PFSW Pfsweb Inc

PFSweb, Inc. (Nasdaq: PFSW), a global provider of integrated business process outsourcing (BPO) solutions, today announced financial results for the second quarter ended June 30, 2005. Net revenue in the second quarter totaled $84.9 million compared to $80.0 million in the same period last year, an increase of 6%. Service fee revenue climbed 47% to a record $16.3 million in the 2005 second quarter from $11.0 million in the year-earlier period. Product revenue in the second quarter was $63.4 million versus $65.3 million in the same period a year ago. PFSweb's net loss for the second quarter ended June 30, 2005 was $546,000, or $0.02 per basic and diluted share, compared to net income of $479,000, or $0.02 per basic and diluted share, in the second quarter of 2004. Results for the 2005 second quarter include incremental costs of approximately $0.2 million related to the previously announced relocation of two distribution facilities to the new Airways Distribution Center in Southaven, Miss. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) in the second quarter of 2005 totaled $1.6 million versus $2.2 million in the same period last year. Gross profit increased to $8.0 million from $7.9 million in the 2004 second quarter. The weighted average common shares outstanding on a diluted basis for the three months ended June 30, 2005 were 22,419,000 shares compared to 23,129,000 in the prior year. Mark Layton, Chief Executive Officer of PFSweb, said, "Our June quarter results reflect strong growth in service fee revenue for the second consecutive quarter as we continued the rollout of new business signed last year. Our strategy to enhance service fees through large contracts with Fortune 500 and Global 1000 companies led to 47% growth in service fee revenue during this past quarter. With the initial implementation of our new contracts now complete, we will focus on increasing productivity and reducing operating expenses from this business to drive greater gross profit results." For the six months ended June 30, 2005, net revenues totaled $166.7 million compared to $157.5 million in the 2004 six-month period, an increase of 6%. Service fee revenue increased 67% to $30.4 million compared to $18.2 million and product revenue was $127.1 million versus $133.9 million for the six months ended June 30, 2004. The Company's net loss for the six months ended June 30, 2005 narrowed to $760,000, or $0.03 per basic and diluted share, compared to a net loss of $1.3 million, or $0.06 per basic and diluted share, in the corresponding period in 2004. EBITDA for the six months ended June 30, 2005 climbed 55% to $3.4 million from $2.2 million in the same period last year. Gross profit rose to $15.3 million for the first six months in 2005 from $13.9 million in the year-earlier period, an increase of 10%. Tom Madden, PFSweb Chief Financial Officer, said, "In the June 2005 quarter, PFSweb maintained its strong growth in service fee revenue. Results in the quarter were impacted by additional expenses in supporting new and existing contracts as well as costs for the relocation of facilities from Memphis to Southaven. Our 306,000-square-foot expansion in the advanced Airways Distribution Center was completed on schedule in the month of June and we now operate a total of 908,000 square ft. in Southaven. We expect our relocation efforts to enhance our operating efficiencies and leading world-class service as we continue to grow the business. During the June 2005 quarter, our SG&A expenses also increased from the corresponding period of the prior year and on a sequential quarterly basis due to the unfavorable impact of exchange rates, increased sales and marketing costs and certain personnel related costs. "In the current third quarter, we expect to incur additional relocation related charges of approximately $1.0 million, which includes a previously unanticipated, incremental charge estimated to be approximately $0.5 million related to a lease termination, bringing our total expected relocation related expenses to approximately $1.2 million." Mr. Layton concluded, "PFSweb has made key investments in sales and marketing this year to generate a stable, more profitable revenue stream. This strategic focus to broaden our client base by targeting additional blue-chip companies has lengthened our sales cycle. We remain confident in our ability to sign new long-term contracts, as well as additional project work, that will drive future service fees and stronger gross margins. We are pleased by our recently announced agreement with greenMango and are targeting more to follow in the second half of 2005. Our pipeline for potential new business remains strong, including current pending proposals totaling more than $40 million in annual service fees. As always, however, it is difficult to predict how many proposals we will win. "For the current fiscal year, we are now anticipating service fee revenue to achieve 30% to 40% growth, while product revenue is now expected to decline approximately 5% as compared to the prior year. We continue to target to achieve earnings per share of $0.02 to $0.05 in 2005, excluding the impact of relocation related costs expected to total approximately $1.2 million, or $0.05 per share (or a loss of $0.03 to $0.00 per share including the impact of such costs). We do not believe such costs are reflective of our core business activities." PFSweb has scheduled a conference call for Monday, August 15, 2005 at 10:00 a.m. Central Time (11:00 a.m. Eastern Time). To listen to the call, please dial (973) 409-9255 at least five minutes before the scheduled start time. Investors can also access the call in a "listen only" mode via the Internet at the Company's website, www.pfsweb.com. Please allow extra time prior to the call to visit the site and download any necessary audio software. A digital replay of the conference call will be available through August 29, 2005 at (973) 341-3080, pin number: 6310468. The replay also will be available at the company's web site for a limited time. Non-GAAP Financial Measures This news release contains the non-GAAP measure EBITDA. EBITDA or earnings before interest, taxes, depreciation, and amortization, and excluding equity in earnings of affiliate, is widely used by analysts, investors and other interested parties. We present EBITDA because we believe it is useful in evaluating our operating performance compared to that of other companies in our industry, as the calculation of EBITDA eliminates the effect of financing, income taxes and the accounting effects of capital spending, which items may vary from different companies for reasons unrelated to overall operating performance. About PFSweb, Inc. PFSweb develops and deploys integrated business infrastructure solutions and fulfillment services for Fortune 1000, Global 2000 and brand name companies, including third party logistics, call center support and e-commerce services. The company serves a multitude of industries and company types, including such clients as Adaptec (Nasdaq:ADPT), CHiA'SSO, FLAVIA(R) Beverage Systems, Hewlett-Packard (NYSE:HPQ), iGo/Mobility Electronics (Nasdaq:MOBE), International Business Machines (NYSE:IBM), Nokia (NYSE:NOK), Pfizer, Inc. (NYSE:PFE), Raytheon Aircraft Company, Rene Furterer USA, Roots, Inc., Smithsonian Institution and Xerox (NYSE:XRX). The matters discussed in this news release, particularly information regarding future revenue, earnings, business plans and goals, consist of forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to and involve risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. Such statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and the Company's future performance are both subject to a wide range of business risks and uncertainties, and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially. The Company undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking information contained herein is subject to the risk factors and uncertainties described in the Company's filings with the Securities and Exchange Commission, which risk factors and uncertainties are incorporated by this reference as though fully set forth herein. -0- *T Exhibit A PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (A) (In Thousands, Except Per Share Data) Three Months Ended Six Months Ended JUNE 30, JUNE 30, ------------------ ------------------- 2005 2004 2005 2004 -------- ------- -------- -------- Revenues: Product revenue, net $ 63,438 $65,304 $127,068 $133,874 Service fee revenue 16,298 11,034 30,383 18,165 Pass-through revenue 5,134 3,682 9,284 5,466 -------- ------- -------- -------- Total revenues 84,870 80,020 166,735 157,505 -------- ------- -------- -------- Costs of revenues: Cost of product revenue 59,613 61,723 119,250 126,176 Cost of service fee revenue 12,102 6,714 22,870 11,967 Pass-through cost of revenue 5,134 3,682 9,284 5,466 -------- ------- -------- -------- Total costs of revenues 76,849 72,119 151,404 143,609 -------- ------- -------- -------- Gross profit 8,021 7,901 15,331 13,896 Selling, general and administrative expenses 7,952 6,910 14,918 14,042 -------- ------- -------- -------- Income from operations 69 991 413 (146) Interest expense, net 474 324 793 752 -------- ------- -------- -------- Income (loss) from before income taxes (405) 667 (380) (898) Income tax provision 141 188 380 390 -------- ------- -------- -------- Net income (loss) $ (546) $ 479 $ (760) $ (1,288) ======== ======= ======== ======== Net income (loss) per share: Basic $ (0.02) $ 0.02 $ (0.03) $ (0.06) ======== ======= ======== ======== Diluted $ (0.02) $ 0.02 $ (0.03) $ (0.06) ======== ======= ======== ======== Weighted average number of shares outstanding: Basic 22,419 21,239 22,278 21,212 ======== ======= ======== ======== Diluted 22,419 23,129 22,278 21,212 ======== ======= ======== ======== EBITDA (B) $ 1,579 $ 2,201 $ 3,425 $ 2,190 ======== ======= ======== ======== (A) THE FINANCIAL DATA ABOVE SHOULD BE READ IN CONJUNCTION WITH THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PFSWEB, INC. INCLUDED IN ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004. (B) A RECONCILIATION OF NET INCOME (LOSS) TO EBITDA IS AS FOLLOWS: Three Months Ended Six Months Ended JUNE 30, JUNE 30, ------------------ ------------------- 2005 2004 2005 2004 -------- ------- -------- -------- Net income (loss) $ (546) $ 479 $ (760) $ (1,288) Income tax provision 141 188 380 390 Interest expense, net 474 324 793 752 Depreciation and amortization 1,510 1,210 3,012 2,336 -------- ------- -------- -------- EBITDA $ 1,579 $ 2,201 $ 3,425 $ 2,190 ======== ======= ======== ======== EXHIBIT A (CONTINUED) PFSweb, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Share Data) June 30, December 31, 2005 2004 (UNAUDITED) ------------ ------------- ASSETS -------- CURRENT ASSETS: Cash and cash equivalents $ 13,439 $ 13,592 Restricted cash 937 2,746 Accounts receivable, net of allowance for doubtful accounts of $435 and $504 at June 30, 2005 and December 31, 2004, respectively 43,818 41,565 Inventories, net 46,384 44,947 Other receivables 7,464 8,061 Prepaid expenses and other current assets 3,423 3,349 ----------- ------------ Total current assets 115,465 114,260 ----------- ------------ PROPERTY AND EQUIPMENT, net 13,812 14,264 RESTRICTED CASH 300 675 OTHER ASSETS 1,261 1,128 ----------- ------------ Total assets $ 130,838 $ 130,327 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY -------------------------------------- CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 24,232 $ 19,098 Trade accounts payable 57,911 61,583 Accrued expenses 9,881 10,971 ----------- ------------ Total current liabilities 92,024 91,652 ----------- ------------ LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 7,049 7,232 OTHER LIABILITIES 1,731 1,517 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and outstanding -- -- Common stock, $0.001 par value; 40,000,000 shares authorized; 22,521,308 and 21,665,585 shares issued at June 30, 2005 and December 31, 2004, respectively; and 22,435,008 and 21,579,285 outstanding at June 30, 2005 and December 31, 2004, respectively 23 22 Additional paid-in capital 58,599 56,645 Accumulated deficit (29,837) (29,077) Accumulated other comprehensive income 1,334 2,421 Treasury stock at cost, 86,300 shares (85) (85) ----------- ------------ Total shareholders' equity 30,034 29,926 ----------- ------------ Total liabilities and shareholders' equity $ 130,838 $ 130,327 =========== ============ Exhibit B PFSweb, Inc. and Subsidiaries Unaudited Consolidating Statements of Operations for the Three Months Ended June 30, 2005 (In Thousands) BUSINESS SUPPLIES DISTRIBUTORS PFSWEB, HOLDINGS, LLC ELIMINATIONS CONSOLIDATED INC. ----------- ------------- ------------ ------------ REVENUES: Product revenue, net $ - $ 63,438 $ - $ 63,438 Service fee revenue 16,298 - - 16,298 Service fee revenue, affiliate 2,345 - (2,345) - Pass-through revenue 5,190 - (56) 5,134 ----------- ------------- ------------ ------------ Total revenues 23,833 63,438 (2,401) 84,870 COSTS OF REVENUES: Cost of product revenue - 59,613 - 59,613 Cost of service fee revenue 12,801 - (699) 12,102 Pass-through cost of revenue 5,190 - (56) 5,134 ----------- ------------- ------------ ------------ Total costs of revenues 17,991 59,613 (755) 76,849 ----------- ------------- ------------ ------------ Gross profit 5,842 3,825 (1,646) 8,021 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,864 2,734 (1,646) 7,952 ----------- ------------- ------------ ------------ Income (loss) from operations (1,022) 1,091 - 69 EQUITY IN EARNINGS OF AFFILIATE 367 - (367) - INTEREST EXPENSE (INCOME), NET (56) 530 - 474 ----------- ------------- ------------ ------------ Income (loss) before income taxes (599) 561 (367) (405) INCOME TAX PROVISION (BENEFIT) (53) 194 - 141 ----------- ------------- ------------ ------------ NET INCOME (LOSS) $ (546) $ 367 $ (367) $ (546) =========== ============= ============ ============ A reconciliation of net income (loss) to EBITDA follows: Net income (loss) $ (546) $ 367 $ (367) $ (546) Income tax expense (benefit) (53) 194 - 141 Interest expense (income) (56) 530 - 474 Equity in earnings of affiliate (367) - 367 - Depreciation and amortization 1,510 - - 1,510 ----------- ------------- ------------ ------------ EBITDA $ 488 $ 1,091 $ - $ 1,579 =========== ============= ============ ============ Exhibit B (continued) PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidating Balance Sheets as of June 30, 2005 (In Thousands) BUSINESS SUPPLIES DISTRIBUTORS PFSWEB, HOLDINGS, LLC ELIMINATIONS CONSOLIDATED INC. --------- ------------- ------------ ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,384 $ 3,055 $ - $ 13,439 Restricted cash 583 354 - 937 Accounts receivables, net 16,999 26,926 (107) 43,818 Inventories, net - 46,384 - 46,384 Other receivables - 7,464 - 7,464 Prepaid expenses and other current assets 1,834 1,589 - 3,423 -------- ------------ ----------- ------------ Total current assets 29,800 85,772 (107) 115,465 -------- ------------ ----------- ------------ PROPERTY AND EQUIPMENT, net 13,812 - - 13,812 NOTE RECEIVABLE FROM AFFILIATE 7,005 - (7,005) - RESTRICTED CASH 300 - - 300 INVESTMENT IN AFFILIATE 6,863 - (6,863) - OTHER ASSETS 1,261 - - 1,261 -------- ------------ ----------- ------------ Total assets $ 59,041 $ 85,772 $ (13,975) $ 130,838 ======== ============ =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 7,775 $ 16,457 $ - $ 24,232 Trade accounts payable 5,621 52,397 (107) 57,911 Accrued expenses 6,882 2,999 - 9,881 -------- ------------ ----------- ------------ Total current liabilities 20,278 71,853 (107) 92,024 -------- ------------ ----------- ------------ LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 7,049 - - 7,049 NOTE PAYABLE TO AFFILIATE - 7,005 (7,005) - OTHER LIABILITIES 1,731 - - 1,731 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock 23 - - 23 Capital contributions - 1,000 (1,000) - Additional paid-in capital 58,599 - - 58,599 Retained earnings (accumulated deficit) (29,886) 4,336 (4,287) (29,837) Accumulated other comprehensive income 1,332 1,578 (1,576) 1,334 Treasury stock (85) - - (85) -------- ------------ ----------- ------------ Total shareholders' equity 29,983 6,914 (6,863) 30,034 -------- ------------ ----------- ------------ Total liabilities and shareholders' equity $ 59,041 $ 85,772 $ (13,975) $ 130,838 ======== ============ =========== ============ *T