PFSweb Inc (PFSW) 2009 Q2 法說會逐字稿

Good morning. My name is Christy and I will be your conference operator today. At this time, I would like to welcome everyone to the PFSweb second quarter 2009 earnings conference call. (Operator Instructions) After the speakers' remarks there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Todd Fromer. Please go ahead, sir.

Thank you, Christy. Before I turn the call over to management, I'd 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, believe, estimate, expect, intend, will, guidance, confident, target and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and involve and are subject to risks, uncertainties and other factors that may affect PFSweb's business, financial condition and operating results, which include but are not limit to the risk factors and other qualifications contained in PFSweb's annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by PFSweb with the SEC, to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. PFSweb expressly disclaims any intent or obligation to update these forward-looking statements.

During this call, we may also present certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, non-GAAP net income, free cash flow, merchandise sales and certain ratios that use these measures. In our press release with financial details issued last Friday, which is located on our Website at PFSweb.com, you'll find our definitions of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP measures, and a discussion about why we think these non-GAAP measures are relevant. These financial measures are included for the benefit of the investors and should be considered in addition to and not instead of GAAP measures. At this time, it is now my pleasure to turn the floor over to Mr. Mark Layton, Chairman and CEO of PFSweb. Mark, the floor is yours.

Thank you, Todd. Good morning, everyone. I'd like to welcome you to our 2009 second quarter conference call. With me here today at our Plano headquarters is Mike Willoughby, President of our Services Business and on the phone off-site, is Tom Madden, our Chief Financial Officer. Again, good morning, everyone. Today, I'll provide you with an overview of our financial results for the second quarter and add some color on the events that shaped that quarter. Following our prepared comments, Tom, Mike and I will be available for some questions. When comparing this year's results to last year's or to 2007, it's important to kind of stand back and consider the economic challenges and the changes to our client mix that are currently affecting our business today.

Overall, I'm pleased with the way our management team has forecasted certain issues ahead of time and adjusted our operations and costs accordingly. Over the past six months, we have reduced our cost of operations significantly. First, the flexibility of our business model allowed us to successfully shed variable costs associated with the rather significant changes we've seen in our client mix here. Second, we've also made various adjustments to react to changes in our existing client activity levels as the economic slowdown began to perpetuate itself earlier this year.

Our service fee clients have been great partners in this process, giving us early and valuable insight to their own forecasts of activity. This informationally allowed us to better prepare and execute necessary adjustments in our activities and expense levels in order to ensure we were aligned with their forecasts. We believe that a keen ability to read and react early to challenges is cornerstone to ensuring longstanding financial viability. And I'm pleased thus far with our management team's execution during this most recent period of economic challenge.

As Mike will cover in further detail shortly, I'm very excited about the work that the services segment of our business has done in getting our End2End solution up and running over this past year. Not only have we proven its capabilities with our client, Roots Canada and in two sites launched earlier this year for the luxury goods retailer that we've discussed in the past, but this new solution has also helped put us in the running for a significant amount of new business that is currently in different phases of implementation and/or contract finalization. Also, our eCOST.com team has done a solid job in coming up with new ways to battle the economic slowdown in consumer spending through various creative promotional activities, while also driving strong growth in our club memberships, where we find our most frequently buying and profitable customers.

We currently believe our Q2 results, as we've announced them today, is our low water point in terms of our overall financial results. As I've mentioned, the economic challenges, combined with our change in mix, have required us to react with various actions to address our cost structure in order to ensure acceptable ongoing financial results. We are beginning to see a steadying in the economic trends. And combined with the upcoming seasonal up trends we expect in Q3 and Q4 and with the solid contributions we expect from various new customer implementations in the next couple of quarters, we believe our overall financial results will show solid improvements from this low point in the quarters to come.

While there's still some heavy lifting to do, we're pointed in the right direction. We know that the next couple quarters will continue to be challenging as we seek to balance growth with the disciplined cost control measures that we've put in place. However, we're confident that PFSweb will persevere and that we will emerge an even stronger Company, with a healthier client portfolio and a stronger service offering than we've ever had in our past. With this as backdrop, let me turn the call over to Mike who will give you some details about the services business segment specifically. Mike?

Thank you, Mark. And good morning, everyone. Before beginning my prepared comments, I'd like to remind you that when I refer to the services business segment, that I'm including both the supplies distributor and our PFS service fee businesses. And both of these businesses have essentially the same operating model, although they have a different underlying financial model. As Mark just mentioned, our services business has been able to adjust to the impact of the economic downturn and the non renewal of the large US government contract.

And as mentioned in last quarter's conference call, as we prepared our 2009 plan, we recognized that there would be a financial trough for our business in 2009. This is due to the change in client mix and the sluggish economy. Our plan has required financial adjustments to be made to our business to minimize the depth of the trough and to focus on managing our financial resources appropriately, so that we can ensure our financial foundation remains strong. These adjustments, along with our drive to continue to add significant new business activities, we believe will be a successful formula for improving financial performance in the quarters to come.

As Mark mentioned, I believe the June quarter represents the low point of this financial trough. And what's most exciting for us is that we believe we are making important changes in our business offering that will have the potential for accelerated growth in the future. We see our business strategy very well aligned with the desires of our potential clients. And we're excited by the fact that several of these new client engagements are utilizing our new End2End solution. We believe this is a solid indication of success from the big announcements -- or big advancements that we have made in our service offering over the past 16 months.

So, let me recap some positive news that we had during this past quarter. Earlier this year, we signed a five-year $15 million services contract with the Army and the Air Force Exchange Service. And under this agreement, we support their print catalog, as well as the AAFES Exchange online store. Our customized solution includes warehousing and order fulfillment services, technology services required to create multiple technology interfaces with the AAFES systems. And this solution was fully implemented in Q2, utilizing one of our existing Memphis, Tennessee facilities. And we're optimistic there are future expansion opportunities within this client engagement as well.

Also, in the June quarter and as mentioned on the last conference call, we successfully launched the second brand under the previously announced master agreement with a luxury goods retailer. We believe this second program speaks to the maturity of our End2End product offering and visibly demonstrates our ability to quickly launch successive brands on a common platform and a common infrastructure. While we still are able to deliver a completely customized consumer experience at every single one of the customer touch points in this e-commerce program. We still have one additional brand under the initial agreement that will launch on our End2End program early next year. This master agreement with this luxury brand leverages all the components of our End2End program, including our Demandware e-commerce platform, our advanced order management technology services, logistics and fulfillment, high touch customer care, financial services, and interactive marketing services to support each of these brands with their unique requirements.

We've now rolled out multiple End2End programs, including the two programs under the master agreement, as well as the Roots Canada program launched in August of 2008. And we believe our End2End e-commerce solution, which was introduced a little more than a year ago, has made us more competitive for new business contracts. We believe this End2End solution is uniquely positioned in the industry. No other provider, that we are aware of, provides a completely client-branded global solution that offers a single solid infrastructure, tremendous leverage and economies of scale. We believe that we are alone in competing at this level for global business.

In fact, the benefits of our solution were just highlighted by Roots Canada. As we look to celebrate their first year under the End2End e-commerce solution this month, we found that Roots' feedback was overwhelmingly positive. Not only have we offered them more capabilities to operate their business but these improvements have helped them grow their business and improve their customer service. As you may have read in the joint release, we issued at the end of July, Roots has credited our solution with helping them evolve their business and remain a market leader.

We continue to work closely with Roots to evolve their program, including a current collaboration with Roots and iCongo to extend our Demandware-based End2End program to include the multichannel features supported by iCongo the solution. This project was unveiled in a recent press release by iCongo and Roots. And the combination of our End2End e-commerce solution with iCongo's platform and services, will create a powerful multichannel solution for Roots that seamlessly weaves store operations and the e-commerce site into a unified consumer experience, regardless of where that consumer chooses to shop.

Concerning new client agreements for 2009, I'd like to update you on the information we reported during our May conference call. We reported the signing of one new agreement with a Fortune 100 company. And at that time, we were in the final contracting stage with four additional opportunities. Since the May conference call, we have entered the contracting stage with two more opportunities and we finalized contracting with two of the four deals reported last time. That brings the totals for new client agreements for 2009 to three deals signed and currently in various stages of implementation, and four deals currently in the contracting stage.

Concerning the two new deals that have entered the contracting stage, one opportunity is with the same Fortune 100 company I referred to in the last call. Although this deal is an entirely different direct-to-consumer initiative with this very large company. We're very excited to see our End2End program enjoying such acceptance with large successful companies that bring multiple brands within their brand portfolio onto our Demandware-based program. This new deal is already being implemented based on a letter of intent and funding from the client.

The second opportunity, that's entered the contracting stage since our May call, is with one of the leading board sport brands in the world, seeking to take their apparel and accessories business online for the first time. We also have a letter of intent with this company, although we have not yet begun implementation of their program. This is also an End2End e-commerce deal, leveraging all the components of our End2End program.

We'll formally announce these new relationships and other specific new agreements as we're permitted by our clients. However, our clients are often hesitant to disclose their decision to outsource major portions of their business. And we're sensitive to their wishes as we back up our commitment to be the brand behind the world's leading brands. I'm pleased to say that including the four clients still in the contracting stage, the value of our new business pipeline is still approximately $35 million in potential annual contract value, which is down slightly from the prior quarter, partially due to the previous pipeline amounts now being fully contracted. We continue to believe this is one of the most exciting new business pipelines we've seen in years. And I'm proud of our entire team for their hard work, during a difficult time, to create these significant new potential opportunities for us.

To summarize, we've made many important advances for our business over the past year and we've stepped up to the challenges that we face. The recent round of new client programs rolled out over the past nine months, as well as our pipeline of pending proposals, I believe demonstrates the strong demand for our global solution in the US and European marketplace. Our plan for 2009 was to make necessary adjustments to the base business, to accommodate the changes in client mix and to adjust for the sluggish economy, while we leveraged the opportunities created by our new End2End program. And this will enable to us grow out of the current financial trough. I'm pleased that we're on track to accomplish our plan, achieve overall positive or break-even cash flow for the year, and I look forward to improved financial results in the two quarters remaining in the year. And now, for some highlights from the eCOST.com business, I'm going to turn the floor back over to Mark. Mark?

Thanks, Mike. Appreciate your comments. Let's turn to the eCOST segment here for just a few minutes. Obviously, there's no doubt that the economic slowdown has had an impact on the entire retail segment here in the US. As I reported to you in our Q1 call, eCOST.com continued to show strong growth, even in light of the economic challenges in its business-to-consumer segment, while many other retailers were reporting significant slowdowns. However, the macro trends did begin to catch up with us in the second quarter of this year, as we look at the year on year revenue comparison being generally flat. When I reflect on the industry as a whole, though, I remain pleased with these results given what appears to be greater challenges and impact in the retail industry overall.

We remain hopeful that improving economic conditions will allow us to see a solid uptick in business activity as we look to Q3 and Q4 of 2009 in our eCOST segment. New customers and optimizing the costs to acquire them is cornerstone to success for all Web commerce retailers. eCOST.com remains keenly focused on this activity. I'm really pleased with the progress we've made in engaging and attracting new customers and retaining those customers during the past nine to 12 months. In the second quarter, new customers were up 67% when compared to the prior year. We had 49,192 new customers during the second quarter of this year. Our active customers were up 30% based on a year ago, with our active customer count through the second quarter of 2009 being at a little more than 222,000 customers. So when you reflect on the long-term value of 67% growth in new customers, resulting in 30% growth in buying customers over the last year, it's pretty impressive in terms of where we're at in the economic climate at this point.

What's also impressive is that our programs have been successful in terms of focusing on the cost to acquire new customers. During this quarter, our estimated cost to acquire a new customer dropped to $4.44, compared to $5.69 for the second quarter of 2008. And if we go back into 2007 and 2006, we had customer acquisition costs, that in most cases, were in excess of $10, $12, $14. So, we've made very significant strides in terms of reducing our noncatalog related customer acquisition expenses. And we're having obviously greater success in terms of driving new customers to the site. So altogether, this has worked quite well for us.

Over the past nine months, we've also focused our promotional activity heavily towards increasing active customers in our club membership program. We call it platinum premium club. We've turned our membership program -- we've tuned our membership program to be sure that we offer great benefits to our members. Members get access to our best product deals first. Access to free freight programs. And most importantly, only our members gain access to our twice weekly outrageous offer promotions where huge deals are available on a limited quantity basis. We believe our membership programs forms a stronger and longer customer bond with the Company. And we've seen that as we contrast it to the other acquisition channels, like shopping box, for example, that we used pretty heavily two years ago.

As we look at some recent historical data about our club members, we've found that our club members are buying three times more frequently than our average non club members. And as such, we're excited about the customer life value potential of this large group of new club members. I'm pleased to say that our club memberships in the second quarter of 2009 was up 525% compared to the same period last year. Now, keep in mind, that we started the club focus and retuned that program during the latter part of the fourth quarter of 2008. So, we're seeing significant year-on-year benefits. Those percentages will begin to flatten out -- or not flatten, but begin to right-size themselves, I would say, as we reach the fourth quarter this year.

Also, while we've seen a drop in total revenue, gross margin percentages improved measurably from 8.3% to 9.7% on an overall basis. In gross profit dollars, when we look at the Company as a whole -- eCOST segment as a whole, sorry, were flat year-over-year. This was attributable to a more focused effort on higher margin business to our consumer channel and an improved mix of higher margin product categories, including the for-the-home and sports and leisure categories that were added over a year ago. These expanded categories and other categories that we've added have now pushed our product offering to over 300,000 SKU's, compared to about 170,000 SKU's for the same period last year.

We believe that the decisions we have made to strengthen eCOST.com have helped us weather this tough economy. With a stronger marketing strategy that concentrates on low customer acquisition costs and the like value of a customer, along with a greater number of products and categories that offer higher margins and greater selection to our customers and a keen focus on controlling costs; We have been able to manage our business effectively even on lower revenue levels. This quarter, EBITDA improved by about $250,000 on $2.3 million less in revenue. We're continuing to refocus, transition, evolve and react to a rapidly changing Web commerce marketplace. And we remain encouraged with the progress and steady financial improvements we've made in this segment of our overall business. While we all would have ideally liked to have seen this progress quicker, we believe we continue to show progress towards sustainable financial contribution as we look to the future.

As mentioned earlier, another positive trend that carried over in the second quarter was our steady business-to-consumer segment. While we did see the business-to-business segment start to level off this quarter, as compared to the prior year, the B2C segment continues to offer higher gross margins and more repeat shoppers. Our B2C segment this past quarter represented about 55% of eCOST.com's total revenue. We certainly have not abandoned the B2B segment. And in fact, we've seen some recent encouraging signs in that piece of our business as well. And we're focused on continuing to improve the financial characteristics of eCOST.com business by expanding the B2C segment but also by improving the characteristics and mix in that B2B segment as well.

As we've discussed on previously calls, it's important to note the additional intangible value that the eCOST segment has for our services business in terms of its pioneering and innovation. ECOST, in addition to being its own business, serves as sort of a development laboratory for new capabilities, be it check-out methods, customer acquisition models, lifecycle analysis, virtual warehouse partnerships and many, many other things. As we find successful tools and methods and they become fully developed at eCOST, we then can offer additional product and capabilities that we have developed at eCOST into our services business segment as well. This has been an increasingly important as we expand the End2End solution, which directly applies to these additional product and capabilities.

In summary, eCOST continues to evolve in, what I believe to be, a positive direction. When you peel back the layers of our Q2 results, as I've laid out for you it here, it shows significant and positive development and progress in many areas. Now, let me turn the call over to Tom who will cover the details on the financials for the quarter. Tom?

Thank you, Mark. Let me first start by providing a brief overview of our consolidated operating results for the June quarter and then I'll provide some select operating highlights for individual business segments and as well as an update on some of our banking relationships as well. As reported in our press release, our consolidated revenue for PFSweb in the third quarter ended June 30, 2009, was $82.3 million. This compares to $110.7 million reported in the second quarter of 2008. Gross profit for the second quarter of 2009 was $8.2 million or 10.5% of net revenue, excluding pass-through revenue, as compared to $12.8 million or 12.3% of net revenue, excluding pass-through revenue in the second quarter 2008.

As we have discussed previously, we utilize adjusted EBITDA as a key metric in evaluating our operational performance. In the second quarter, our consolidated adjusted EBITDA was a loss of $0.7 million, compared to an income of $2.5 million in the prior year period. For the second quarter, net loss was $2.5 million or $0.25 per basic and diluted share, compared to GAAP net income of approximately $62,000, or $0.01 per basic and diluted share for the same period last year.

Another key metric we use in evaluating our financial performance is non-GAAP net income. To calculate this, we exclude from net income, calculated in accordance with GAAP, the impact of stock-based compensation, goodwill and intangible asset amortization. For the second quarter of 2009, non-GAAP net income was a loss of approximately $2.4 million or $0.24 per basic and diluted share, as compared to non-GAAP income of about $391,000 or $0.04 per basic and diluted share for the same period last year.

Turning now to the performance of select business segments for the three months ended June 30, 2009. First, from a service fee revenue basis, our service fee revenue decreased approximately 42% to $12.4 million, from $21.3 million in the prior year. This decrease is attributable to the economy, as well as a nonrenewal of a large US government contract, effective at the end of January 2009. Although we did continue to perform some project work under this US government contract through the beginning of the second quarter. This decrease was partially offset by new client programs. SG&A decreased in 2009 in this business unit versus the prior year, primarily due to certain cost reduction activities implemented throughout the fourth quarter 2008, as well as the first half of 2009. Adjusted EBITDA for this business for the June quarter was a loss of $1.3 million, compared to an income of $1.0 million for the same period in 2008.

For our supplies distributor business segment, revenue declined to $45.3 million in the second quarter of 2009, as compared to $60 million in the prior year quarter. As supplies distributors saw a decrease in demand during the quarter, which is primarily attributable to the overall global economic pressures and inventory rationalization by our customer base. Adjusted EBITDA for the June 2009 quarter $1.0 million, compared to $2.1 million for the same period last year. As for eCOST.com, revenue in the second quarter of 2009 was $20.3 million, compared to $23 million for the same period last year. As Mark indicated earlier here, our enhanced focus and success in the business-to-consumer segment was partially offset by the revenue decline in the business-to-business segment. However, our bottom line results for eCOST.com improved significantly as a result of the higher margins in the B2C business, as well as continued cost focus. With an adjusted EBITDA loss of $388,000 for the June 2009 quarter, as compared to a loss of about $641,000 in the prior year same quarter.

If you recall, our target at the beginning of the year was to operate at a break-even to positive cash flow performance for the consolidated business for calendar year 2009. We continue today to keep that same target, as we look to maintain our solid cash position to support our business on an ongoing basis. As Mike and Mark discussed earlier, our expectations for this June quarter were for it to be a lower quarter than what we had had previously and what we expect for the rest of the year, as we deal with the sluggish economy and the loss of the, previously largest, services fee client relationship. However, with our continued focus on costs, the exciting developments that Mike referred to in new contract activity and the expected continued progress in our eCOST business unit, we expect improved performance as we look ahead to the rest of the year.

The bottom line results were also generally in line with what we had provided to our banking partners earlier this year. We continue to maintain a proactive communication channel with all of our banking partners to ensure that they are continually updated on our business developments. And we are currently in compliance with and expect to maintain compliance with all of our existing financial covenant requirements. Now, I'd like to turn the call back over to Mark for closing remarks. Mark?

Thanks, John. So to recap, despite the tough economy, our results for the second quarter were within our expectations. We've made the necessary adjustments to our business in order to emerge from these challenging times a stronger Company, we believe. This concludes the body of our prepared comments for today. And operator, we'll now be available for some questions.

Thank you. (Operator Instructions) And you have a question from George Walsh.

Good morning, gentlemen.

Hi, George. How are you?

Good. Mike, I wondered if you could go into the -- as the best you can see the ramp-up with the new clients in the services side, the kind of EBITDA you're looking for the balance of the year? Is it really a matter of getting to break even these next couple quarters, the second half in services or it's just a matter of still having some negative EBITDA there for a couple of quarters?

Tom, you want to handle that, please?

Sure. George, we're not going to give any specific guidance on the individual quarters here. Again, I think our general guidance for the year, so far, has been on the free cash flow break-even to positive performance. I think we all have alluded to the fact that we expect improvements as we look at the services business unit, and that would include both the services and supplies distributors business unit combined, as we look out into Q3. And then further strengthening in Q4, not only because of continued new clients being added on but also get the seasonal uptick from some of our business to consumer holiday activity as well.

Okay. Any special trends you're seeing in services as far as a lot of brick and mortar and malls are going by the way side, is there more activity there that's going to increase the pipeline?

So, George, I think that I mentioned in the past couple conference calls that we have seen a real increase in the number of brand manufacturers finally going direct-to-consumer with their own e-commerce initiatives. It's amazing the number of, particularly prestige and luxury, brands that have yet to put up even their first e-commerce site prior to this year. And we're now seeing, I think with the pressures on the brick and mortar channel, with pressures on maybe traditional catalog sales, that this is an area of the economy that still shows signs of growth. And these folks are jumping at the chance to go online. And I think that our program with its relatively quick ramp-up characteristics and relatively low entry price and pay as you go kind of model, that all on-demand programs bring, is really perfect for those brand manufacturers to catch the wave in 2009 when they really need that impact to their bottom line. So, that's the biggest trend, brand manufacturers going online for the first time.

I think we also see a fair trend with folks that have an existing e-commerce initiative, where it may have been insourced or it may have been outsourced to a regional provider that doesn't have national or global capabilities, needing to replatform and then reassessing their decision to insource or outsource to a lower cost regional provider. Coming on board with our higher end global End2End strategy. Those are the two things we continue to see, which I think are real positive for us right now.

Okay. And anything updating-wise with Demandware in terms of that relationship and any other initiatives you're looking at with them?

Well, we continue to be very excited about the relationship. We have a very strong working relationship with Demandware, a lot of coordination between our sales and marketing efforts. And if you go to some of easy these trade shows, like a Shop.org you'll see us working very tightly with them to respond to this increase in the End2End demand. We're excited about their road map and the features that they continue to put into their platform. They're very aggressive about adding capabilities at a time when a lot of other software vendors seem to be kind of holding pat.

And so our End2End offering just strengthen's quarter after quarter as Demandware makes these R&D investments, which is great for us. And we see that really reflected in the response that we're getting increasingly in this marketplace where we're very frequently involved in the early stages of a company's investigation into their alternatives. And that's huge for us to be involved in the early part of the sales cycle with these companies. Being able to discuss with them not only the commerce aspect but the rest of the parts of an e-commerce initiative.

And I think when you talk about Demandware, one of the things that we really see as a key differentiator is the fact that this is a true tier one e-commerce platform with all of the features and requirements that, really, anybody would want in a platform. Compared to our competitors with their in-house developed proprietary platform, which locks them in to certain features of functionality and is not developed to be a sort of multiclient platform. And it also differentiates us from software platforms where you have to bring those in-house and create this huge infrastructure and all the computing resources that are required to operate an expensive tier one platform in-house.

So, we think really it's the best of both worlds. Tier one functionality, off the shelf software packages but available on demand, instead of having to bring that in house and use up all the resources to support it.

Okay. And one more thing, Mike, how are things for InfoPrint Solutions and that joint venture? Any other developments there in your relationship with them?

Well, I would characterize that relationship as pretty much status quo at this point, which is fine with us. They value the services that we provide. I think as Tom indicated, their business is showing the effects of the sluggish economy. There are less pages being printed out there in the commercial world and InfoPrint Solutions has always competed in a marketplace for printer placements. We believe they still have strong product offering but it is showing some of the signs of that sluggish economy. We still believe it to be a long-term relationship. All the signs are there that they continue to appreciate the offering that we have for them. And so, other than the sluggish economy, I'd say that it's status quo.

Okay. And just a quick question on eCOST. The average order value was about $200 and that's down from last year. Could you go into a little more detail of that, perhaps versus the B2B versus the B2C and are the consumer -- since that's where more of the growth is, how are the consumer average sales trends there?

Okay, George, this is Mark. There's two pieces to that from there. Obviously, as we get a higher mix of the B2C segment in the business on an overall basis, it does drive the average order size down. We haven't really seen much change in terms of the average order size trend in the B2B side. That's still well over $2,000 on that piece of it. But the B2B segment is obviously growing, so that impacts the amount overall.

The second piece is, and I didn't get into any detail on this on the call, but this past quarter, we have one of the channels that we've been using and it's helped us a fair bit in our new customer strategy, has been a new relationship that we struck with eBay, the new eBay marketplace area that's out there. You'll see, generally once or twice a week, eCOST is featured as the deal of the day. Those features produce a lot of activity. But the buyers of those products and the ideal products that present, at least from the success that we've had so far, have been on lower price point products. So they might be $4.99 USB flash drives or Bluetooth headsets at $13 and things along that area in there. So we've kind an influx of new customer activity that have been acquired using these kind of low end products.

Now, our belief, and we need time to measure it yet is that we can use the eBay marketplace to acquire new customers for us that will then come back to us directly in the future. And we would expect our second and third orders to be more towards our average than that first order that we're using to acquire. But it's a pretty effective customer acquisition strategy. Quite low-cost with the arrangement that we have made.

Okay. All right, great, thank you.

(Operator Instructions) Your next question comes from Alex Silverman.

Hi, good morning. I really do apologize, I got on the call very, very late. Did you guys break out what the loss of your large government customer represented from service revenue in the quarter?

We did not break it out specifically. I can share that with you, hold in, if you give me one second.

Okay. Is it fair to say -- I did some back-of-the-envelope using information out of your March and June 10-Q's. Is it fair to say it was a little over $8 million?

It would have been a little more than that, yes.

Okay. Therefore, is it fair to say that, excluding Mint, service revenue year-over-year was down just slightly, less than $0.5 million, without Mint -- without the government contract?

I believe that the number you'd actually see that we would have had some existing activity that may have been down a little bit, excluding the US Mint but the other new contracts have helped offset that. So excluding the Mint and I'm trying to look for last year's number here real quick because I'm not getting it right at my fingertips. Give me one second and hopefully, we can go on to the next question and I'll have that answer here in a minute.

That would be great. Thank you. My next question is, historically, you guys have given an indication of what your selling pipeline looks like. That was not in this press release. Have you spoken at all about that on the call?

We, did Alex. We referred to a $35 million number, which is the size of the current new business pipeline, which reflects some contracting activity we had since the last conference call. So the number is slightly down but that's because we've actually closed some of those deals.

Okay. And then is it fair to say -- and again, I apologize but is it fair to say that if you were to strip out the loss of B2C at eCOST -- I'm sorry, if you were to strip out B2B at eCOST, the number was up year-over-year on B2C?

Well, the B2C segment in this second quarter, Alex, was about flat year on year.

Flat, okay. So the $3 million differential year-over-year is almost exclusively B2B?

That's correct.

Very good.

And Alex I have your question answered now for the US Mint activity, in the last year's June quarter, we had approximately $8.5 million of revenue. And this year. we would have had -- in the June quarter, we had a little bit of activity still in April but it was about $200,000 or $300,000 worth of activity. So, a little over $8 million.

So, it was about $8.3 is the difference and I think the difference in service revenue was about $8.9. So it's almost all Mint Related.

Yes.

Fair enough. Thank you very much, guys.

Thanks, Alex.

And at this time, there are no further questions. Are there any closing remarks?

I just want to thank everybody for your time and we'll talk to you again next quarter. Have a great day.

Thank you. This concludes today's conference call. You may now disconnect.