Richard Willis. Sir, please proceed.

Richard Willis

Thanks. Good morning everybody. Thank you for taking the time to be on the call. We're very pleased with our third quarter results and where our performance has been year-to-date. In the third quarter, we had an incredible amount of activity that touched just about every part of our business. So I thought it would be helpful if I just pulled out some key takeaways so you can focus on those for the quarter. So that's 70 takeaways I want to take you through. Then Terry will take you in a little more detail through the numbers, and then when we come back, I'll talk a little bit about next fiscal year.

So the first takeaway was that we delivered on our sales growth. E-commerce and Fulfillment was up 52% about $11 million for the quarter and up $50 million for the year-to-date. CE&A, our Consumer Electronics and Accessories business was up $15.3 million or 32% for the quarter and up about a third again 33% for $27.6 million year-to-date.

So I think it's important to look at the business for our non-software revenues. If we do that those are our areas of growth that we focus on. Our non-software revenues were up 38% in the quarter $26.4 million. Year-to-date, pretty big number$77.5 million up or 62%. So the guys are doing a really good job on our growth targets for sales growth.

Second, we did a good job on getting new accounts. In the CE&A business we shipped AT&T mobile stores for the first time. This is the first we shipped anything one of the mobile store chains and in February we're making our first shipments to the T-Mobile stores. So nice job from the CE&A guys breaking into that new business.

On the e-commerce side of the business, we've talked about we have AAFES and NEXCOM, the Army Air Force Exchange and the Navy exchange that's coming on. And you might remember we said that there's two times of the year when we find out if we're going to get new accounts generally and in the fall and then the early one or spring. So that way we know which new accounts we're going to add for that for early one or spring category. And we have six that we're going to be working with. So we're really excited about that.

There's ATB, we got a couple of sites for Lowe's, Huawei, the Chinese cell phone manufacturer, and then we've got two that are coming up from a large international retailer that they're kind of giving us a test. If we can do these sites then we can bid on their bigger total U.S. domestic business. So we'll have eight new accounts as we go into fiscal next year which is the largest number we've ever have.

Third takeaway is that we finalized all the moves, we did sorter (inaudible) got all that done before the holiday season. Took a little extra work to do but we were able to do it. And if you recall just quickly, we moved our Canadian facility, we shut down our Minneapolis warehouse, brought that down to Dallas. We moved our headquarters from Minneapolis to Dallas, and then the new facility we built out in Ohio was double the size of what we previously had. And then obviously we got the sorter up and running. So we really built that for growth. So again in the Columbus we can probably do two times the volume that we did this year in the future, but we needed that this year. If we wouldn't have built out Columbus and had the sorter we would have had a pretty tough holiday season.

Fourth, we kept our operating cost down. Our operating expense as a percentage of revenues was 7.4% of sales and 9.1% year-to-date. And remember, our general target is always to keep that number under 10, so we did a nice job there.

Fifth, and one of the highlights I like, is because of the mix change to e-commerce. We improved our gross margins 190 basis points. So nice big move in gross margins. We're up 100 basis points year-to-date at about 11.5%.

Sixth, we did a really good job of managing the client software business. We had pretty decent sales in software in October and November but we're just seeing a lot of reorders and replan in December. So that's really when we figured out that the revenues weren't going to be there. And the revenues were off $21 million about 19.5% for the quarter, and so far to-date we're off $46.5 million or 18.6%.

We worked really hard to evolve this into a variable cost model to minimize the impact on our EBITDA. And for us to be $46.5 million off and still be able to make our EBITDA I think the guys are doing a nice job of managing that business down.

And then seventh, we delivered on our EBITDA goals. In the third quarter, we achieved $10 million in EBITDA, which was an 86% increase over last year. Our year-to-date EBITDA margins are a little over 5.5% versus there were about 3% for the quarter and year-to-date were about 4.2% versus 2.1% last year. So our EBITDA for the year-to-date is up 106%. We're just a little bit under $17 million. So terrific EBITDA results. We're very pleased with how the holiday season went.

So with that, I'll turn it over to Terry and then we'll come back and talk a little bit about 2015.

Terry Tuttle

Thanks, Richard, and good morning everyone. As Richard mentioned in his opening remarks, net sales in the e-commerce and fulfillment services segment increased 52% in the fiscal third quarter to $32.6 million from $21.4 million in the year ago quarter. This increase resulted from the addition of new e-commerce clients, strong growth in year-over-year sales from outgoing clients, as well as the full quarter's net sales from the business unit formerly known as BFC.

In our CE&A distribution business, net sales in the third quarter increased 32% to $62.6 million. This is compared to $47.4 million in the year ago quarter. We believe it's worth noting that this growth was achieved despite the fact that we are now lapping strong quarters in fiscal '13. In Richard's closing remarks he'll discuss some of the initiatives that we expect to continue to drive sales in this business as we wrap up fiscal '14. This includes new vendor partnerships and some retail categories that are seeing some decent growth.

Net sales from software distribution declined 19%, as Richard mentioned, to $86.7 million from $107.6 million as a result of the continued customers' overall reduced demand for packaged software products. Taken together, this resulted in net sales in the distribution segment from ongoing business during the third quarter decreasing 4% to $149.3 million from $155.0 million in the year ago quarter.

So consolidated net sales in the fiscal third quarter of '14 increased 2% to $182.5 million from $178.3 million in the year ago quarter.

Adjusted gross margin in the third quarter increased 190 basis points, as Richard mentioned, to 11.4% compared to 9.5% in the year ago year quarter. This increase is primarily due to the increase in net sales from the higher margin e-commerce and fulfillment services segment.

During the third quarter, total adjusted operating expenses increased slightly to $13.3 million from $13 million in the year ago quarter. This includes taking into account the operating expenses of our SpeedFC acquisition. As a percentage of net sales, adjusted operating expenses actually remained flat at about 7.3% when compared to the year ago quarter.

Net loss in the third quarter was about $1 million or $0.02 per diluted share compared to net income of around $10,000 or $0.00 per diluted share last year. The third quarter of 2014 included $7.4 million in transaction and transition expenses that primarily arose out of the company's realignment of its fulfillment and distribution infrastructure as Richard mentioned.

Our adjusted EBITDA for the third quarter increased 86% to $10 million compared to $5.4 million in the third quarter of fiscal '13.

And now turning to our results for the first nine months of fiscal '14 here's what happened. Net sales in the e-commerce and fulfillment services segment increased significantly in the first nine months of 2014 to $83.2 million from $33.2 million in the same period a year ago. This increase was primarily due to the addition of new e-commerce clients, strong growth in year-over-year sales from ongoing clients as well as the inclusion of net sales from the business unit formerly known as SpeedFC.

In our CE&A distribution business net sales in the first nine months of '14 increased 33% to $111.4 million compared to $83.9 million in the same year ago period.

Net sales from software distribution declined 19% to $203.4 million in the first nine months of '14 from $249.8 million in the same year ago period. This resulted in net sales in the distribution segment from ongoing business during the first months of 2014 decreasing 6% to $314.8 million from $333.7 million in the same year ago period.

Consolidated net sales in the first nine months of 2014 increased 7% to $399.3 million from $373.7 million in the same year ago period. Adjusted gross margin in the first nine months of 2014 increased 100 basis points to 11.4% compared to 10.4% in the same year ago period.

During the first nine months of 2014 total adjusted operating expenses increased slightly to $35.4 million from $34.3 million in the same year ago period. However, as a percentage of net sales adjusted operating expenses actually declined 30 basis points to 8.9% from 9.2% in the same period a year ago.

Net loss in the first nine months of 2014 was $7.6 million or approximately $0.13 per diluted share compared to a net loss of $72,000 of $0.00 per diluted share last year. The first nine months of 2014 included $15.5 million in transaction and transition expenses.

Our adjusted EBITDA for the first nine months of 2014 increased 107% to $16.9 million compared to $8.2 million in the same period last year.

Now turning to balance sheet, we ended the third quarter with $30.9 million of revolver debt compared to $29 million last quarter and $17.4 million in the year ago quarter leaving us with $13.2 million of excess capacity. The increase in debt was primarily related to trade season working capital including necessary inventory growth as we discussed before.

In regards to working capital needs, as we continue to replace sales of software products that were purchased on a consigned basis with consumer electronics and accessories that are purchased on a terms basis we'll continue to see additional investments in inventory. In the third quarter we saw inventories increase $3.1 million to $54.8 million from $51.7 million at the end of September.

As you may recall, on October 1, we closed a public offering for approximately 8 million shares of our common stock. Net proceeds of the company after underwriting discounts and commissions and offering expenses were approximately $21.8 million. The proceeds of this offering were used for general corporate working capital purposes including capital expenditures towards our sortation equipment and building of our warehouses.

Now turning to the outlook for fiscal 2014, our adjusted EBITDA guidance for 2014 remains on track and is expected to range between $19 million and $21 million, an approximate increase of 69% to 87% from fiscal 2013. To reflect the decline in software sales we are lowering our revenue guidance with sales now expected to range between $490 million to $515 million, an approximate increase of 1% to 6% from fiscal 2013.

With that, I will now turn the call back to Richard before we go to Q&A. Thank you.

Richard Willis

Thanks, Terry. For those of you who followed the company for a while what I'd like to do is lay out five or six things at the beginning of each year that you can track and kind of see how our performance is going. So as we look forward to fiscal 2015, which remember for us starts April 1, I've got five key strategy points and then a sixth one if we've been successful.

So the first thing most important we need to do is to continue to key market segments and there's four things to talk about there. First, in e-commerce we need to leverage our new sales and marketing team. We hired Todd Cameron as our VP of Sales and Marketing. He's building a staff. By the end of March he'll have six people and their total job is to focus on new account generation.

In CE&A, we need to focus on those larger vendor partners that we do business with and continue to drive products into the mobile channels. In Canada, again we've started the season' flatness in Canada actually down a little bit in the quarter because the software sales have started to decline up there. So usually Canada what we've seen is there maybe a year and a half, two years behind, so we're starting to see some of the software declines up there. So to get that back as a growth market we need to open up some mobile stores up there and continue to sell hard the CE&A business.

And then we need to restart selling our 3PL business. About a year and a half ago we just sold with the customers that we had, we kept those and really wanted to make our systems efficient. So we really got that business down now and then obviously we moved it from Minnesota to here, so we didn't want to be selling anything in that period of time. So now we are through the holidays, the guys are going to jump back on that and start selling the dark retail business.

Good thing about that business, the margin characteristics are similar to what we see in the e-commerce business.

Second thing we need to do in fiscal '15 is onboard those eight new customers in sites that we, so between March and August, we've got we were bringing on AAFES, NEXCOM, the two retail sites for that retailer, two sites for Lowe's, HEB and then again to Huawei. So that's more than double in the on boarding period we've had before.

So we are excited, because we are able to sell those accounts, just go to focus and make sure we deliver the company for growths. So in 2014, we focused on the physical growth, so again we moved the warehouses around built that out. In '15, we are focused on our IT enhancements, making sure we've got the right IT staff to be able to continue to growth, come out with new features for the customers and then we've got some key strategies that we are working with Oracle on the HEG platform.

Fourth, we need to drive cost efficiencies. So like I just said in '14 we focused on we just need to get things in the right place, get the build outs done, get the sorter up and running. This year it's about making sure those are efficient. Jeff Zisk, the founder of Speed, it's a big initiative for him this year; we just need to grind out efficiencies with cost reductions and productivity improvement. We started with an op submit that Jeff had it January, so he got a nice list of things to work on the guys are going to attack this year.

Fifth, we got continue to manage the software sales decline. The team is doing a really good job selling out there and again we think that the numbers are probably going to come down in the 20% range. We have done a good job over last decade or so, we've moved to five different categories that we sold into those retailers. So again, the thinking if they've got product they can sell it and see that in CE&A all the growth we're having.

We have also come up with a couple of ideas how to maybe go back up the supply chain from our vendors a couple of notches which might allow us to be able to sell some more categorically product, but no (inaudible) or anything, its just something we're working on; just want you guys know the guys are really working hard to make sure that we sell as much software as we can as that continues to bottom up hopefully. And we are still on track to make the decision on what we want to do long term in the retail distribution business and by the end of our year, which is again as March.

If we do those well, number six would be that we look at some acquisitions. On the last call, you might remember that I'd said look we just got be heads down and make the holiday quarter. So we obviously didn't do any acquisition activity then, but now we are going to start looking at some opportunities, we're going to get some out from couple of investment banks to help us see where we can shake it out. Probably those will focus on marketing and fulfillment. Again, we've got two front-end platforms the propitiatory system and HEG, so probably not looking to expand that, but really looking for things of marketing and probably fulfillment.

So that's a quick look at the five or six things we're going to focus on that you can track in fiscal 2015, and then again just a quick summary of the seven takeaways for the quarter. The first was we delivered our sales growth in e-commerce and CE&A, so great job from the sales guys. Second, we did a nice job get new customers in e-commerce and CE&A. Third, we're successful getting all the moves done, we got the sortation equipment up and running for the holiday and again we probably couldn't have got the season without it.

Fourth, keep operating expense is down 7.4% kind of flat the last year. Fifth, we had a nice pip in gross margins again up 190 basis points in the quarter and 100 basis points for the year.

Sixth, we are managing the decline in software sales so that it has a minimal impact on our profitability, and finally our EBITDA targets we were able to hit all those for the third quarter and year-to-date, again up 86% for the quarter a little over double year-to-date.

So with that we like to open it up for any questions.

Question-and-Answer Session

Operator

Thank you, Mr. Willis, we will now begin the question and answer session. (Operator Instructions).

Our first question comes from the line of Mark Argento with Lake Street Capital Markets. Please go ahead, sir.

Mark Argento - Lake Street Capital Markets

My first question is just wonder if you could help us kind of peel the onion a little on the full guidance the $490 million to $515 million. How much do you except kind of the e-commerce growth relative to the distribution growth? Just because the numbers are still big on the software side when they come down it kind skews things optically a little bit. Maybe you could talk through at least kind of generally what you think the e-commerce business could and the services business could grow for the entirety of the year.

Richard Willis

Yeah, so one of the things that I think we haven't been clear, and it's our fault, that when we talk about e-commerce, sometimes we talk about channel and sometimes we talk about market segment. So a lot of the numbers that we give are for the channel. So for the channel for this quarter it was $56.5 million in sales and that includes what we do for Apple direct-to-home, what we do for Amazon direct-to-home. So really kind of what we look at as an e-commerce business. But if we are looking just specifically for the segment which is what we are poured on that number again we think it will be over $100 million and $110 million kind of range between the e-commerce and the 3PL business. And then all the decline, every bit of it comes in software.

Mark Argento - Lake Street Capital Markets

So the e-commerce segment, you happen to have I know you guys acquired the SpeedFC business, I think it was in November of '12, so you don't have a good kind of fiscal '13 good comp number, don't know that's something you guys could get outsourced, but I do think there is just a little of confusion in terms of kind of the comp base to grow off of, so if you guys can get that up (inaudible) --

Richard Willis

So the numbers we have given were, and again I'm sorry because of the channel segment thing, but we did $70 million in calendar '12 in that market. So just calendar to calendar and we will do with the $110 million or so this year in just the segment. So that's kind of a comp, again that was all of Speed when they were on their own; in '12 they did $70 million and then comparing that to this year it's off like three months, but still sales to sales will be somewhere around $105 million to $110 million.

Mark Argento - Lake Street Capital Markets

And then you mentioned the difference between the way you report on the income statement the e-commerce that's just kind of the Speed business by itself and it doesn't incorporate any of the online businesses that might be more kind of tethered to the original distribution?

Richard Willis

And again that's our fault for not being clear there. So when a lot of guys were looking for $50 plus mission that $56 million for is includes by Amazon and Apple direct ship to home. So we just need to be clear about segment versus channel in the future.

Mark Argento - Lake Street Capital Markets

And then the last question I'll hop back in the queue is the 3PL business you mentioned that business typically carries a little bit higher margin, is that business -- where right now is that business, do we pick that up in the income statement? Is that in distribution services right now or do you picked some that up?

Richard Willis

No, it's all in the e-commerce, because the way we split for the Q and the K the retail piece is where we own inventory and on the other businesses where we don't own inventory it's in the 3PL e-commerce piece. And again that's a pretty small number; that's less than $20 million in the 3PL, but that's how we split it is. We own inventory, its up and distribution; we don't own the inventory, it's down in the e-commerce in fulfillment. So it's more of a services model on that.

Mark Argento - Lake Street Capital Markets

And then kind of last question, you mentioned you are working with one of the world's largest retailers and they are kind of given you a task. Is this an international retailer sounds like and you are doing domestic sites for them or what kind of how --

Richard Willis

No, we are actually doing the two international sites for them, and they're just sites. As we talk about I don't see as planting a flag and building the distribution center somewhere unless somebody gives us enough business to do that, but their big U.S. domestic site comes up in about 18 months. So they are testing us with these two international sites to see if we fit with what they're doing. We get the right capabilities, so when they get ready to bid that business out they will have the opportunity, we will have the opportunity to prove to them that we could do it.

Operator

Our next question comes from the line of Jared Schramm with Roth Capital Partners. Please go ahead.

Jared Schramm - Roth Capital Partners

Looking at the CE&A segment any particular products that were strong here in the quarter? And additionally tying on to that how would you say that AT&T has performed getting that contract under your wing?

Richard Willis

So let me give you a couple of things we're big. The Phillips light bulb business and everybody kind of thinks how big could that business be, it still is a great growth business and did really well. Fitbit and Misfit were two good examples of how the wearable health market did well for us. We were the kick starter Pebble watch, we do all their distribution and that had just a fantastic holiday season. And then just some little products add-on things like the Olloclip was pretty big. Marshall came out with some branded headphones that's new in the market they did pretty big, and so the headphones sort of wearable market was pretty big for us as well.

AT&T we shipped the initial shipment center in the quarter they sold well, we started to do a little bit of re-plan there. So it's early obviously, but it's good to see that they sold through a lot of that and we've done some re-plan with them.

Jared Schramm - Roth Capital Partners

And then with that AT&T experience any learning curves that you can take into T-Mobile as you launch that here in February?

Richard Willis

No, I mean it wasn't -- they are smaller numbers, when we ship to mass retailers as big number goes into every store, they're just smaller numbers, but so far if we just got to get there on time, and so we were able to do that. So that really not much difference in what we did for the mass retailers.

Jared Schramm - Roth Capital Partners

Okay. And you talked about looking at cost efficiencies kind of going into 2015 here. Could you give a little more detail what particular and there is more automation and what are some of the key drivers you think you can promote some cost efficiencies going to next year?

Richard Willis

So the sorter we have days where we are running 100,000 units. So that was this good. It's just there is a big learning curve to get there and we could do much better than a 100,000 as well a day. So I think just working through the sorter issues and been able to get that running faster and more efficiently it's going to be a big piece. I think and then we did a nice job when we build up the warehouse we had to move out with stuff over from one warehouse to the next warehouse and the same we were up in shipping.

So I think some of the operational things that the guys have looked out, how we get product to certain places in the warehouse. How we get them off to the line and the shipping they learned a bunch of stuff over the holidays. Again, it's the first time we had enough space because we built the warehouse is like twice the size what it used to be. So we were able to learn some things about how to make the product flow more efficiently within the past we were just kind of tight and we did not have a lot of room to do some moving around. So the efficiencies will be in head count reduction.

Jared Schramm - Roth Capital Partners

And then looking at the software segment you're still managing to generate some positive EBITDA out of that as it declines here, but are we approaching a level where it's going to get increasing difficult to generate positive EBITDA from that or does that still maybe two, three years down the road potentially?

Richard Willis

I think it's still down the road, again kind of by the end of the year we will have a strategy for that whole retail business that we will talk to you guys about. But for what we can see again that the guys have done a really nice job when we moved down to Dallas of making that as variable as possible so it didn't really have much of an impact with the sales reduction, but it's still I -- as we look out I'm guessing its still cash flow positive out there a couple of years.

Operator

Our next question comes from the line of Mike Malouf with Craig-Hallum Capital Group. Please go ahead, sir.

Mike Malouf - Craig-Hallum Capital Group

Yes, I was really surprised you guys did a great job on the cost efficiency side and obviously you are going to keep trying to take that down. You previously said under 10% is your goal. As you look out over the next couple of years what can we be thinking on the OpEx on a percentage of sales?

Richard Willis

We need to get it down consistently under 9%, and that's where I think this order is going to come in and be able to drive that efficiency. Again, we're a little bit over 9 but some of the slower quarters we just need to be under 10%. So we got to say we always to be under 9 in the future and also drive that number down to 8.50% or something if we do a good job there. So again I've got a lot of faith in Jeff and the guys in the Ops business to be able to get us down where every quarter right around 9 and then on the good quarters we get a volume to do much better than that.

Mike Malouf - Craig-Hallum Capital Group

And then if I could just get a little bit of color on the guidance. You took the guidance from $535 million to $565 million down to $490 million to $515 million. I had thought that you were sort of on track for that 20% falloff based on the last quarter, which in this quarter you did just about that 20% off. Are we expecting that to accelerate on software and if not so what's the change there?

Richard Willis

Yes. So -- and again this is -- I'm sorry for definition only. We had built up business so we thought we could accommodate a 20% reduction without an EBITDA. But we then planned on and the numbers didn't reflect to being down 20% but again, we wouldn't build it and said hey, worst case we think it's going to be probably 20%, so let's make sure that's where we kind of draw the line for the variable cost. So that's where we're able to handle it but all the reduction in software and we took it down a little over 20% in the fourth quarter, just to make sure we don't miss the number and everybody knows who we are.

Again, I don't really know how since we didn't get any replanned orders in December and that was the real eye-opener of -- we need to make sure we take these numbers down. Because again, October, November it was down, didn't look that bad. But then again hopefully what happens is people just don't have returns in January/February, which we haven't seen so far and we are not having to do as many destroying field, so which we've seen perhaps play out so far in January. So the disconnect was we built the business to be 20% down just we didn't think was going to happen but it did.

Mike Malouf - Craig-Hallum Capital Group

Okay. So there's really no change in sort of your expectations in other parts of that business specifically associated with the software decline being at that sort of high end of your comfortable range of decline?

Richard Willis

Yes, that's absolutely correct.

Operator

Our next question comes from the line of Wilson Jaegly with Southwell. Please go ahead.

Wilson Jaegly - Southwell

Talk a bit you're going to add new clients in here biggest to add ever, talk about turnover, has there been much turnover in your older clients?

Richard Willis

We haven't had much turnover in; we've just this turnover a couple of years ago. We've got the potential for one or two customers may be rolling off in the next 12 months but we -- oh sorry, they're limited, sorry. Sorry about that. So they're limited rolled off a couple of years ago and then again, there's couple of accounts that we got up for bid this year that may or may not roll off and that's kind of looking out to next 15 months.

Wilson Jaegly - Southwell

You have had this significant increase here and all the way from navy, army airports, and in the commercial accounts. Is there any way you can quantify somehow or give us a range of what potential revenue additions would come from these eight new accounts?

Richard Willis

We're going to give guidance sometime between now and the next call. Those are a couple of things we're working with that did impact our guidance. So we just decided we'll wait like we usually do to that call. So unfortunately we're just not giving that number out until we give guidance for the year.

Wilson Jaegly - Southwell

I understand. And then help us here, you got a significant difference in the EBITDA margin between your three divisions here and while I'm sure you probably don't want to go specific EBITDA margin, give us some relative numbers in here in between to help us with the relative EBITDA margins in these three divisions, could you do that?

Richard Willis

Sure, and again we don't give EBITDA by the segments, but I'll give you kind of some general guidelines so that I think that would be helpful. So when we look down at the EBITDA lines the distribution business, that's the whole retail business, the margins are in the 1% to 2% range EBITDA. So and then when we get to 3PL and the e-commerce business the margins are relatively the same, little higher in e-commerce than 3PL but characteristically about the same, and the margins are in the 10% to 12% range. So somewhere about 10x in those two businesses what we usually get in the distribution business.

Wilson Jaegly - Southwell

Okay. The 3PL and the e-commerce about 10x?

Richard Willis

Yes, but about 10% to 12% or about 10 times what we get in the distribution business.

Wilson Jaegly - Southwell

And well we're -- let's see really talk about revenue guidance coming down here but EBITDA maintaining the same here because you're able to just control your cost on the software side is that basically the fundamental?

Richard Willis

Yes, sir. So we're year-to-date, we're at 17 in EBITDA just a little under 69 and guidance is 19 to 21. So as long as we're able to manage that software business, we feel very good about that EBITDA guidance.

Wilson Jaegly - Southwell

And then help me I'm just -- I'm still confused about you break your e-commerce and 3PL. 3PL you own or do not own the inventory?

Richard Willis

We don't. It is not I would say and that's why when you're looking at the Qs or the K that we break it out that way, so retail everything we're selling Wal-Mart and Costco, BestBuy those guys we do want the inventory. The other guys we don't. So in the e-commerce business it's all our customers' inventory and the same on 3PL. So like for Warby Parker or Earbuds, those guys, it's their inventory in our facility.

Wilson Jaegly - Southwell

So the way you report revenues in I mean, growth and net may not be the right exact terms but when you do not own the inventory you obviously get smaller revenues per shipment, right?

Richard Willis

Yes, sir, it's more of a service fee model.

Wilson Jaegly - Southwell

Right. So that's a service fee and did you say 3PL was $20 million or so in revs?

Richard Willis

Yes, $15 million to $20 million a year is kind of where we are today.

Wilson Jaegly - Southwell

Well is that $15 million to $20 million of the $32.6 million reported?

Richard Willis

The $15 million to $20 million is a full year sorry. Our run rate on that is a full year number out of the $110 million or so that we do in that segment.

Wilson Jaegly - Southwell

All right. So it's $110 million for the entire e-commerce segment.

Richard Willis

Yes, sir.

Wilson Jaegly - Southwell

I got you, okay and all right so that was a little confusing there when $20 million versus $32.6 annual versus quarterly.

Richard Willis

Yes, sir.

Wilson Jaegly - Southwell

Let's see, I applaud your conference all here, you're well prepared, you have spent some time and you had your bullet points you want to get through in here. Talking about growth in '15 your number 5 bullet point was managing the software sales decline and you estimate another 20% odd or so. You also said something I didn't catch you that you were going to do a review of the division, a long term review and maybe something done by fiscal March or what help me with that, what's you last comment there?

Richard Willis

Yes, so last couple of conference calls people ask what is our strategy for the retail distribution business, we talk a lot about the e-commerce business does it's run really fast and it's got better margin, so we are trying to spend more time talking about that business, and that's where most of our investment is going today. So when we built out the Ohio warehouse for example it's all e-commerce. So, but what we told people is kind of strategically what you are going to do in that business and we said we will have something by the end of the end year and we will layout the strategy for the retail distribution business. So that's what we are talking about is that again we focus so much time on e-commerce that we want to make sure everybody has a road not for what we think we are going to do in retail distribution and we've just told everybody hey, we'll do that by the end of this year.

Wilson Jaegly - Southwell

Okay. So the software that's up for review in the sense but your CE&A is an ongoing strategy we should ,will be maintained by the company, right?

Richard Willis

Yes, again just the whole retail distribution is you can't really separate software and the CE&A. So again there are a lot of strategy for what to do from after the end of the year.

Wilson Jaegly - Southwell

Okay. So that in the end of the year you are talking March year or you are talking calendar or?

Richard Willis

In March.

Wilson Jaegly - Southwell

Okay.

Richard Willis

By the end of the year we will make that and we will kind of layout for you guys what we're going to do there.

Wilson Jaegly - Southwell

Right. Okay. And you are moving expenses here. You obviously did a lot moving down here to Dallas multiple things in here. How much did you spent on that? And how much you could -- and then -- anyway how much did you spent on moving expenses that hopefully we won't see in fiscal '15?

Terry Tuttle

Actually for the two three quarters we spent about $15.5 million with all the moves that Richard has walked you through before, and for the quarter it's about $7.4 million.

Wilson Jaegly - Southwell

Okay. Is that basically where can find us (inaudible) --

Richard Willis

A trickle here or there. One of the things, one of our accounts the new accounts AAFES, the Army & Air Force Exchange, they want to be here in Dallas. So we're going to move two or three accounts up to Ohio and it's actually better up there, because they can run on sorter. So but other than I mean, we are down to just a trickle of anything just rock and some stuff up.

Wilson Jaegly - Southwell

Okay. And then you mentioned you're going to do so increasing here in IT and services and whatever, are those I guess CapEx expenses, do you have any idea what those we will be running for?

Richard Willis

So this year in CapEx total we spent about $11 million and again $6.5 million was the sorter. Next year total we'll spend is probably $5 million. So we will have $1 million or $2 million or whatever and just kind of CapEx maintenance and the rest will be IT. So the total amount we'll spend in CapEx will be $5 million or under with IT being half or a little bit about an half of that.

Wilson Jaegly - Southwell

And that's for fiscal 15?

Richard Willis

Yes, sir.

Operator

(Operator Instructions). Our next question comes from the line of Steve Emerson with Emerson Investment Group. Please go ahead.

Steve Emerson - Emerson Investment Group

Could you tell us on an apples to apples basis how much the e-commerce fee revenues were up? You're showing $32.6 million versus $21.4 million. That is not apples to apples as you acquired it November last year. And perhaps give us some color how much on a percent basis you exceeded your own goals?

Richard Willis

We don't break that out. Again the kind of the guidance we give is that business did about $70 million in calendar '12 and that we think that business for fiscal '14, which is kind of the same numbers will be about $110 million. So that's as close we've broken that out for people.

And if you look at our top 10 customers for this year in our e-commerce business, which was about kind of a good way for us to look at that, our top 10 guys were up 27.5% in year-to-date and about 30% for the quarter.

Steve Emerson - Emerson Investment Group

So you don't have a number that would be full quarter last year, the Christmas quarter, the 21.4% would have been what for the full quarter?

Richard Willis

So again we don't break that and with the kind of detail. You can kind of back into it. Since I'm telling you that for the quarter we were up over 30% in the top 10 and that's I think for the whole business it was between 25% and 30% and then again year-to-date for those accounts the top 10 we're up in the 27%, 28% range and then almost the exact same kind of 25% to 30% for the full year.

Steve Emerson - Emerson Investment Group

And what proportion of your business was the top 10?

Richard Willis

It's somewhere in 75%, 85% -- 80% range.

Steve Emerson - Emerson Investment Group

The accounts you're bringing on while you're not giving guidance what proportion of those do you think will be top 10?

Richard Willis

I think two of them. I know that ACs and we talked a little bit about ACs in the past. That could be the biggest account for the company in a year or two down the road, the army air force exchange and one of the other guys may sneak into the top 10.

Steve Emerson - Emerson Investment Group

And then when you referred to your large international retailer test sites when do you expect them to put the whole business out for bid?

Richard Willis

I think that's in 18 months from what I understand. So they'll give us time to bring the site up, run it for about a year before they look at what they're going to do.

Steve Emerson - Emerson Investment Group

Are there people being given other test sites for them or basically you've got the test it's yours to lose?

Richard Willis

I don't know, I mean, I just there was two sites internationally and said run these and then we want to use them to evaluate the opportunity down the road for the domestic site. So, I don't know if they're doing other guys or not.

Steve Emerson - Emerson Investment Group

Okay. Can you hazard a guess as to ballpark range what the business could represent? Is this a 100 --

Richard Willis

It would be a top 10 account for sure. If we got that account it would be a top 10 account.

Operator

And this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Willis. Mr. Willis please proceed with your closing remarks.

Richard Willis

Great. Again, thanks everybody. I know it's busy and it's earning season. So I appreciate you guys taking the time to be on the call for us. Again, we had a great quarter. We're excited about what we have been able to do so for year-to-date as well. We're really excited about the new accounts the guys are bringing in, and again we will be back to you on the next call and give you some guidance for 2015. Thank you.

Operator

Thank you, ladies and gentlemen, for joining us today. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Speed Commerce's CEO Discusses F3Q2014 (Qtr End 12/31/13) Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts