PFSW Pfsweb Inc

PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process outsourcing (�BPO�) solutions for both on-line and traditional commerce, today announced its financial results for the three and nine-month periods ended September 30, 2006. Total reported revenue for the three months ending September 30, 2006 totaled $94.3 million, compared to $81.5 million for the same period last year. Service Fee revenue in the third quarter of 2006 was $15.6 million, compared to $14.9 million for the third quarter of 2005. Supplies Distributors revenue was $55.9 million in the third quarter of 2006, compared to $62.3 million for the third quarter of 2005. Revenue from the Company�s recently acquired wholly owned subsidiary, eCOST.com, was $16.7 million in the third quarter of 2006. eCOST.com reported $38.2 million of revenue for the same period last year prior to the February 1, 2006 merger. On a pro forma basis, total revenues including eCOST.com for the same period last year was $119.7 million. �Our third quarter results show continuing strong performance and solid EBITDA financial contribution from our PFS Service Fee and Supplies Distributors divisions. As previously disclosed, our third quarter results were burdened significantly by events in our eCOST.com division. These events included costs required to complete the major portion of the operational integration and IT system conversion activities as well as costs we incurred for certain fraudulent credit card activity during the ERP systems integration process resulting in higher than normal chargebacks. We believe we have now completed the �heavy lifting� portion of the transition and integration activities for eCOST.com and dramatically improved our control over credit card fraud and we are now prepared to focus eCOST.com on a march towards growth and profitability,� stated Mark Layton, Chief Executive Officer of PFSweb. Additional consolidated financial information for PFSweb for the three months ending September 30, 2006 compared to the year-earlier period includes: Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) was $(0.7) million versus $1.9 million in the prior year. Excluding eCOST.com�s operations, EBITDA was $3.0 million, an increase of $1.0 million over the same period last year. Net loss for the 2006 third quarter was $3.3 million, or $0.07 per basic and diluted share, compared to a net loss of $0.5 million, or $0.02 per basic and diluted share for the prior year�s period. Excluding eCOST.com, net income for the PFS Service Fee and Supplies Distributors businesses was $0.6 million, an increase of $1.1 million over the third quarter of last year. Net loss for eCOST.com for the period was $3.9 million. Excluding $1.2 million applicable to our previously disclosed, unusually high fraudulent credit card activity in conjunction with our system conversion, and $0.5 million applicable to integration related expenses, eCOST.com�s net loss was $2.2 million for the third quarter. This represents an improvement of approximately $1.0 million as compared to a similarly adjusted net loss result for the June 2006 period, which reflected $0.4 million of integration costs and $0.7 million of excess fraudulent credit card activity. Total merchandise sales totaled approximately $719 million. Total cash, cash equivalents and restricted cash totaled $15.3 million as of September 30, 2006. �We made positive strides in each of our three business divisions this quarter. First, our PFS Service Fee and Supplies Distributors divisions remain collectively profitable and we continued to win new service contracts in the third quarter. During 2006 we modified our marketing focus towards web merchants in the Internet 500 and to technology/consumer electronics manufacturers. Through these efforts, we have increased our market penetration and experienced greater success in converting sales leads into client wins. During the year, we signed new services contracts, including the expansion of existing client relationships, with estimated annual service fees of approximately $12 million upon full implementation, based on current client projections. Many of these contracts are already operational with the remainder expected to be operational during the first half of 2007. We believe our ability to perform at a very high quality level with steady margins combined with a healthy sales pipeline of approximately $30 million should result in stable levels of growth for our PFS Service Fee business. In addition, while our product revenue for the Supplies Distributors segment declined this quarter as compared to the same period of the prior year, this decrease was primarily due to the timing of vendor promotional activity, and we expect annual revenue to remain relatively consistent with the prior year.� Layton continued, �We are pleased to announce that during the quarter we have nearly completed the integration of our eCOST division, successfully overcoming many substantial business and financial challenges that eCOST.com has faced. When adjusted for lower revenue levels, we also achieved all of the projected cost savings from the integration activity that we sought going into the merger. With the business generally stabilized, service improving and costs under control, we are now shifting our focus to growth and driving profitability. eCOST.com�s financial performance improved month-to-month during the third quarter and we experienced improved revenue and continued bottom line improvement in overall financial performance in the month of October. We have a number of projects underway to provide further enhancements to the eCOST.com shopping experience and operational excellence and we will release more information on these items as it becomes available.� �We are excited about our business on every front. We believe the integration of eCOST.com will provide opportunities for many synergies between our world-class distribution capabilities and the unique eCommerce platform that our combined companies offer. With a strong foundation in our services business, we view eCOST.com as an opportunity to drive steady growth and increased value for our shareholders,� Layton concluded. For eCOST.com�s selected operating data for the three and nine-month periods ended September 30, 2006 and 2005, please see the table below. Conference Call Information Management will host a conference call at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) on November 14, 2006 to discuss the latest corporate developments and results. To listen to the call, please dial (800) 922-9655 and enter the pin number (8074730) 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 December 15th at (877) 519-4471 pin number (8074730). 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 adjusted EBITDA. EBITDA represents earnings (or losses) before interest, taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation, merger integration related expenses, a loss on sales transaction and relocation-related costs. EBITDA and adjusted EBITDA is used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry, as the calculation of EBITDA and adjusted EBITDA eliminates the effect of financing, income taxes, the accounting effects of capital spending, stock-based compensation and merger related expenses which items may vary from different companies for reasons unrelated to overall operating performance. Merchandise Sales Merchandise sales represent the estimated value of all fulfillment activity that flows through PFSweb including whether or not PFSweb is the seller of the merchandise or records the full amount of such sales on its financial statements, excluding service fee revenues that PFSweb might recognize for the underlying sales transactions. PFSweb uses merchandise sales as an operating metric to allow investors to gain a more thorough understanding of its business and business volume, in addition to GAAP net revenue. 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, Chiasso, FLAVIA(R) Beverage Systems, Hewlett-Packard, International Business Machines, Nokia, Raytheon Aircraft Company, Rene Furterer USA, Roots Canada Ltd., The Smithsonian Institution and Xerox. Through its wholly owned eCOST.com subsidiary, PFSweb also serves as a leading multi-category online discount retailer of high-quality new, "close-out" and refurbished brand-name merchandise for consumers and small business buyers. The eCOST.com brand markets more than 100,000 different products from leading manufacturers such as Apple, Canon, Citizen, Denon, Hewlett-Packard, Nikon, Onkyo, Seiko, Sony, and Toshiba primarily over the Internet and through direct marketing. To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit the company's websites at http://www.pfsweb.com and http://www.ecost.com. The matters discussed herein consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. PFSweb's Annual Report on Form 10-K and 10-K/A for the year ended December 31, 2005 identifies certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual Report and the Risk Factors described therein. These factors include: our ability to retain and expand relationships with existing clients and attract and implement new clients; 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 dependence upon our agreements with IBM; our dependence upon our agreements with our major clients; our client mix, their business volumes and the seasonality of their business; our ability to finalize pending contracts; 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 and supplier 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; our dependency on key personnel; the impact of new accounting standards and rules regarding revenue recognition, stock options and other matters; changes in accounting rules or the interpretations of those rules; our ability to raise additional capital or obtain additional financing; our ability and the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; relationship with and our guarantees of certain of the liabilities and indebtedness of our subsidiaries; whether outstanding warrants issued in a prior private placement will be exercised in the future; the transition costs resulting from our merger with eCOST; our ability to successfully integrate eCOST into our business to achieve the anticipated benefits of the merger: eCOST's potential indemnification obligations to its former parent; eCOST's ability to maintain existing and build new relationships with manufacturers and vendors and the success of its advertising and marketing efforts; and eCOST's ability to increase its sales revenue and sales margin and improve operating efficiencies. PFSweb undertakes 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. (Tables Follow) PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (A) (In Thousands, Except Per Share Data) � Three Months Ended September 30, Nine Months Ended September 30, 2006� 2005� 2006� 2005� Revenues: Product revenue, net $72,593� $62,284� $252,447� $189,352� Service fee revenue 15,553� 14,891� 47,681� 45,274� Pass-through revenue 6,138� 4,317� 14,128� 13,601� Total revenues 94,284� 81,492� 314,256� 248,227� Costs of revenues: Cost of product revenue 66,889� 57,401� 235,698� 176,651� Cost of service fee revenue 11,768� 10,990� 34,513� 33,860� Pass-through cost of revenue 6,138� 4,317� 14,128� 13,601� Total costs of revenues 84,795� 72,708� 284,339� 224,112� Gross profit 9,489� 8,784� 29,917� 24,115� Selling, general and administrative expenses 11,124� 8,439� 33,552� 23,343� Stock-based compensation 206� 2� 686� 16� Merger integration expense 486� �� 1,129� �� Amortization of identifiable intangibles 204� �� 545� �� Total operating expenses 12,020� 8,441� 35,912� 23,359� Income (loss) from operations -2,531� 343� -5,995� 756� Interest expense, net 557� 532� 1,505� 1,325� Loss before income taxes -3,088� -189� -7,500� -569� Income tax expense 221� 264� 580� 644� Net loss ($3,309) ($453) ($8,080) ($1,213) Net loss per share: Basic and Diluted ($0.07) ($0.02) ($0.19) ($0.05) � Weighted average number of shares outstanding: Basic and Diluted 46,499� 22,488� 41,557� 22,349� � EBITDA (B) ($687) $1,938� ($562) $5,363� Adjusted EBITDA (B) $5� $3,127� $1,642� $6,760� � (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 and 10-K/A for the year ended December 31, 2005. � (B) A reconciliation of Net loss to EBITDA and Adjusted EBITDA is as follows: � Three Months Ended September 30, Nine Months Ended September 30, 2006� 2005� 2006� 2005� Net loss ($3,309) ($453) ($8,080) ($1,213) Income tax provision 221� 264� 580� 644� Interest expense, net 557� 532� 1,505� 1,325� Depreciation and amortization 1,844� 1,595� 5,433� 4,607� EBITDA ($687) $1,938� ($562) $5,363� Stock-based compensation 206� 2� 686� 16� Loss on sales transaction to former eCOST customer -� -� 389� -� Merger related integration expenses 486� -� 1,129� -� Relocation-related costs -� 1,187� -� 1,381� Adjusted EBITDA $5� $3,127� $1,642� $6,760� PFSWEB, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands, Except Share Data) � September 30, 2006 (UNAUDITED) December 31, 2005 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,068� $ 13,683� Restricted cash 1,224� 2,077� Accounts receivable, net of allowance for doubtful accounts of $2,070 and $484 at September 30, 2006 and December 31, 2005, respectively 46,535� 44,556� Inventories, net 53,409� 43,654� Other receivables 8,946� 9,866� Prepaid expenses and other current assets 4,297� 3,213� Total current assets 128,479� 117,049� � PROPERTY AND EQUIPMENT, net 12,709� 13,040� RESTRICTED CASH --� 150� IDENTIFIABLE INTANGIBLES 7,112� --� GOODWILL 18,345� --� OTHER ASSETS 760� 1,487� � Total assets $ 167,405� $ 131,726� LIABILITIES AND SHAREHOLDERS� EQUITY � CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 25,872� $ 21,626� Trade accounts payable 61,252� 60,053� Accrued expenses 18,572� 12,011� Total current liabilities 105,696� 93,690� LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 5,660� 6,289� OTHER LIABILITIES 1,310� 1,813� � 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; 75,000,000 shares authorized; 46,539,077 and 22,613,314 shares issued at September 30, 2006 and December 31, 2005, respectively; and 46,452,777 and 22,527,014 outstanding at September 30, 2006 and December 31, 2005, respectively 47� 23� Additional paid-in capital 91,076� 58,736� Accumulated deficit (37,904) (29,824) Accumulated other comprehensive income 1,605� 1,084� Treasury stock at cost, 86,300 shares (85) (85) Total shareholders� equity 54,739� 29,934� � Total liabilities and shareholders� equity $ 167,405� $ 131,726� PFSWEB, INC. AND SUBSIDIARIES Unaudited Consolidating Statements of Operations for the Three Months Ended September 30, 2006 (In Thousands) � PFSWEB SUPPLIES DISTRIBUTORS ECOST ELIMINATIONS CONSOLIDATED � REVENUES: Product revenue, net $ -� $ 55,917� $ 16,676� $ -� $ 72,593� Service fee revenue 15,553� -� -� -� 15,553� Service fee revenue, affiliate 1,913� -� -� (1,913) -� Pass-through revenue 6,254� -� -� (116) 6,138� Total revenues 23,720� 55,917� 16,676� (2,029) 94,284� � COSTS OF REVENUES: Cost of product revenue -� 50,539� 16,360� (10) 66,889� Cost of service fee revenue 12,408� -� -� (640) 11,768� Pass-through cost of revenue 6,254� -� -� (116) 6,138� Total costs of revenues 18,662� 50,539� 16,360� (766) 84,795� Gross profit 5,058� 5,378� 316� (1,263) 9,489� SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,509� 2,318� 3,560� (1,263) 11,124� STOCK-BASED COMPENSATION 206� -� -� -� 206� MERGER INTEGRATION EXPENSE -� -� 486� -� 486� AMORTIZATION OF IDENTIFIABLE INTANGIBLES -� -� 204� -� 204� Total operating expenses 6,715� 2,318� 4,250� (1,263) 12,020� Income (loss) from operations (1,657) 3,060� (3,934) -� (2,531) INTEREST EXPENSE (INCOME), NET (33) 600� (10) -� 557� Income (loss) before income taxes (1,624) 2,460� (3,924) -� (3,088) � INCOME TAX PROVISION (BENEFIT) (711) 932� -� -� 221� � NET INCOME (LOSS) $ (913) $ 1,528� $ (3,924) $ -� $ (3,309) � EBITDA $ (102) $ 3,064� $ (3,649) $ -� $ (687) Adjusted EBITDA $ 104� $ 3,064� $ (3,163) $ -� $ 5� � A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: � Net income (loss) $ (913) $ 1,528� $ (3,924) $ -� $ (3,309) Income tax expense (benefit) (711) 932� -� -� 221� Interest expense (income) (33) 600� (10) -� 557� Depreciation and amortization 1,555� 4� 285� -� 1,844� EBITDA $ (102) $ 3,064� $ (3,649) $ -� $ (687) Stock-based compensation 206� -� -� -� 206� Merger integration related expenses -� -� 486� -� 486� Adjusted EBITDA $ 104� $ 3,064� $ (3,163) $ -� $ 5� PFSWEB, INC. AND SUBSIDIARIES Unaudited Condensed Consolidating Balance Sheets as of September 30, 2006 (In Thousands) � PFSWEB, INC. SUPPLIES DISTRIBUTORS ECOST ELIMINATIONS CONSOLIDATED ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,686� $ 2,254� $ 1,128� $ -� $ 14,068� Restricted cash 340� 571� 313� -� 1,224� Accounts receivables, net 18,180� 26,662� 3,703� (2,010) 46,535� Inventories, net -� 45,533� 7,876� -� 53,409� Other receivables 1,000� 7,946� -� -� 8,946� Prepaid expenses and other current assets 2,747� 1,278� 272� -� 4,297� Total current assets 32,953� 84,244� 13,292� (2,010) 128,479� � PROPERTY AND EQUIPMENT, net 12,091� 41� 577� -� 12,709� NOTE RECEIVABLE FROM AFFILIATE 16,245� -� -� (16,245) -� INVESTMENT IN AFFILIATE 36,561� -� -� (36,561) -� IDENTIFIABLE INTANGIBLES -� -� 7,112� -� 7,112� GOODWILL -� -� 18,345� -� 18,345� OTHER ASSETS 611� -� 149� -� 760� � Total assets $ 98,461� $ 84,285� $ 39,475� $ (54,816) $ 167,405� � LIABILITIES AND SHAREHOLDERS� EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 9,592� $ 16,278� $ 2� $ -� $ 25,872� Trade accounts payable 6,909� 48,874� 7,479� (2,010) 61,252� Accrued expenses 9,901� 4,091� 4,580� -� 18,572� Total current liabilities 26,402� 69,243� 12,061� (2,010) 105,696� LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 5,660� -� -� -� 5,660� NOTE PAYABLE TO AFFILIATE -� 6,505� 9,740� (16,245) -� OTHER LIABILITIES 1,310� -� -� -� 1,310� COMMITMENTS AND CONTINGENCIES � SHAREHOLDERS� EQUITY: Common stock 47� -� 19� (19) 47� Capital contributions -� 1,000� -� (1,000) -� Additional paid-in capital 91,076� -� 28,059� (28,059) 91,076� Retained earnings (accumulated deficit) (27,554) 5,486� (10,404) (5,432) (37,904) Accumulated other comprehensive income 1,605� 2,051� -� (2,051) 1,605� Treasury stock (85) -� -� -� (85) Total shareholders� equity 65,089� 8,537� 17,674� (36,561) 54,739� � Total liabilities and shareholders� equity $ 98,461� $ 84,285� $ 39,475� $ (54,816) $ 167,405� eCOST.com, Inc. Selected Operating Data � Three Months Ended September 30, 2006� 2005� � Total customers (1) 1,615,730� 1,343,989� Active customers (2) 326,530� 507,029� New customers (3) 34,124� 56,668� Number of orders (4) 51,922� 102,022� Average order value (5) $ 361� $ 389� Advertising expense (6) $ 436,000� $ 1,307,000� Cost to acquire a new customer $ 12.78� $ 23.06� � (1) Total customers have been calculated as the cumulative number of customers for which orders have been taken from eCOST.com�s inception to the end of the reported period. � (2) Active customers consist of the number of customers who placed orders during the 12 months prior to the end of the reported period. � (3) New customers represent the number of persons that established a new account and placed an order during the reported period. � (4) Number of orders represents the total number of orders shipped during the reported period (not reflecting returns). � (5) Average order value has been calculated as gross sales divided by the total number of orders during the period presented. The impact of returns is not reflected in average order value. � (6) Advertising expense includes the total dollars spent on advertising during the reported period, including Internet, direct mail, print and e-mail advertising, as well as customer list enhancement services. PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process outsourcing ("BPO") solutions for both on-line and traditional commerce, today announced its financial results for the three and nine-month periods ended September 30, 2006. Total reported revenue for the three months ending September 30, 2006 totaled $94.3 million, compared to $81.5 million for the same period last year. Service Fee revenue in the third quarter of 2006 was $15.6 million, compared to $14.9 million for the third quarter of 2005. Supplies Distributors revenue was $55.9 million in the third quarter of 2006, compared to $62.3 million for the third quarter of 2005. Revenue from the Company's recently acquired wholly owned subsidiary, eCOST.com, was $16.7 million in the third quarter of 2006. eCOST.com reported $38.2 million of revenue for the same period last year prior to the February 1, 2006 merger. On a pro forma basis, total revenues including eCOST.com for the same period last year was $119.7 million. "Our third quarter results show continuing strong performance and solid EBITDA financial contribution from our PFS Service Fee and Supplies Distributors divisions. As previously disclosed, our third quarter results were burdened significantly by events in our eCOST.com division. These events included costs required to complete the major portion of the operational integration and IT system conversion activities as well as costs we incurred for certain fraudulent credit card activity during the ERP systems integration process resulting in higher than normal chargebacks. We believe we have now completed the 'heavy lifting' portion of the transition and integration activities for eCOST.com and dramatically improved our control over credit card fraud and we are now prepared to focus eCOST.com on a march towards growth and profitability," stated Mark Layton, Chief Executive Officer of PFSweb. Additional consolidated financial information for PFSweb for the three months ending September 30, 2006 compared to the year-earlier period includes: -- Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) was $(0.7) million versus $1.9 million in the prior year. Excluding eCOST.com's operations, EBITDA was $3.0 million, an increase of $1.0 million over the same period last year. -- Net loss for the 2006 third quarter was $3.3 million, or $0.07 per basic and diluted share, compared to a net loss of $0.5 million, or $0.02 per basic and diluted share for the prior year's period. Excluding eCOST.com, net income for the PFS Service Fee and Supplies Distributors businesses was $0.6 million, an increase of $1.1 million over the third quarter of last year. -- Net loss for eCOST.com for the period was $3.9 million. Excluding $1.2 million applicable to our previously disclosed, unusually high fraudulent credit card activity in conjunction with our system conversion, and $0.5 million applicable to integration related expenses, eCOST.com's net loss was $2.2 million for the third quarter. This represents an improvement of approximately $1.0 million as compared to a similarly adjusted net loss result for the June 2006 period, which reflected $0.4 million of integration costs and $0.7 million of excess fraudulent credit card activity. -- Total merchandise sales totaled approximately $719 million. -- Total cash, cash equivalents and restricted cash totaled $15.3 million as of September 30, 2006. "We made positive strides in each of our three business divisions this quarter. First, our PFS Service Fee and Supplies Distributors divisions remain collectively profitable and we continued to win new service contracts in the third quarter. During 2006 we modified our marketing focus towards web merchants in the Internet 500 and to technology/consumer electronics manufacturers. Through these efforts, we have increased our market penetration and experienced greater success in converting sales leads into client wins. During the year, we signed new services contracts, including the expansion of existing client relationships, with estimated annual service fees of approximately $12 million upon full implementation, based on current client projections. Many of these contracts are already operational with the remainder expected to be operational during the first half of 2007. We believe our ability to perform at a very high quality level with steady margins combined with a healthy sales pipeline of approximately $30 million should result in stable levels of growth for our PFS Service Fee business. In addition, while our product revenue for the Supplies Distributors segment declined this quarter as compared to the same period of the prior year, this decrease was primarily due to the timing of vendor promotional activity, and we expect annual revenue to remain relatively consistent with the prior year." Layton continued, "We are pleased to announce that during the quarter we have nearly completed the integration of our eCOST division, successfully overcoming many substantial business and financial challenges that eCOST.com has faced. When adjusted for lower revenue levels, we also achieved all of the projected cost savings from the integration activity that we sought going into the merger. With the business generally stabilized, service improving and costs under control, we are now shifting our focus to growth and driving profitability. eCOST.com's financial performance improved month-to-month during the third quarter and we experienced improved revenue and continued bottom line improvement in overall financial performance in the month of October. We have a number of projects underway to provide further enhancements to the eCOST.com shopping experience and operational excellence and we will release more information on these items as it becomes available." "We are excited about our business on every front. We believe the integration of eCOST.com will provide opportunities for many synergies between our world-class distribution capabilities and the unique eCommerce platform that our combined companies offer. With a strong foundation in our services business, we view eCOST.com as an opportunity to drive steady growth and increased value for our shareholders," Layton concluded. For eCOST.com's selected operating data for the three and nine-month periods ended September 30, 2006 and 2005, please see the table below. Conference Call Information Management will host a conference call at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) on November 14, 2006 to discuss the latest corporate developments and results. To listen to the call, please dial (800) 922-9655 and enter the pin number (8074730) 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 December 15th at (877) 519-4471 pin number (8074730). 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 adjusted EBITDA. EBITDA represents earnings (or losses) before interest, taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation, merger integration related expenses, a loss on sales transaction and relocation-related costs. EBITDA and adjusted EBITDA is used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry, as the calculation of EBITDA and adjusted EBITDA eliminates the effect of financing, income taxes, the accounting effects of capital spending, stock-based compensation and merger related expenses which items may vary from different companies for reasons unrelated to overall operating performance. Merchandise Sales Merchandise sales represent the estimated value of all fulfillment activity that flows through PFSweb including whether or not PFSweb is the seller of the merchandise or records the full amount of such sales on its financial statements, excluding service fee revenues that PFSweb might recognize for the underlying sales transactions. PFSweb uses merchandise sales as an operating metric to allow investors to gain a more thorough understanding of its business and business volume, in addition to GAAP net revenue. 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, Chiasso, FLAVIA(R) Beverage Systems, Hewlett-Packard, International Business Machines, Nokia, Raytheon Aircraft Company, Rene Furterer USA, Roots Canada Ltd., The Smithsonian Institution and Xerox. Through its wholly owned eCOST.com subsidiary, PFSweb also serves as a leading multi-category online discount retailer of high-quality new, "close-out" and refurbished brand-name merchandise for consumers and small business buyers. The eCOST.com brand markets more than 100,000 different products from leading manufacturers such as Apple, Canon, Citizen, Denon, Hewlett-Packard, Nikon, Onkyo, Seiko, Sony, and Toshiba primarily over the Internet and through direct marketing. To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit the company's websites at http://www.pfsweb.com and http://www.ecost.com. The matters discussed herein consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. PFSweb's Annual Report on Form 10-K and 10-K/A for the year ended December 31, 2005 identifies certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual Report and the Risk Factors described therein. These factors include: our ability to retain and expand relationships with existing clients and attract and implement new clients; 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 dependence upon our agreements with IBM; our dependence upon our agreements with our major clients; our client mix, their business volumes and the seasonality of their business; our ability to finalize pending contracts; 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 and supplier 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; our dependency on key personnel; the impact of new accounting standards and rules regarding revenue recognition, stock options and other matters; changes in accounting rules or the interpretations of those rules; our ability to raise additional capital or obtain additional financing; our ability and the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; relationship with and our guarantees of certain of the liabilities and indebtedness of our subsidiaries; whether outstanding warrants issued in a prior private placement will be exercised in the future; the transition costs resulting from our merger with eCOST; our ability to successfully integrate eCOST into our business to achieve the anticipated benefits of the merger: eCOST's potential indemnification obligations to its former parent; eCOST's ability to maintain existing and build new relationships with manufacturers and vendors and the success of its advertising and marketing efforts; and eCOST's ability to increase its sales revenue and sales margin and improve operating efficiencies. PFSweb undertakes 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. (Tables Follow) -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, -------------------- --------------------- 2006 2005 2006 2005 --------- --------- ---------- --------- Revenues: Product revenue, net $72,593 $62,284 $252,447 $189,352 Service fee revenue 15,553 14,891 47,681 45,274 Pass-through revenue 6,138 4,317 14,128 13,601 --------- --------- ---------- --------- Total revenues 94,284 81,492 314,256 248,227 --------- --------- ---------- --------- Costs of revenues: Cost of product revenue 66,889 57,401 235,698 176,651 Cost of service fee revenue 11,768 10,990 34,513 33,860 Pass-through cost of revenue 6,138 4,317 14,128 13,601 --------- --------- ---------- --------- Total costs of revenues 84,795 72,708 284,339 224,112 --------- --------- ---------- --------- Gross profit 9,489 8,784 29,917 24,115 --------- --------- ---------- --------- Selling, general and administrative expenses 11,124 8,439 33,552 23,343 Stock-based compensation 206 2 686 16 Merger integration expense 486 - 1,129 - Amortization of identifiable intangibles 204 - 545 - --------- --------- ---------- --------- Total operating expenses 12,020 8,441 35,912 23,359 --------- --------- ---------- --------- Income (loss) from operations -2,531 343 -5,995 756 Interest expense, net 557 532 1,505 1,325 --------- --------- ---------- --------- Loss before income taxes -3,088 -189 -7,500 -569 Income tax expense 221 264 580 644 --------- --------- ---------- --------- Net loss ($3,309) ($453) ($8,080) ($1,213) ========= ========= ========== ========= Net loss per share: Basic and Diluted ($0.07) ($0.02) ($0.19) ($0.05) ========= ========= ========== ========= Weighted average number of shares outstanding: Basic and Diluted 46,499 22,488 41,557 22,349 ========= ========= ========== ========= EBITDA (B) ($687) $1,938 ($562) $5,363 ========= ========= ========== ========= Adjusted EBITDA (B) $5 $3,127 $1,642 $6,760 ========= ========= ========== ========= (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 and 10-K/A for the year ended December 31, 2005. (B) A reconciliation of Net loss to EBITDA and Adjusted EBITDA is as follows: Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 2006 2005 2006 2005 --------- --------- ---------- --------- Net loss ($3,309) ($453) ($8,080) ($1,213) Income tax provision 221 264 580 644 Interest expense, net 557 532 1,505 1,325 Depreciation and amortization 1,844 1,595 5,433 4,607 --------- --------- ---------- --------- EBITDA ($687) $1,938 ($562) $5,363 Stock-based compensation 206 2 686 16 Loss on sales transaction to former eCOST customer - - 389 - Merger related integration expenses 486 - 1,129 - Relocation-related costs - 1,187 - 1,381 --------- --------- ---------- --------- Adjusted EBITDA $5 $3,127 $1,642 $6,760 ========= ========= ========== ========= *T -0- *T PFSWEB, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands, Except Share Data) September 30, 2006 December 31, (UNAUDITED) 2005 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $14,068 $13,683 Restricted cash 1,224 2,077 Accounts receivable, net of allowance for doubtful accounts of $2,070 and $484 at September 30, 2006 and December 31, 2005, respectively 46,535 44,556 Inventories, net 53,409 43,654 Other receivables 8,946 9,866 Prepaid expenses and other current assets 4,297 3,213 ------------- ------------ Total current assets 128,479 117,049 ------------- ------------ PROPERTY AND EQUIPMENT, net 12,709 13,040 RESTRICTED CASH -- 150 IDENTIFIABLE INTANGIBLES 7,112 -- GOODWILL 18,345 -- OTHER ASSETS 760 1,487 ------------- ------------ Total assets $167,405 $131,726 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $25,872 $21,626 Trade accounts payable 61,252 60,053 Accrued expenses 18,572 12,011 ------------- ------------ Total current liabilities 105,696 93,690 ------------- ------------ LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 5,660 6,289 OTHER LIABILITIES 1,310 1,813 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; 75,000,000 shares authorized; 46,539,077 and 22,613,314 shares issued at September 30, 2006 and December 31, 2005, respectively; and 46,452,777 and 22,527,014 outstanding at September 30, 2006 and December 31, 2005, respectively 47 23 Additional paid-in capital 91,076 58,736 Accumulated deficit (37,904) (29,824) Accumulated other comprehensive income 1,605 1,084 Treasury stock at cost, 86,300 shares (85) (85) ------------- ------------ Total shareholders' equity 54,739 29,934 ------------- ------------ Total liabilities and shareholders' equity $167,405 $131,726 ============= ============ *T -0- *T PFSWEB, INC. AND SUBSIDIARIES Unaudited Consolidating Statements of Operations for the Three Months Ended September 30, 2006 (In Thousands) SUPPLIES PFSWEB DISTRIBUTORS ECOST ------- ------------- --------- REVENUES: Product revenue, net $- $55,917 $16,676 Service fee revenue 15,553 - - Service fee revenue, affiliate 1,913 - - Pass-through revenue 6,254 - - ------- ------------- --------- Total revenues 23,720 55,917 16,676 COSTS OF REVENUES: Cost of product revenue - 50,539 16,360 Cost of service fee revenue 12,408 - - Pass-through cost of revenue 6,254 - - ------- ------------- --------- Total costs of revenues 18,662 50,539 16,360 ------- ------------- --------- Gross profit 5,058 5,378 316 ------- ------------- --------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,509 2,318 3,560 STOCK-BASED COMPENSATION 206 - - MERGER INTEGRATION EXPENSE - - 486 AMORTIZATION OF IDENTIFIABLE INTANGIBLES - - 204 ------- ------------- --------- Total operating expenses 6,715 2,318 4,250 ------- ------------- --------- Income (loss) from operations (1,657) 3,060 (3,934) INTEREST EXPENSE (INCOME), NET (33) 600 (10) ------- ------------- --------- Income (loss) before income taxes (1,624) 2,460 (3,924) INCOME TAX PROVISION (BENEFIT) (711) 932 - ------- ------------- --------- NET INCOME (LOSS) $(913) $1,528 $(3,924) ======= ============= ========= EBITDA $(102) $3,064 $(3,649) ======= ============= ========= Adjusted EBITDA $104 $3,064 $(3,163) ======= ============= ========= A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: Net income (loss) $(913) $1,528 $(3,924) Income tax expense (benefit) (711) 932 - Interest expense (income) (33) 600 (10) Depreciation and amortization 1,555 4 285 ------- ------------- --------- EBITDA $(102) $3,064 $(3,649) Stock-based compensation 206 - - Merger integration related expenses - - 486 ------- ------------- --------- Adjusted EBITDA $104 $3,064 $(3,163) ======= ============= ========= ELIMINATIONS CONSOLIDATED ------------ ------------ REVENUES: Product revenue, net $- $72,593 Service fee revenue - 15,553 Service fee revenue, affiliate (1,913) - Pass-through revenue (116) 6,138 ------------ ------------ Total revenues (2,029) 94,284 COSTS OF REVENUES: Cost of product revenue (10) 66,889 Cost of service fee revenue (640) 11,768 Pass-through cost of revenue (116) 6,138 ------------ ------------ Total costs of revenues (766) 84,795 ------------ ------------ Gross profit (1,263) 9,489 ------------ ------------ SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (1,263) 11,124 STOCK-BASED COMPENSATION - 206 MERGER INTEGRATION EXPENSE - 486 AMORTIZATION OF IDENTIFIABLE INTANGIBLES - 204 ------------ ------------ Total operating expenses (1,263) 12,020 ------------ ------------ Income (loss) from operations - (2,531) INTEREST EXPENSE (INCOME), NET - 557 ------------ ------------ Income (loss) before income taxes - (3,088) INCOME TAX PROVISION (BENEFIT) - 221 ------------ ------------ NET INCOME (LOSS) $- $(3,309) ============ ============ EBITDA $- $(687) ============ ============ Adjusted EBITDA $- $5 ============ ============ A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows: Net income (loss) $- $(3,309) Income tax expense (benefit) - 221 Interest expense (income) - 557 Depreciation and amortization - 1,844 ------------ ------------ EBITDA $- $(687) Stock-based compensation - 206 Merger integration related expenses - 486 ------------ ------------ Adjusted EBITDA $- $5 ============ ============ *T -0- *T PFSWEB, INC. AND SUBSIDIARIES Unaudited Condensed Consolidating Balance Sheets as of September 30, 2006 (In Thousands) ---------------------------------------------------------------------- SUPPLIES PFSWEB, INC. DISTRIBUTORS ECOST ------------ ------------ -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $10,686 $2,254 $1,128 Restricted cash 340 571 313 Accounts receivables, net 18,180 26,662 3,703 Inventories, net - 45,533 7,876 Other receivables 1,000 7,946 - Prepaid expenses and other current assets 2,747 1,278 272 ------------ ------------ -------- Total current assets 32,953 84,244 13,292 ------------ ------------ -------- PROPERTY AND EQUIPMENT, net 12,091 41 577 NOTE RECEIVABLE FROM AFFILIATE 16,245 - - INVESTMENT IN AFFILIATE 36,561 - - IDENTIFIABLE INTANGIBLES - - 7,112 GOODWILL - - 18,345 OTHER ASSETS 611 - 149 ------------ ------------ -------- Total assets $98,461 $84,285 $39,475 ============ ============ ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $9,592 $16,278 $2 Trade accounts payable 6,909 48,874 7,479 Accrued expenses 9,901 4,091 4,580 ------------ ------------ -------- Total current liabilities 26,402 69,243 12,061 ------------ ------------ -------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 5,660 - - NOTE PAYABLE TO AFFILIATE - 6,505 9,740 OTHER LIABILITIES 1,310 - - COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock 47 - 19 Capital contributions - 1,000 - Additional paid-in capital 91,076 - 28,059 Retained earnings (accumulated deficit) (27,554) 5,486 (10,404) Accumulated other comprehensive income 1,605 2,051 - Treasury stock (85) - - ------------ ------------ -------- Total shareholders' equity 65,089 8,537 17,674 ------------ ------------ -------- Total liabilities and shareholders' equity $98,461 $84,285 $39,475 ============ ============ ======== ELIMINATIONS CONSOLIDATED ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $- $14,068 Restricted cash - 1,224 Accounts receivables, net (2,010) 46,535 Inventories, net - 53,409 Other receivables - 8,946 Prepaid expenses and other current assets - 4,297 ------------ ------------ Total current assets (2,010) 128,479 ------------ ------------ PROPERTY AND EQUIPMENT, net - 12,709 NOTE RECEIVABLE FROM AFFILIATE (16,245) - INVESTMENT IN AFFILIATE (36,561) - IDENTIFIABLE INTANGIBLES - 7,112 GOODWILL - 18,345 OTHER ASSETS - 760 ------------ ------------ Total assets $(54,816) $167,405 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $- $25,872 Trade accounts payable (2,010) 61,252 Accrued expenses - 18,572 ------------ ------------ Total current liabilities (2,010) 105,696 ------------ ------------ LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion - 5,660 NOTE PAYABLE TO AFFILIATE (16,245) - OTHER LIABILITIES - 1,310 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock (19) 47 Capital contributions (1,000) - Additional paid-in capital (28,059) 91,076 Retained earnings (accumulated deficit) (5,432) (37,904) Accumulated other comprehensive income (2,051) 1,605 Treasury stock - (85) ------------ ------------ Total shareholders' equity (36,561) 54,739 ------------ ------------ Total liabilities and shareholders' equity $(54,816) $167,405 ============ ============ *T -0- *T eCOST.com, Inc. Selected Operating Data Three Months Ended September 30, ----------------------- 2006 2005 ---------- ---------- Total customers (1) 1,615,730 1,343,989 Active customers (2) 326,530 507,029 New customers (3) 34,124 56,668 Number of orders (4) 51,922 102,022 Average order value (5) $ 361 $ 389 Advertising expense (6) $ 436,000 $1,307,000 Cost to acquire a new customer $ 12.78 $ 23.06 (1) Total customers have been calculated as the cumulative number of customers for which orders have been taken from eCOST.com's inception to the end of the reported period. (2) Active customers consist of the number of customers who placed orders during the 12 months prior to the end of the reported period. (3) New customers represent the number of persons that established a new account and placed an order during the reported period. (4) Number of orders represents the total number of orders shipped during the reported period (not reflecting returns). (5) Average order value has been calculated as gross sales divided by the total number of orders during the period presented. The impact of returns is not reflected in average order value. (6) Advertising expense includes the total dollars spent on advertising during the reported period, including Internet, direct mail, print and e-mail advertising, as well as customer list enhancement services. *T