PFSW Pfsweb Inc

PFSweb, Inc. (Nasdaq:PFSW), a global provider of integrated business process outsourcing (BPO) solutions, today announced financial results for the third quarter ended September 30, 2005. Net revenue in the third quarter totaled $81.5 million compared to $77.0 million in the same period last year, an increase of 6%. Service fee revenue climbed 28% to $14.9 million in the 2005 third quarter from $11.6 million in the year-earlier period. Product revenue in the third quarter was $62.3 million versus $61.6 million in the same period a year ago. PFSweb's net loss for the third quarter ended September 30, 2005 was $453,000, or $0.02 per basic and diluted share, compared to net income of $420,000, or $0.02 per basic and diluted share, in the third quarter of 2004. Results for the 2005 third quarter include incremental costs of approximately $1.2 million related to the previously announced relocation of two distribution facilities to the new Airways Distribution Center in Southaven, Miss. Excluding these incremental relocation-related costs, the Company's results would have been net income of $0.7 million, or $0.03 per basic and diluted share, in the 2005 third quarter. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) in the third quarter of 2005 totaled $1.9 million ($3.1 million excluding incremental relocation-related costs) versus $2.1 million in the same period last year. Gross profit increased 19% to $8.8 million from $7.4 million in the third quarter of 2004. Mark Layton, Chief Executive Officer of PFSweb, said, "I am pleased to report a 28% increase in service fee revenue during the third quarter. We remain on track to achieve strong growth in our service fee revenue for fiscal 2005 and expect to generate further improvement in gross profit from our new business agreements signed last year." For the nine months ended September 30, 2005, net revenues totaled $248.2 million compared to $234.5 million in the 2004 nine month period, an increase of 6%. Service fee revenue increased 52% to $45.3 million compared to $29.8 million and product revenue was $189.4 million versus $195.4 million for the nine months ended September 30, 2004. The Company's net loss for the nine months ended September 30, 2005 increased to $1.2 million, or $0.05 per basic and diluted share, compared to a net loss of $0.9 million, or $0.04 per basic and diluted share, in the corresponding period in 2004. Excluding year-to-date incremental relocation-related charges of $1.4 million, the Company's results would have been a net income of $0.2 million, or $0.01 per basic and diluted share, for the first nine months of 2005. EBITDA for the nine months ended September 30, 2005 climbed 25% to $5.4 million ($6.7 million excluding incremental relocation-related costs) from $4.3 million in the same period last year. Gross profit rose to $24.1 million for the first nine months in 2005 from $21.3 million in the year-earlier period, an increase of 13%. Thomas Madden, PFSweb Chief Financial Officer, said, "In the third quarter, we realized final costs of $1.2 million related to the relocation of two of our facilities from Memphis to Southaven. The move, completed in September, included higher than expected costs in the third quarter but we expect our streamlined operations to produce greater efficiencies over the long run as we continue to expand our business." Layton concluded, "We anticipate continued benefits in the current fourth quarter from new business contracts signed last year. Clearly, 2005 has been a slow year for new contract signings as we focused on larger contracts with blue-chip companies. This strategic shift has lengthened our sales cycle, which has led to challenges in signing new business on a consistent basis. "For the current fiscal year, we are reiterating our previous guidance of 30% to 40% growth in service fees and an approximate 5% decline in product revenue compared to fiscal 2004. We anticipate a net loss of $0.04 to $0.01 per share in 2005, but excluding the impact of $1.4 million in relocation-related costs, or $0.06 per share, which we believe are not reflective of our core business activities, we remain on target to achieve earnings per share of $0.02 to $0.05 in 2005. "This is an exciting time for PFSweb. We believe our proposed merger with eCOST.com, announced earlier today with the signing of a non-binding letter of intent, provides substantial long-term growth opportunities for both companies. eCOST's 1.3 million total customers, broad product offering, merchandising and direct marketing expertise combined with PFSweb's advanced distribution and fulfillment engine and IT capabilities will bring together the core strengths of both organizations. eCOST's established consumer direct sales model highly complements our operational infrastructure producing a company with combined revenue for the trailing twelve months ended September 30, 2005 of $528 million." PFSweb has scheduled a conference call for Thursday, November 10, 2005 at 4:00 p.m. Central Time (5:00 p.m. Eastern Time). To listen to the call, please dial (973) 935-2800, confirmation code: 6699625 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 November 25, 2005 at (973) 341-3080 pin number 6699625. 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 measures EBITDA and Pro Forma 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. We present Pro Forma EBITDA, which excludes the impact of relocation-related costs, for each period presented because we believe it is useful to provide more comparability when evaluating our operating performance from period to period. About PFSweb, INC. PFSweb designs and deploys integrated e-Commerce business infrastructure solutions for Fortune 1000, Global 2000 and leading brand name companies. Seamlessly acting as an extension of a client organization, PFSweb operates critical business functions including product warehousing and inventory management, brand-centric fulfillment, returns management, high-touch call center support, e-Commerce technology and revenue generation services. Specialty services include turnkey customer loyalty program support, continuity program support, multi-channel integration services and value-add services such as gift-wrapping, kitting/assembly and product sample program fulfillment. The company serves a multitude of industries and company types, supporting such clients as CHiA'SSO, FLAVIA(R) Beverage Systems (a division of Mars), Hewlett-Packard (NYSE:HPQ), International Business Machines (NYSE:IBM), Nokia (NYSE:NOK), Pfizer, Inc. (NYSE:PFE), Raytheon Aircraft Company, Rene Furterer USA, ROOTS, The Smithsonian Business Ventures and Xerox (NYSE:XRX), to name a few. To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit our website at www.pfsweb.com or contact us at 866-ASK-PFSweb. THE MATTERS DISCUSSED IN THIS NEWS RELEASE (EXCEPT FOR HISTORICAL INFORMATION) AND, IN PARTICULAR, INFORMATION REGARDING THE MERGER, ESTIMATES, FUTURE REVENUE, EARNINGS AND BUSINESS PLANS AND GOALS, CONSIST OF FORWARD-LOOKING INFORMATION UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE SUBJECT TO AND INVOLVE RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING INFORMATION. THESE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, OUR ABILITY TO RETAIN AND EXPAND RELATIONSHIPS WITH EXISTING CLIENTS AND ATTRACT NEW CLIENTS; OUR DEPENDENCE UPON OUR AGREEMENTS WITH IBM; OUR RELIANCE ON THE FEES GENERATED BY THE TRANSACTION VOLUME OR PRODUCT SALES OF OUR CLIENTS; OUR RELIANCE ON OUR CLIENTS' PROJECTIONS OR TRANSACTION VOLUME OR PRODUCT SALES; OUR CLIENT MIX AND THE SEASONALITY OF THEIR BUSINESS; OUR ABILITY TO FINALIZE PENDING CONTRACTS; THE IMPACT OF NEW ACCOUNTING STANDARDS AND RULES REGARDING REVENUE RECOGNITION, STOCK OPTIONS, AND OTHER MATTERS; CHANGES IN ACCOUNTING RULES OR CURRENT INTERPRETATION OF THOSE RULES; THE IMPACT OF STRATEGIC ALLIANCES AND ACQUISITIONS; TRENDS IN THE MARKET FOR OUR SERVICES; TRENDS IN E-COMMERCE; WHETHER WE CAN CONTINUE AND MANAGE GROWTH; CHANGES IN THE TREND TOWARD OUTSOURCING; INCREASED COMPETITION; OUR ABILITY TO GENERATE MORE REVENUE AND ACHIEVE SUSTAINABLE PROFITABILITY; EFFECTS OF CHANGES IN PROFIT MARGINS; THE CUSTOMER CONCENTRATION OF OUR BUSINESS; THE UNKNOWN EFFECTS OF POSSIBLE SYSTEM FAILURES AND RAPID CHANGES IN TECHNOLOGY; TRENDS IN GOVERNMENT REGULATION BOTH FOREIGN AND DOMESTIC; FOREIGN CURRENCY RISKS AND OTHER RISKS OF OPERATING IN FOREIGN COUNTRIES; POTENTIAL LITIGATION INVOLVING OUR E-COMMERCE INTELLECTUAL PROPERTY RIGHTS; OUR DEPENDENCY ON KEY PERSONNEL; OUR ABILITY TO RAISE ADDITIONAL CAPITAL OR OBTAIN ADDITIONAL FINANCING; OUR RELATIONSHIP WITH AND OUR GUARANTEES OF THE WORKING CAPITAL INDEBTEDNESS OF OUR SUBSIDIARY, SUPPLIES DISTRIBUTORS; AND OUR ABILITY OR THE ABILITY OF OUR SUBSIDIARIES TO BORROW UNDER CURRENT FINANCING ARRANGEMENTS AND MAINTAIN COMPLIANCE WITH DEBT COVENANTS; WHETHER OUTSTANDING WARRANTS ISSUED IN A PRIOR PRIVATE PLACEMENT WILL BE EXERCISED IN THE FUTURE ; AND WITH RESPECT TO THE PROPOSED MERGER, THE INABILITY OF ECOST.COM AND PFSWEB TO REACH AGREEMENT ON DEFINITIVE TERMS FOR, AND SUBSTANTIALLY CLOSE, THE TRANSACTION, AND THE ABILITY OF THE COMPANIES TO SUCCESSFULLY INTEGRATE THEIR BUSINESS TO ACHIEVE THE ANTICIPATED BENEFITS OF THE TRANSACTION. A DESCRIPTION OF THESE FACTORS, AS WELL AS OTHER FACTORS, WHICH COULD AFFECT THE COMPANY'S BUSINESS, IS SET FORTH IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004. IN ADDITION, SOME FORWARD-LOOKING STATEMENTS ARE BASED UPON ASSUMPTIONS AS TO FUTURE EVENTS THAT MAY NOT PROVE TO BE ACCURATE. THEREFORE, ACTUAL OUTCOMES AND RESULTS MAY DIFFER MATERIALLY FROM WHAT IS EXPECTED OR FORECASTED IN SUCH FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENT FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE. THERE MAY BE ADDITIONAL RISKS THAT WE DO NOT CURRENTLY VIEW AS MATERIAL OR THAT ARE NOT PRESENTLY KNOWN. -0- *T PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (A) (In Thousands, Except Per Share Data) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------- 2005 2004 2005 2004 ------- -------- -------- -------- Revenues: Product revenue, net $62,284 $ 61,561 $189,352 $195,435 Service fee revenue 14,891 11,599 45,274 29,764 Pass-through revenue 4,317 3,857 13,601 9,323 ------- -------- -------- -------- Total revenues 81,492 77,017 248,227 234,522 ------- -------- -------- -------- Costs of revenues: Cost of product revenue 57,401 58,126 176,651 184,302 Cost of service fee revenue 10,990 7,647 33,860 19,614 Pass-through cost of revenue 4,317 3,857 13,601 9,323 ------- -------- -------- -------- Total costs of revenues 72,708 69,630 224,112 213,239 ------- -------- -------- -------- Gross profit 8,784 7,387 24,115 21,283 Selling, general and administrative expenses 8,441 6,451 23,359 20,493 ------- -------- -------- -------- Income from operations 343 936 756 790 Interest expense, net 532 373 1,325 1,125 ------- -------- -------- -------- Income (loss) from before income taxes (189) 563 (569) (335) Income tax provision 264 143 644 533 ------- -------- -------- -------- Net income (loss) $ (453) $ 420 $ (1,213) $ (868) ======= ======== ======== ======== Net income (loss) per share: Basic $ (0.02) $ 0.02 $ (0.05) $ (0.04) ======= ======== ======== ======== Diluted $ (0.02) $ 0.02 $ (0.05) $ (0.04) ======= ======== ======== ======== Weighted average number of shares outstanding: Basic 22,488 21,386 22,349 21,270 ======= ======== ======== ======== Diluted 22,488 23,071 22,349 21,270 ======= ======== ======== ======== EBITDA (B) $ 1,938 $ 2,109 $ 5,363 $ 4,299 ======= ======== ======== ======== Pro Forma EBITDA (B) $ 3,125 $ 2,109 $ 6,744 $ 4,299 ======= ======== ======== ======== (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 AND PRO FORMA EBITDA IS AS FOLLOWS: Three Months Ended Nine Months Ended September 30, September 30, ------------------ -------------------- 2005 2004 2005 2004 ------- ------- -------- -------- Net income (loss) $ (453) $ 420 $ (1,213) $ (868) Income tax provision 264 143 644 533 Interest expense, net 532 373 1,325 1,125 Depreciation and amortization 1,595 1,173 4,607 3,509 ------- ------- -------- -------- EBITDA $ 1,938 $ 2,109 $ 5,363 $ 4,299 Relocation-related costs 1,187 - 1,381 - ------- ------- -------- -------- Pro Forma EBITDA $ 3,125 $ 2,109 $ 6,744 $ 4,299 ======= ======= ======== ======== PFSweb, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Share Data) September 30, December 31, 2005 2004 ------------- ------------ (UNAUDITED) ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 14,681 $ 13,592 Restricted cash 1,409 2,746 Accounts receivable, net of allowance for doubtful accounts of $444 and $504 at September 30, 2005 and December 31, 2004, respectively 45,059 41,565 Inventories, net 38,583 44,947 Other receivables 9,745 8,061 Prepaid expenses and other current assets 3,682 3,349 ------------- ------------ Total current assets 113,159 114,260 ------------- ------------ PROPERTY AND EQUIPMENT, net 12,995 14,264 RESTRICTED CASH 150 675 OTHER ASSETS 1,198 1,128 ------------- ------------ Total assets $ 127,502 $ 130,327 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 20,849 $ 19,098 Trade accounts payable 58,306 61,583 Accrued expenses 10,224 10,971 ------------- ------------ Total current liabilities 89,379 91,652 ------------- ------------ LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 6,551 7,232 OTHER LIABILITIES 1,976 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; 22,582,338 and 21,665,585 shares issued at September 30, 2005 and December 31, 2004, respectively; and 22,496,038 and 21,579,285 outstanding at September 30, 2005 and December 31, 2004, respectively 23 22 Additional paid-in capital 58,697 56,645 Accumulated deficit (30,290) (29,077) Accumulated other comprehensive income 1,251 2,421 Treasury stock at cost, 86,300 shares (85) (85) ------------- ------------ Total shareholders' equity 29,596 29,926 ------------- ------------ Total liabilities and shareholders' equity $ 127,502 $130,327 ============= ============ PFSweb, Inc. and Subsidiaries Unaudited Consolidating Statements of Operations for the Three Months Ended September 30, 2005 (In Thousands) BUSINESS SUPPLIES PFSWEB, DISTRIBUTORS ELIMIN INC. HOLDINGS, LLC -ATIONS CONSOLIDATED --------- --------------- ------- ------------ REVENUES: Product revenue, net $ - $ 62,284 $ - $ 62,284 Service fee revenue 14,891 - - 14,891 Service fee revenue, affiliate 2,217 - (2,217) - Pass-through revenue 4,368 - (51) 4,317 -------- --------- --------- ---------- Total revenues 21,476 62,284 (2,268) 81,492 COSTS OF REVENUES: Cost of product revenue - 57,401 - 57,401 Cost of service fee revenue 11,661 - (671) 10,990 Pass-through cost of revenue 4,368 - (51) 4,317 -------- --------- --------- ---------- Total costs of revenues 16,029 57,401 (722) 72,708 -------- --------- --------- ---------- Gross profit 5,447 4,883 (1,546) 8,784 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,437 2,550 (1,546) 8,441 -------- --------- --------- ---------- Income (loss) from operations (1,990) 2,333 - 343 EQUITY IN EARNINGS OF AFFILIATE 1,135 - (1,135) - INTEREST EXPENSE (INCOME), NET (49) 581 - 532 -------- --------- --------- ---------- Income (loss) before income taxes (806) 1,752 (1,135) (189) INCOME TAX PROVISION (BENEFIT) (353) 617 - 264 -------- --------- --------- ---------- NET INCOME (LOSS) $ (453) $ 1,135 $ (1,135) $ (453) ======== ========= ========= ========== A reconciliation of net income (loss) to EBITDA and Pro Forma EBITDA follows: Net income (loss) $ (453) $ 1,135 $ (1,135) $ (453) Income tax expense (benefit) (353) 617 - 264 Interest expense (income) (49) 581 - 532 Equity in earnings of affiliate (1,135) - 1,135 - Depreciation and amortization 1,595 - - 1,595 -------- --------- --------- ---------- EBITDA $ (395) $ 2,333 - $ 1,938 Relocation-related costs 1,187 - - 1,187 -------- --------- --------- ---------- Pro Forma EBITDA $ 792 $ 2,333 $ - $ 3,125 ======== ========= ========= ========== PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidating Balance Sheets as of September 30, 2005 (In Thousands) BUSINESS SUPPLIES DISTRIBU- TORS PFSWEB, HOLDINGS, ELIMINATIONS CONSOLIDATED INC. LLC ------ ---------- ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $11,885 $2,796 $ - $ 14,681 Restricted cash 733 676 - 1,409 Accounts receivables, net 14,712 30,705 (358) 45,059 Inventories, net - 38,583 - 38,583 Other receivables - 9,745 - 9,745 Prepaid expenses and other current assets 1,981 1,701 - 3,682 ------- ------- ----------- ----------- Total current assets 29,311 84,206 (358) 113,159 ------- ------- ----------- ----------- PROPERTY AND EQUIPMENT, net 12,995 - - 12,995 NOTE RECEIVABLE FROM AFFILIATE 7,005 - (7,005) - RESTRICTED CASH 150 - - 150 INVESTMENT IN AFFILIATE 8,050 - (8,050) - OTHER ASSETS 1,198 - - 1,198 ------- ------- ----------- ----------- Total assets $58,709 $84,206 $(15,413) $ 127,502 ======= ======= =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long- term debt and capital lease obligations $ 5,919 $14,930 $ - $ 20,849 Trade accounts payable 7,969 50,695 (358) 58,306 Accrued expenses 6,752 3,472 - 10,224 ------- ------- ----------- ----------- Total current liabilities 20,640 69,097 (358) 89,379 ------- ------- ----------- ----------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 6,551 - - 6,551 NOTE PAYABLE TO AFFILIATE - 7,005 (7,005) - OTHER LIABILITIES 1,976 - - 1,976 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock 23 - - 23 Capital contributions - 1,000 (1,000) - Additional paid-in capital 58,697 - - 58,697 Retained earnings (accumulated deficit) (30,344) 5,475 (5,421) (30,290) Accumulated other comprehensive income 1,251 1,629 (1,629) 1,251 Treasury stock (85) - - (85) ------- ------- ----------- ----------- Total shareholders' equity 29,542 8,104 (8,050) 29,596 ------- ------- ----------- ----------- Total liabilities and shareholders' equity $58,709 $84,206 $ (15,413) $ 127,502 ======= ======= =========== =========== *T