Borderfree's (BRDR) CEO Michael DeSimone on Q2 2014 Results - Earnings Call Transcript

| About: Borderfree, Inc. (BRDR)

Borderfree Inc. (NASDAQ:BRDR)

Q2 2014 Earnings Conference Call

August 4, 2014 5:00 PM ET


Denise Garcia – Investor Relations ICR, Inc.

Michael K. DeSimone – President, Chief Executive Officer & Director

Edwin A. Neumann – Chief Financial Officer


Steven Jew – Credit Suisse

Mark S. Mahaney – RBC Capital Markets, LLC

Brian F. Jones – RBC Capital Markets, LLC

Chad Bartley – Pacific Crest Securities Inc.

Michael Graham – Canaccord Genuity Inc.

Kerry Rice – Needham & Co. LLC


Greeting and welcome to the Second Quarter 2014 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer-session will follow the formal presentation (Operator Instruction) as a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Denise Garcia, Investor Relations. Thank you Denise, you may now begin.

Denise Garcia

Thank you. Hello and welcome to Borderfree’s Second Quarter 2014 Earnings Call.

During the call we will make statements related to our business that maybe considered forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Including statements concerning our financial guidance for the third quarter of 2014 and the full year of 2014.

Our position to execute on our growth strategy, our ability to decrease fulfillment cost, our ability to increase our profitability, our ability to maintain existing and acquire new customers, our ability to launch recently signed customers on a platform and our ability to help our customers convert website traffic into sales.

Forward-looking statements may often be identified with the words such as “we expects” “we anticipate” “up coming” or similar indications for future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the section entitled Risk Factors in the Company’s most recent Form 10-Q filed with the Securities and Exchange Commission on May 9, 2014.

Now, I would like to turn the call over to Michael DeSimone

Michael K. DeSimone

Thanks Denise and welcome to today's conference call. We are very pleased to be here and glad to have you with us on the call today. With me is Ed Neumann our Chief Financial Officer.

During today's call I have planed to take you through the second quarter’s financial and business highlights and provide an update on progress against our strategic growth objectives. I’ll then turn the call over to Ed, who will walk you though details of our financial results for the quarter and provide an update on our financial outlook for the third quarter and the remainder of the year.

Overall, we had a very good quarter. Gross merchandise volume , the total value of what we collect from consumers for international sales including merchandise taxes and logistics came in at $136 million for the quarter, an increase of more than 32% from the same quarter last year and a record second quarter number for the business. Our Q2 ecommerce revenue of $16.4 million was up 34% over last year’s figure of $12.3 million. Again, a record second quarter for the company.

For those of you still new to our story, Borderfree’s revenue is comprised of two strengths, fulfillment revenue and ecommerce revenue. Fulfillment revenue represents what we collect fiscally shipped products to the consumers door-step Ecommerce revenue consistent of fees we charge to both merchants and consumers for providing global ecommerce services and is the main driver of the company's gross margin and profitability.

As high shipment costs continue to be the number one reason international consumers abandon shopping cards, the key part of our strategy is to maximize conversion by keeping cost as low as possible. As such, our approach to fulfillment revenue is effectively to treat as the path from in terms of having little to know impact on our gross margins.

Ultimately our goal is to offer to consumer either a free or low flat rate shipping option on every order. As such we are continuingly working to reduce logistics cost, which in turn lowers fulfillment revenue. In order to maximize sales conversion and thus accelerate growth of our high margin ecommerce revenue.

In Q2, we continue to execute very successful against this plan, decreasing fulfillment as a percentage of total revenue by five full percentage points, from 52% in the year ago period to 47% in the second quarter of 2014. We also lowered shipping cost paid by consumers as a percentage of gross merchandize volume from 12.9% in Q2 of last year to 10.7% in Q2 of 2014.

As international ecommerce increasingly becomes a strategic comparative for retailers, we continue to expand our customer base and grow our pipeline. In Q2, we launched five new customers representing nine ecommerce sites including BCBGMAXAZRIA, Chicos, White House/Black Market, and Juicy Couture.

Notably Juicy Couture was signed and launched with 30-days, the result of improvements we’ve made to our technology and our on boarding process. We also relaunched Eddie Bauer, a legacy Canada post-client on to our global platform, postioning them to add additional countries prior to the holiday season.

During the quarter itself we signed deals with four new retailers including Rue La La the second largest private sales site in the U.S. and number 81 on the internet retailer Top 500. With this deal we continue to expend our work with the largest private flash sales sites in the U.S. as Gill Group has been Borderfree customers since 2011. More recent contract signings brings the total number of sites in active implementations to 24 including Marc Jacobs, Stuart Weitzman, Bed, Bath & Beyond.

Looking ahead, I'm very pleased with both the quality and size of our sales pipeline. Over the past year we have shed smaller lower volumes storefronts that were not generating material international sales. Coming into the year, we adjusted our new customer acquisition strategy to focus on larger retailers with higher GMV potential. As a result, our new customer pipeline now has twice the sales volume potential this year than it did last year at this time.

While the larger customers can take a bit longer move through the sales process, I'm pleased with other current pipeline that’s buildings and our progress in converting growth prospectus to sign customers. With the ongoing expansion of our sales team and the upcoming launch of our new integration technology we expect this trend to accelerate through the back half of the year and into 2015.

As we've discussed previously, once customer come on to the Borderfree platform, we work in close partnership to optimize and grow their international business. During the quarter, we partnered with both VISA and MasterCard on co-marketing programs to increase sales in the Middle East and Southeast Asia respectively. More recently we established a partnership with Neighbor the leading search engine in South Korea who is currently running a campaign featuring three of our largest retailers on their home page. The first time they have ever featured non-Korea merchant.

As I mentioned above, we continue to make excellent progress on our logistics optimization strategy. Today we’ve lowered average shipping cost per parcel and additional 12% as compared to the second quarter of last year. We opened a new hub location in New Jersey that offers an optimal shipping point for merchants that have distribution centers on or near the East Coast, while leveraging the wide array of air cargo options originating out a JFK airport.

In our Chicago hub, we saw some several operational improvements that reduced overall shipping rate by more than 10% for participating merchants. Based on the success of this test we decided to roll these changes out to all our location and make it available to all retailers on our network. To further lower shipping cost and increase ecommerce sales we recently launched lower cost afford carriers Australia and the U.K., our second and third largest markets respectively. We anticipated these operational improvements combined with the new differed carriers will lower logistics cost, for lower original forecast, resulting in lower fulfillment revenue for the calendar years we pass these saving under consumers in order to drive improved sales conversion for our retailers.

Notably we began expanding our focus to include ecommerce retailer base outside the U.S. who are similarly interested in capturing the international opportunity. We have launched business developments efforts where EU we are early progress is going well particularly in the U.K. We are certainly pleased but not entirely surprised by the European market response to date.

As we had suspected the global opportunity and the Borderfree value probation clearly resonates with online merchants where ever they are located. Overall we are very pleased with our business and financial results for the second quarter. We made significant progress in our logistics strategy and indeed across all of our growth initiatives and we are looking forward toward the second half of the year in the holiday season.

We welcome all of our new merchant partners and they are particular excite about helping them capture the global opportunity and realize their business potential is become closer to realizing our own goal we are enabling seamless cross boarded trade on the Borderfree platform.

With that, I will turn the call over to Ed Neuman.

Edwin A. Neumann

Thanks Mike and good afternoon everyone. I am pleased to report that in the second quarter, we continue to experience solid operating results again exceeding our expectations and generating record GMV, ecommerce revenue gross profit and adjusted EBITDA.

In addition, we continue to benefit from positive trends in our key metrics such as the growth in GMV and the number and quality of new customers in ecommerce sites in our platform, which we used to monitor and measure the operating performance of our business. We process approximately $136 million of GMV in our platform in the second quarter, representing an increase 32.3% as compared to the same period last year.

To remind everyone we define GMV as the total valid value consumer orders process through our platform inclusive of product value, shipping and handling and duty and value added taxes. GMV is the financial measure and since our revenue and cost of revenue directly attributable for the level of GMV profit through our platform. GMV is a good indication and the growth and scale of our business, customer acquisition and retention and existing customer sales growth.

In terms of new customers we continue to build on our strong start to the year. In Q2 we launched nine new ecommerce sites including Chicos, White House Black Market, BCBG and Juicy Couture, which we signed and launched within 30-days. Bring the total new ecommerce site launched here date on our platform as of June 30 2014. We currently have 24 additional ecommerce sites in various stages of implementation we’ve recognized a total revenue of $31 million in the second quarter and increase of 21% from $25.6 million in the same period last year. Ecommerce revenue was a record $16.4 million for the second quarter an increase of 34% on a comparable basis to last year accelerating from our Q1 year-over-year growth rate of 19% and exceeding our expectations.

We focus primarily on ecommerce revenue as a key indicator of the international sales volume we drive for our customers and the growth and profitability of our business. As we discussed during our last quarterly earnings call and its worth repeating here, our philosophy is to offer the most compelling shipping quote to consumer to increase sales conversion which in turn increases higher margin ecommerce revenues.

Our plan is to drive ecommerce revenue growth by reducing the cost of fulfillment surpassing the cost savings through to the consumer. We continue to execute strongly against our plans by decreasing fulfillment revenue as a percentage of total revenue from 52% a year-ago period to 47% of revenue in the second quarter of 2014, while at the same time increasing GMV over the same period by approximately 32%.

As a result, our cost of revenue as a percentage of total revenue decreased form 68% in the second quarter last year to 63% this year as we continue to shift our revenue mix to the higher margin ecommerce revenue and realize improvements in our ecommerce direct cost structure related to customer charge backs and payment processing cost during the quarter.

Adjusted EBITDA was $1.3 million for the quarter, compared to $147,000 in the second quarter of 2013 an 808% increase. Primarily the result of 34% increase in higher margin ecommerce revenues which lead to an increase of our gross profit from 32% in the second quarter last year to 37% this year.

Adjusted EBITDA excludes the impact of stock based compensation which was $1.2 million in the second quarter compared to $526,000 during the same period last year. GAAP net loss was $663,000 or $0.02 per share in Q2 as compared to a net loss of $814,000 in the second quarter of 2013 were $0.20 per share. Non-GAAP net income in the second quarter was $315,000 or $0.01 per basic and diluted share as compared to a non-GAAP net loss of $468,000 or $0.11 per basic and diluted share in the second quarter of 2013.

As a reminder, non-GAAP net income excludes items mentioned previously and outlined in our non-GAAP reconciliation noted on our press release. Both GAAP and non-GAAP EPS for the quarter are based on $31.4 million and $33.9 million waited average basic and fully diluted shares outstanding respectively.

Shifting to operating expenses. In the second quarter, we continued making investments to expand our platform and operational infrastructure to support the growth and scale of our business.

Most notably SG&A expenses on a non-GAAP basis, which excludes the impact of stock-based compensation increased 27% to $11 million or 36% of revenue, from $8.7 million or 34% of revenue in the same period last year as we continue to invest in the business. In the second half of the year we expect to further accelerate investments in logistics initiatives, express implementation technology for onboarding new customers and business development efforts outside the U.S. as we see the results or previous investments in these areas showing early promise.

G&A expenses on a non-GAAP basis excluding the impact of stock-based compensation increased $2.9 million or 9% of revenue versus $2.4 million or 10% of revenue in the year ago period. The increase in G&A expenses compared to the prior year is attributable to increased cost to support our transition to a public company.

Free cash flow used for the six months ended June 30 2014 total $7.6 million compared to free cash flow generated of $5 million for the same period last year. In the second quarter last year we experienced one time increase in cash relate to improvement of credit terms with payment processors and merchant utilizing our platform. We expect to produce free cash flow for the remainder of the year consisting with historical patterns. At the end of the second quarter we had a $120.7 million in cash and short-term investments following the receipt of $85.6 million in net proceeds from our initial public offering in the first quarter.

I would now like to provide outlook for the third quarter and full-year of 2014. For the third quarter we expect ecommerce revenue to be in the range of $16.6 million to $17 million which represents the 46% year-over-year increase at the midpoint of the range. We expect total revenue for the same period to be in the range of $31.1 million to $31.9 million representing at 36% year-over-year increase at the midpoint. We anticipated adjusted EBITDA to be in the range of 575,000 to 850,000. We expect non-GAAP net loss to be approximately 350,000 to 640,000 or $0.01 to $0.02 per share.

We project our weighted average basic and diluted shares outstanding to be approximately 31.5 million shares in the third quarter. We expect stock-based compensation expenses of 1 million for the third quarter. For the year we expect ecommerce revenue to be in the range of $72.9 million to $73.8 million which represents at 38% year-over-year increase at the midpoint of the range. We expect total revenue for the same period to be in the range for $139 million to $141 million which represents at 27% year-over-year increase at the midpoint.

And we anticipate our adjusted EBITDA to be in the range of $8.9 million to $9.7 million. We expect our non-GAAP net income to be approximately $4.6 million to $5.4 million or $0.15 to $0.18 per basic share and $0.14 to $0.16 per diluted share. Based on weighted average basic shares outstanding of $30.6 million and diluted shares outstanding of approximately $33.3 million. On a pro forma basis as it all preferred shares had converted to common shares outstanding as of January 2013. We expect stock-based compensation expenses of $3.8 million for the full-year.

Our updated outlook is result, of strong execution again our goal is increasing ecommerce revenue by reducing fulfillment costs more quickly than planned. The opening of our New Jersey hub location, coupled with additional operational improvement and a launch of new differed carriers will further lower our logistics costs for the reminder of the year.

Historically when we have passed these saving on for the consumer we have experienced and increase in sales conversion and higher margin ecommerce revenue over the course of three or four quarters. And exchange we are happy to make as we work toward our longer-term goal, of increasing margins and the value of the business. Subsequently we can’t choose to reinvest those higher margin dollars back into the business we are pass the savings on to customers and consumers to ultimately capture a greater portion of our multi-billion dollar global ecommerce market opportunity.

In summary, we had strong financial performance in the second quarter as evidenced once again by record results in GMV, ecommerce revenue, gross profit and adjusted EBITDA. Operationally we continue to execute well across our growth strategy particularly in logistics optimization resulting in decrease fulfillment costs at a 34% growth rate in higher margin ecommerce revenue, driving increases in gross profit and adjusted EBITDA that exceeded our expectations.

In addition we continue to add new top tier merchants and brands to our existing and diversified customer base. We are looking forward to the second half of 2014.

With that we will be happy to take your questions.

Question-And-Answer Session


Thank you. We will now be conducting a live question-and-answer session (Operator Instructions) Thank you. And the first question comes from the line of Steven Jew with Credit Suisse. Please proceed.

Steven Jew – Credit Suisse

Mike or Ed I guess it’s kind of hard for us to tell outside looking in how much the stronger dollar of presses you guys on a daily basis. How much of a currency swing do you have to see in the local currency versus the dollar before your demands start to get impacted, one way or the other and because its hard to imagine that consumer hanging around the side for one of your client everyday waiting around fro more favorable exchange rate to pull the. Thanks purchase.

Edwin A. Neumann

So, in our experience the day-to-day movements of currency really don’t make that bigger difference on demand. As a longer term trend, they probably have some measurable impact, but the ay-to-day variants really hasn’t made that much of a difference and as long as the trend continues to be gradual as we’ve seen this year, just in general across the basket of currencies that we deal with Steven. We really haven’t seen from our perspective at least outside of our own plan any impact of a stronger dollar.

Your question is a good one and that when you ask when does it impact us and the way we look at it is, if it’s sudden and violent movement in the currency. For example, what happened last year with the Australian dollar falling about 15% in 60-days. That’s usually when we see a fall off in demand, that takes a bit of time to recover, but it’s usually like I said, it has to be a very volatile swing and it usually really had to offset what we’ve see as the ecommerce growth rate in that country before it really has that kind of an impact on the business.

Steven Jew – Credit Suisse

Thank you.


Thank you. The next question is coming from the line of Mark Mahaney with RBC Capital Markets. Please proceed.

Brian F. Jones - RBC Capital Markets, LLC

Hey, guys this is Brian on for Mark. Thanks for taking my question. I was wondering if you could discuss promotional considerations in the quarter and then how your view of promotional considerations may have changed in light of that progress you’ve made with fulfillment revenue and then specifically in your prepared remarks you’ve mentioned potential for returning high margin dollars to customers and it’s just tied to two of those together.

Michael K. DeSimone

Sure, I’ll take its Mike first. So one of the reasons are so focused on our logistic strategy in reducing those cost is that is the number one barrier to conversion, I don’t know if you guys are sick of hearing that from us, yeah but you’re going to hear it for a while longer. And one of the things that it doesn’t make too much sense to do obviously is for us or for the retailer to invest in marketing if there isn’t good conversion.

And with what we’ve been able to do in terms of lowering our logistics cost both in direct quotes to consumers as well as making it increasingly easy for retailers to subsidize shipping either partially fully and all the way down to offering free shipping. We had been able now to turn our attention to marketing. From the perspective of our retailer is really being able to drive higher ROI traffic, because they have got better conversion coming through this site.

In terms of repurposing dollars, I think we’re going to take a wait and see approach in terms of where we’ll invest, in terms of driving the sales, but I think a long-term trend as we remove cost from the logistics chain is both for us and for our retailers to invest more heavily in consumer attraction and leveraging that increase conversion into higher sales.

Mark S. Mahaney – RBC Capital Markets, LLC

Okay. And then just a quick follow-up from me any of the 24 retailers during the active implementation stage or any of those non-U.S. retailers?

Michael DeSimone

They are not, there are all U.S. based retailers, but as we mentioned in our prepared remarks we have started doing business development efforts outside the U.S. in the EU we’ve hired some resources and we’re having active conservations with retailers and we’re getting extremely good results in the U.K., I would say stay tunes from more on that but currently none of the retailers that are implementation they are all U.S. based. So we look at next year really as the opportunity to start launching non-U.S. base retailers.

Mark S. Mahaney – RBC Capital Markets, LLC

Okay, thank you.


Thank you. The next question is coming from the line of Chad Bartley with Pacific Crest Securities. Please proceed.

Chad Bartley – Pacific Crest Securities Inc.

Hi, thank you. So Mike you mentioned launching a new integration in onboarding technology and I guess processor. So I hoping and you could talk a little bit more about that. And then Ed with gross margin very strong at 37% is that kind of the new base level that we should think about in the second half and even beyond that or is there anything you would call out there thanks.

Michael DeSimone

Thanks Chad. So let’s take your first question first. We’re definitely beginning to read the benefit of work we’ve done in the platform over the past two years to pre-integrate the Borderfree platform with different front end systems as we mentioned in the past market live we work with demand were before also Onestop internet.

So we’re starting to leverage of that to streamline the process of implementation. One thing about a little bit separately from the investments that Ed was talking about earlier in the call that we’re making in our express implementation technology that is something that we’re active build and will be rolling out shortly that will further accelerate implementation. When you look at our timeframes for customer implementation in general over the past two years they’ve shorten fairly significantly a lot of that is really based on the pre-integration work that we’ve done for with some of the leading platforms.

And as we begin to roll out the express implementation technology we expect that trend to be able to consider in a sort of platform agnostics sort of where we’re really won’t matter if we’ve got a pre-integration with that platform we’ll be able to get customers live faster get them fixed those globally faster and start getting sales generated for them even sooner then we’ve already been able to short in that timeframe.

Edwin A. Neumann

Hi Chad, this is Ed thank you for your question. I think that range that we’re really looking at for the – really for the second half of the year here as really between 35.5% to 37% really kind of averaging 36% we’re really good strong quarter obviously our higher margin ecommerce revenue very quickly and we were able to see number of benefits from some reduction in our direct cost structure around customer charges back and payment processing cost.

Chad Bartley – Pacific Crest Securities Inc.

Got it. That’s helpful. Thank you both.


Thank you. And the next question comes from the line of Michael Graham with Canaccord Genuity. Please proceed.

Michael Graham – Canaccord Genuity Inc.

Hi, guys congrats on the strong results. On your IPO and subsequent to that there was this perceived risk that if you were successful in driving down fulfillment cost, which seems like you are getting that success that would hurt revenue outlook, even though its really nice to see that your ecommerce revenue guidance is actually going up on the heals of these number which is great. I wondered if you could go into any more detail about where you are getting those fulfillment efficiency that seem to be helping the number, is it domestic, is it cross talk, is it international and just where do you see the biggest leverage points for the near-term here?

Edwin A. Neumann

Sure I’ll take the question Mike thanks. So right now the improvement that we've seen operationally are and probably just in general as you will see we are beyond the international leg, primarily in the line haul but really anything that happens post hub improvement that we can put into the process really has the biggest impact on shipping, its not so much on the domestic side.

We've also added as I mentioned in the prepared remarks, deferred carriers meaning less expensive carriers for both Australia and the UK which are two very important markets for us. We've have also signed contracts with deferred carriers for South Korean and China that we will be moving into beta in Q3 with a goal of moving them into production in Q4.

So really all of the savings that we seen so far just about have come from improvement on the international leg and as we look out across the rest of the year we expect to see more improvement there. That really is the most expensive part, but again, yes I think the way to think about it is that there is still room to improve that sort of after the hub line haul and last mile delivery process.

Michael Graham – Canaccord Genuity Inc.

So just as quick follow-up, when you get the differed carrier in the local country, is there any metric you can share about how quickly that option is adopted by the shoppers and for places where you have had that cheaper deferred carrier option in place for a while is there some sort of penetration or just rough feel you can give us on that?

Edwin A. Neumann

Yes. I can share a little bit where we've introduced deferred carriers before and what we expect overtime and this varies by merchant, remember the merchant makes a determination of what shipping options are available just as an example some of our merchants only offer express. They also offer it for free, but they only offer express, but where retailers decide which most of them do to up to include the deferred carriers we usually see I think somewhere on the order of anywhere from like 70% to 80% of the volume will point towards the deferred carriers. Again, its always abundantly clear the consumers like an expensive for free shipping more than fast shipping, but we want to make sure they got in ray of options at appropriate price points to be able to really pull the trigger on the sales whichever way they want to go.

Michael Graham – Canaccord Genuity Inc.

Okay, thanks a lot Mike.

Michael A. DeSimone



Thank you. And the next question comes from the line of Ralph Schackart with William Blair. Please proceed.

Michael A. DeSimone

Ralph you are un mute.


Ralph your line is now live and you’re ready for queue.

Ralph Schackart – William Blair & Company, LLC

Can you hear me now.

Michael A. DeSimone

We can.

Ralph Schackart – William Blair & Company, LLC

Okay, sorry about that. Obviously a lot of fulfillment cost faster than we expect which is great. Can you give us some quantitative or qualitative assessment kind of where you are today versus your long-term goal. I think in the IPO you talked about conversion rate levels are around 20% or so maybe longer-term goal of 30% plus. Can you just maybe give some color how you are tracking?

Michael DeSimone

From a conversion rate standpoint I would say we’re tracking exactly where we have expected. I think we’re right on target with that a lot of the improvements that we’ve made in the quarter we’ll show up probably in the next three quarters or four quarters as it gets rolled out across the merchant base.

And also its important I mean I’d love it if the consumer response to anything we did was linear, but it takes time for people to system but the example how uses if a customer was going to buy a chair and thought it was too expensive to ship. They may not come back for a month to try it again or even longer. So it take sometime for it’s a kind of work its way into the system our expectation is that the lot of what we’ve done this quarter we’ll begin to be seen in Q3, Q4 and into the first part of next year.

Ralph Schackart – William Blair & Company, LLC

Okay, great thank you.


Thank you. And our next question comes from the line of Kerry Rice with Needham. Please proceed.

Kerry Rice – Needham & Co. LLC

Thanks a lot. We’ve obviously spend a lot of time talking about the reduced costs of logistics which is as obviously extremely important here to the story, but I was hoping that you could talk a little bit maybe about local payment processors and what you’re thinking there and I hopeful that would be to just sign those in the various countries are in.

And then the second point you talk about promotions earlier, can you talk a little bit about what you guys are doing if anything related to client marketing and merchandising with all the data that you have and then just one housekeeping have you opened up any international hubs or is that and that works.

Michael DeSimone

Let me start with last one first, Kerry. And the answer to that is no we haven’t, as we mentioned in the prepared remarks we have started business development efforts specifically in EU and as those business development efforts mature our plan is to open up hub facilities and enabling transportation facilities with really very similar models to what we operate here in the U.S.

So we've had conversations with particular partners over there and have kind of started to put together what is the logistics road map look like for EU outbound or UK outbound, but no hubs opened currently. The impact a local payment is very selective I think in terms of where it really makes a difference. We’ve been pretty successful in adding things like JCB in Japan. PayPal has been a great partner for us, because, it’s a consistent way for us to offer a payment methodology, while they offer customized ways or more localized ways for consumers to fund the PayPal account with different payment options.

As we look forward and we look at particular markets where I think payment options are very important I think China is very important and we continue to progress towards implementing allepay, which I think will be a big benefit for the Chinese consumer. And I think right behind that very close on its heals we’re looking it adding open invoice payments in Germany and some of the other European countries where that’s the payment norm.

From there, we also are completing work with a new payment processor who will give us what – consider like local payments, local cards, the equipment of maybe a discovery card in a different country. And we expect that those will help, but really where you see the big difference in payment options from our perspective is on select markets like China, like Germany and potentially a couple of others around the world as we kind of continue to expand that focus.

Last question. I started looking back in my notes, because you hit me with a three parter.

Kerry Rice – Needham & Co. LLC

Yes, sorry about that.

Edwin A. Neumann

That’s okay. So I wrote down client marketing but I don’t remember that specifics, could you one more time?

Kerry Rice – Needham & Co. LLC

Yes, well I think again during the IPO process, we talked a lot about all the great data you that have in that at some point you can kind of use that data to help the clients mark their marketing within local markets or helping them better selected the merchandize that they are selling and I didn’t know if you’re doing that now or that’s still to come.

Edwin A. Neumann

No, we absolutely are. Actually we made excellent headway on that I would this past quarter, really this first of the year. As we mentioned at probably in several conversations we built out our data and analytics capability last year and we’re really just starting to reap the benefit of this year. Our marketing team has been working very closely with our client management team to sit down individually with customers and talk about where there is opportunity based on the data that we have our understanding of international shopper.

The specifics about their catalog and make them very appealing in certain markets and using that some informed their marketing decisions especially as we get into thinking about holiday. So we’ve actually put a lot of work in fact we just had a client event think about last week get an – last week about holiday preparedness. And but really I think that the work getting done on the ground in one-on-one quarterly business reviews with our customers about how we can – they can leverage the particular merchandise, the particular brands, the particular price point but how are the value proposition translate against maximizing the opportunity.

We have also done some partnership as I mentioned with Visa and MasterCard we are starting to work more closely with local partners as I mentioned in the prepared remarks neighbor is the big driver of ecommerce sale in South Korea which is an absolute fantastic market for us and so bringing those partnership opportunities to our retailers is an other things that we are doing to help drive those sales.

We are going to continue working that the merchandising opportunities is a little bit further down the road specially in terms of our retailers ability to flex their size on a country-by-country basis from a merchandising standpoint, but we are fully confident that we will get there but again we already to starting to translate that data into actionable marketing plans and we are starting to see the results.

Kerry Rice – Needham & Co. LLC

Great. Thank you so much.


Thank you. When we have no other questions in the queue. Would you like to proceed with any closing comments?

Michael A. DeSimone

No thank you.


Okay. This concludes today’s teleconference. You can disconnect your lines at this time. We would like to thank you all for your participation.

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