PFSweb, Inc. and Subsidiaries
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Condensed Financial Statements
1.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of PFSweb, Inc. and its subsidiaries (the “Company”) have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”),
and include all normal and recurring adjustments necessary to present fairly the unaudited condensed consolidated balance sheets, statements of operations and comprehensive loss, and statements of cash flows for the periods indicated
. Certain information and note disclosures normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Results of the Company’s operations for interim periods may not be indicative of results for the full fiscal year. The Company reclassifies certain prior year amounts, as applicable, to conform to the current year presentation.
2.
Significant Accounting Policies
For a complete set of the Company’s significant accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Changes in significant accounting policies during the three months ended March 31, 2018 are described below.
Revenue and Cost Recognition
We derive revenue primarily from services provided under contractual arrangements with our clients or from the sale of products under our distributor agreements. The majority of our revenue is derived from contracts and projects that can span from a few months to three to five years.
Revenue is recognized when (or as) we satisfy performance obligations by transferring a promised good or service, an asset, to a client or customer. An asset is transferred to a client or customer when, or as, the client or customer obtains control over that asset. The transaction price includes fixed and, in certain contracts, variable consideration.
Variable consideration contained within our contracts includes discounts, rebates, incentives, penalties and other similar items. When a contract includes variable consideration, we estimate the variable consideration to determine whether any of it needs to be constrained. We include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We estimate variable consideration and constraints based on our review of the contract terms and conditions. Variable consideration and constraint amounts are the most likely amounts based on our history with the customer. If no history is available, then we will book the most likely amount based on the range of possible consideration amounts. Variable consideration was not significant for the three-month period ended March 31, 2018 or any other reporting period presented. Variable consideration and constraints are updated at each reporting date.
We evaluate our contractual arrangements to determine whether or not they include multiple performance obligations. Revenue recognition is determined for each distinct performance obligation of the contract in accordance with Accounting Standard Codification (“ASC”) 606 (“ASC 606”). We allocate revenue to each performance obligation based on the transaction price which is the total amount of consideration to which we will be entitled to under the contract.
Incremental contract costs (such as sales commissions) are expensed when incurred when the amortization period of the asset that would have been recognized is one year or less; otherwise, incremental contract costs are recognized as an asset and amortized over time as promised goods and services are transferred to a customer. When losses are expected to be incurred on a contract, we recognize the entire anticipated loss in the accounting period when the loss becomes evident to the extent the project has been completed. The loss is recognized when the current estimate of the consideration we expect to receive, modified to include unconstrained variable consideration instead of constrained variable consideration, is less than the current estimate of total costs for the contract. We did not recognize any significant contract losses, and we did not have any significant incremental contract costs that needed to be capitalized in the three months ended March 31, 2018.
Service Fee Revenue
Our service fee revenue includes activities that relate to our PFS Operations and Live Area Professional Services business units. PFS Operations primarily includes distribution, customer care, order management and payment services. Live Area Professional Services primarily includes commerce and digital experience strategy consulting, creative website design and marketing support, and technology platform integration services. We typically charge our service fee revenue on either a time and materials, fixed price, cost-plus, a percent of shipped revenue, or retainer basis for our professional services, or a per transaction basis, such as a per item basis for fulfillment services or a per labor hour basis for web-enabled customer contact center services. Additional fees are billed for other services.
6
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Condensed Financial Statements
Distribution services relate primarily to inventory management, product receiving, warehousing and fulfillment (i.e., picking, packing
and shipping product on our clients’ behalf). Order management and customer care services relate primarily to taking customer orders for our clients’ products via various channels such as telephone call-center, electronic or facsimile. These services also
entail addressing customer questions related to orders, as well as merchandising activities.
These performance obligations typically include related set-up and integration services in preparation of performing such activities
.
Professional services relate primarily to design, implementation and support of eCommerce platforms, website solutions and quality control for our clients. Additionally, the Company provides digital agency services that enable client marketing programs to attract new customers, convert buyers and increase website value. We recognize revenue as services are rendered and costs as they are incurred.
We perform front-end set-up and integration services to support client eCommerce platforms and websites. These front-end set-up and integration services do not meet the criteria for recognition as a separate performance obligation, and as such, we recognize them with other design work, typically through time and material arrangements. We recognize revenue as services are rendered and costs as they are incurred.
Most of our fixed price, professional services contracts require the customer to pay us for all costs plus a margin for work performed up until termination date, regardless of which party terminates. For these contracts, revenue is recognized based on input methods, generally hours expended. The input method measures progress toward the satisfaction of the performance obligation by multiplying the transaction price of the performance obligation by the percentage of hours incurred to total estimated hours as of the balance sheet date after giving effect to the most current estimates. If reasonable and reliable costs estimates cannot be made, we recognize revenue when the uncertainty is resolved or at completion of the project.
Our billings for reimbursement of out-of-pocket expenses, including travel and certain third-party vendor expenses such as shipping and handling costs and telecommunication charges, are included in pass-through revenue. The related reimbursable costs are reflected as cost of pass-through revenue.
Product Revenue
Depending on the terms of the customer arrangement, product revenue and product cost is recognized at the point the customer gains control of the asset. The specific point in time when control transfers depends on the contract with the customer. We permit our customers to return product. Product revenue is reported net of estimated returns and allowances, which are estimated based upon historical return information. Management also considers any other current information and trends in making estimates.
In instances where revenue is derived from product sales from a third-party, we record revenue on a gross basis when we are a principal to the transaction and net of costs when we are acting as an agent between the customer or client and the vendor. We consider several factors to determine whether we are a principal or an agent, most notably whether we are the primary obligor to the vendor or customer, have established our own pricing and have inventory and credit risks, if applicable.
Impact of Recently Issued Accounting Standards
Pronouncements Recently Adopted
In May 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers”, which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, provides companies with a single revenue recognition model for recognizing revenue from contracts with clients and customers and significantly expands the disclosure requirements for revenue arrangements. The new standard, as amended, became effective for the Company for interim and annual reporting periods beginning on January 1, 2018. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application with disclosure of results under the new and old standards for the first year of adoption.
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to the contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605, “Revenue Recognition”.
Practical expedients
The standard allows entities to use several practical expedients. The standard requires public entities to disclose their use of practical expedients — the practical expedient associated with the determination of whether a significant financing component exists and the expedient for recording an immediate expense for certain incremental costs of obtaining a contract with a client or customer.
Contracts of less than a year with a financing component will be expensed in that period as a practical expedient. Our current contracts
7
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Condensed Financial Statements
do not have a financing component. Commissions on contracts of less than one year will be expensed as a practical expedient. Commissions will be capitalized on contracts over one year. As of March 31, 2018, our commission structure di
d not include commissions in excess of one year. We have elected the practical expedient to exclude from our disclosure contracts that involve projects with variable consideration, and contracts of one year or less. We also present our revenues net of tax
as a practical expedient.
We recorded a net increase to opening retained earnings of $0.3 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to our adjustments to deferred revenues and costs. We recorded a reduction of $0.7 million to deferred revenue, a reduction of $0.4 million to deferred costs, and a contract liability of $0.1 million.
The impact of applying ASC 606 for the three months ended March 31, 2018 was a decrease of $0.1 million to revenues and a decrease of $0.1 million
to operating profits.
In August 2016, the FASB issued ASU No. 2016-15, “
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force”
(“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Adoption of ASU 2016-15 as of January 1, 2018 did not have an impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued an ASU
No. 2016-18, “
Statement of Cash Flows (Topic 230): Restricted Cash”
(“ASU 2016-18”). ASU 2016-18
amends the presentation of restricted cash within the consolidated statements of cash flows, requiring that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows.
ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted.
The Company adopted ASU 2016-18 in
the three-month period ended March 31, 2018
on a retrospective basis with no impact to
the Company’s consolidated financial statements
.
In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business”
(“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, ASU 2017-01 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Adoption of ASU 2017-01 did not have an impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting”
(“ASU 2017-09”), clarifying when a change to the terms or conditions of a stock-based payment award must be accounted for as a modification. ASU 2017-09 requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. ASU 2017-09 is effective for the Company on a prospective basis beginning on January 1, 2018. Adoption of ASU 2017-09 did not have an impact on the Company’s consolidated financial statements as it is not the Company’s general practice to change either the terms or conditions of stock-based payment awards once they are granted.
In March 2018, the FASB issued ASU 2018-05, “
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”
(“ASU 2018-05”)
.
The amendments in ASU 2018-05 provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Cuts and Jobs Act (“Tax Reform Act”). The amendments also require any provisional amounts or subsequent adjustments to be included in net income. Additionally, ASU 2018-05 discusses required disclosures that an entity must make with regard to the Tax Reform Act. ASU 2018-05 is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company has adopted ASU 2018-05 and will continue to evaluate indicators that may give rise to a change in our tax provision as a result of the Tax Reform Act.
Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02,
“Leases”
(“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently assessing the impact of ASU 2016-02 on its consolidated financial statements, but does expect the adoption to have a material impact to the balance sheet through the addition of an ROU asset and corresponding lease liability.
8
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Condensed Financial Statements
In January 2017, the FASB issued ASU No. 2017-04,
“Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment”
(“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill
impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginnin
g after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of ASU 2017-04 to have a material impact
on the Company’s consolidated financial statements
.
3. Revenue from Contracts with Customers
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the client or customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Our performance obligations can be separated as PFS Operations, which includes distribution, customer care, order management and payment services, and Live Area Professional Services, which includes commerce strategy consulting, creative design and marketing support, and technology platform integration services. For contracts with multiple performance obligations, we base transaction price to each performance obligation using the most likely sales amount for the distinct good or service in the contract. The primary method used to calculate the most likely sales amount is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
Implementation services related to setup costs for PFS Operations are not distinct within the context of the contract because of the inter-dependence of the integrating services with other services promised in the contract into a bundle of services that represent the combined output for which the customer has contracted. Therefore, these are not separate performance obligations. These implementation revenues and costs are amortized from one month after go live through the end of the contract period. Transaction based fees are generally charged monthly based on volume and contract price.
Substantially all of our professional services are satisfied over time, as the clients or customers simultaneously receive and consume the benefits provided by our service as we perform. Substantially all of our Operations Services, including Product Revenue, are recognized at a point in time, with the exception of initial integration services, which are deferred.
The transaction price for each performance obligation is based on the consideration specified in the contract with the client or customer and contains fixed and/or variable consideration. Additionally,
we have an enforceable right to payment for performance completed to date.
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed. As of March 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $43.8 million. The Company expects to recognize revenue on approximately 35% of the remaining performance obligations in 2018, 64% through 2019, and the remaining recognized thereafter.
Contract Estimates
A number of factors relating to our business affect the recognition of contract revenue. We typically structure our professional services contract pricing as time and materials, fixed-price or a cost plus fixed fee. We believe that our operating results should be evaluated over a time period during which major contracts are in progress, and change orders, cost recoveries and other claims are negotiated and realized.
For fixed-price arrangements, we typically recognize revenue based on the input method, generally hours expended over time proportionately, based on actual hours to budgeted hours during the period, provided reliable cost estimates for a project can made. We use this method because we consider effort incurred to date to be the best available measure of progress on contract in progress. If we cannot reasonably estimate project costs or margin, we recognize revenue as costs are incurred as our contracts contain an enforceable right to payment for performance completed to date.
Provisions for estimated losses on uncompleted contracts, if any, are made in the period in which such losses are determined. The loss is recognized, to the extent the loss has been incurred, based on actual hours incurred versus budgeted hours. We did not recognize any significant contract losses for the three months ended March 31, 2018.
Contract modifications are routine in the performance of our contracts. Change orders that result from modification of an original contract are taken into consideration for revenue recognition when they result in a change of total contract value and are approved by our clients. In most instances, contract modifications are for services that are not distinct, and therefore, are accounted for as part of the existing contract. If the contract has significant scope changes, of non-interrelated and non-interdependent products or services, then it will be viewed as a separate contract and accounted for separately.
9
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Condensed Financial Statements
Contract Assets and Contract Liabilities
Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date. The contract assets are transferred to the receivables when the rights become unconditional. The contract liabilities primarily relate to the advance consideration received from customers for customer contracts.
In certain of our arrangements, billing occurs subsequent to revenue recognition, resulting in unbilled accounts receivable. However, the Company sometimes receives advances or deposits from our customers prior to revenue being recognized which results in contract liabilities.
The Company’s payment terms vary by the type and location of our customers and the type of services offered. The term between invoicing and when payment is due is generally not significant.
Contract balances consisted of the following
(in thousands)
:
|
March 31,
|
|
|
January 1,
|
|
|
2018
|
|
|
2018
|
|
Accounts Receivable
|
|
|
|
|
|
|
|
Trade Accounts Receivable, net
|
$
|
48,881
|
|
|
$
|
70,923
|
|
Unbilled Accounts Receivable
|
|
1,604
|
|
|
|
172
|
|
Total Accounts Receivable
|
$
|
50,485
|
|
|
$
|
71,095
|
|
Contract Liabilities
|
|
|
|
|
|
|
|
Accrued Contract Liabilities
|
$
|
666
|
|
|
$
|
583
|
|
Deferred Revenue
|
|
8,815
|
|
|
|
10,697
|
|
Total Contract Liabilities
|
$
|
9,481
|
|
|
$
|
11,280
|
|
Changes in contract liabilities during the period was a decrease of $2.5 million in our net contract liabilities from December 31, 2017 to March 31, 2018, primarily due to a decrease of $2.6 million in deferred revenue due to amortization and recognition of revenue in the three months ended March 31, 2018, as well as the impact of the cumulative effect of the adoption of ASC 606. We have no contract assets at March 31, 2018.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, and customer advances and deposits (contract liabilities) on the consolidated balance sheet. These assets/liabilities are reported on the consolidated balance sheet on a contract basis at the end of each reporting period.
Changes in the contract asset and liability balances during the three-month period ended March 31, 2018 were not materially impacted by any other factors.
PFS Operations revenue is primarily recognized at a point in time, based on the transaction volumes. LiveArea Professional Services revenue is primarily recognized over time, typically based on time and materials. The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by revenue source for the three months ended March 31, 2018 (in thousands):
|
PFS Operations
|
|
|
LiveArea Professional Services
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service fee revenue
|
$
|
34,922
|
|
|
$
|
21,565
|
|
|
$
|
56,487
|
|
Product revenue, net
|
|
9,765
|
|
|
|
-
|
|
|
|
9,765
|
|
Pass-through revenue
|
|
11,800
|
|
|
|
369
|
|
|
|
12,169
|
|
Total revenues
|
$
|
56,487
|
|
|
$
|
21,934
|
|
|
$
|
78,421
|
|
4. Inventory Financing
Supplies Distributors has a short-term credit facility with IBM Credit LLC (“IBM Credit Facility”) to finance its purchase and distribution of products of Ricoh Company Limited and Ricoh USA, Inc., a strategic business unit within the Ricoh Family Group of Companies (collectively hereafter referred to as “Ricoh”), in the United States, providing financing for eligible Ricoh inventory and certain receivables.
In January 2018, Supplies Distributors entered into Amendment No. 19 to the IBM Credit Facility. The Amended IBM Credit Facility adjusted the maximum borrowing under the facility from $13.0 million to $11.0 million and lowered the minimum PFS Subordinated Note receivable PFSweb is required to maintain from $2.5 million to $1.0 million.
10
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Condensed Financial Statements
Given the structure of this facility and as outstanding balances, which represent inventory purchases, are repaid within twelve months, the Company has classified the outstanding amounts under this facility, which were $5.1 million
a
nd $7.1 million as of March 31, 2018 and December 31, 2017, respectively, as trade accounts payable in the condensed
consolidated balance sheets. As of March 31, 2018, Supplies Distributors had $2.1 million of available credit under this facility. Borrowin
gs under the credit facility accrue interest, after a defined free financing period, at prime rate plus 0.5%, which resulted in a weighted average interest rate of 5.00% and 4.75% as of as of March 31, 2018 and December 31, 2017, respectively.
5. Debt and Capital Lease Obligations
Outstanding debt and capital lease obligations consist of the following (in thousands):
|
March 31,
|
|
|
December 31,
|
|
|
2018
|
|
|
2017
|
|
U.S. Credit Agreement
|
|
|
|
|
|
|
|
Revolver
|
$
|
9,200
|
|
|
$
|
13,234
|
|
Term loan
|
|
26,250
|
|
|
|
27,000
|
|
Equipment loan
|
|
3,974
|
|
|
|
4,205
|
|
Debt issuance costs
|
|
(342
|
)
|
|
|
(376
|
)
|
Master lease agreements
|
|
3,498
|
|
|
|
3,135
|
|
Other
|
|
122
|
|
|
|
128
|
|
Total
|
|
42,702
|
|
|
|
47,326
|
|
Less current portion of long-term debt
|
|
6,017
|
|
|
|
9,460
|
|
Long-term debt, less current portion
|
$
|
36,685
|
|
|
$
|
37,866
|
|
U.S. Credit Agreement
As of March 31, 2018, the Company had $23.3 million
of available credit under the revolving loan facility of the credit agreement of PFSweb, Inc. and its U.S. subsidiaries with Regions Bank, as agent for itself and one or more future lenders (“Credit Agreement”). As of March 31, 2018 and December 31, 2017
,
the weighted average interest rate on the revolving loan facility was 5.07% and 4.65%, respectively. As of March 31, 2018 and December 31, 2017, the weighted average interest rate on the term loan facility of the Credit Agreement was 4.43% and 4.05%, respectively.
6. Earnings Per
Share
Basic
net loss per common share was computed by dividing net loss by the weighted-average number of common shares outstanding for the reporting period. The below outstanding common stock equivalents were excluded from the calculation of net loss per share because their effect would have been anti-dilutive due to our net loss for the three months ended March 31, 2018 and 2017 (shares in thousands):
|
As of March 31,
|
|
|
2018
|
|
|
2017
|
|
Stock options
|
|
1,048
|
|
|
|
1,228
|
|
Performance shares and restricted stock units
|
|
423
|
|
|
|
138
|
|
Deferred stock units
|
|
199
|
|
|
|
133
|
|
Total anti-dilutive stock options, performance shares and deferred stock units
|
|
1,670
|
|
|
|
1,499
|
|
7. Segment Information
Prior to January 1, 2018, the Company’s operations were organized into two reportable segments: PFSweb and Business and Retail Connect. In accordance with ASC 280,
Segment Reporting
(“ASC 280”), an operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions.
Effective January 1, 2018, we changed our organizational structure in an effort to create more effective and efficient operations and to improve client and service focus. In that regard, we revised the information that our chief executive officer and chief financial officer, who are also our Chief Operating Decision Makers, regularly review for purposes of allocating resources and assessing performance. As a result, beginning January 1, 2018, we now report our financial performance based on our new reportable segments.
11
PFSweb, Inc. and Subsidiaries
Notes to Unaudited Condensed Financial Statements
These segments are comprised of strategic businesses that are defined by the service offerings they provide and consist of
PFS Operations (which
provides client services in relation to the customer physical experience, such
as order management (OMS), order fulfillment, customer care and financial services)
and Professional Services LiveArea (which
provides client services in relation to the digital shopping experience of shopping online, such as strategic commerce consulting,
strategy, design and digital marketing services and technology services)
. Each segment is led by a separate Business Unit Executive who reports directly to the Company’s Chief Executive Officer.
The CODM evaluates segment performance using business unit direct contribution, which is defined as business unit revenues less costs of fees and direct selling, general and administrative expenses, including depreciation and amortization. Direct contribution does not include any allocated Corporate expenses nor does it include stock-based compensation. The CODM does not routinely review assets by segment. The balance sheet by segment is not prepared and, therefore, we do not present segment assets below.
Corporate operations is a non-operating segment that develops and implements strategic initiatives and supports the Company’s operations by centralizing certain administrative functions such as finance, treasury, information technology and human resources.
All prior period segment information has been restated to conform to the 2018 presentation. The changes in the reportable segments have no effect on the consolidated balance sheets, statements of operations or cash flows for the periods presented.
Subsequent to change in the Company’s operating segments, the Company’s reporting units changed. We now have
two
reporting units: PFS Operations and LiveArea Professional Services. We allocated goodwill to our new reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and after the reallocation and determined that no impairment existed.
The following table discloses segment information for the periods presented (in thousands):
|
Three Months Ended
|
|
|
March 31,
|
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
|
PFS Operations
|
$
|
56,487
|
|
|
$
|
58,236
|
|
LiveArea Professional Services
|
|
21,934
|
|
|
|
20,532
|
|
Eliminations
|
|
-
|
|
|
|
-
|
|
Total revenues
|
$
|
78,421
|
|
|
$
|
78,768
|
|
Business unit direct contribution:
|
|
|
|
|
|
|
|
PFS Operations
|
$
|
6,333
|
|
|
$
|
5,405
|
|
LiveArea Professional Services
|
|
2,968
|
|
|
|
2,331
|
|
Total business unit direct contribution
|
$
|
9,301
|
|
|
$
|
7,736
|
|
Unallocated corporate expenses
|
|
(8,632
|
)
|
|
|
(11,180
|
)
|
Income (loss) from operations
|
$
|
669
|
|
|
$
|
(3,444
|
)
|
8. Commitments and Contingencies
The Company received municipal tax abatements in certain locations. In prior years, the Company received notice from a municipality that it did not satisfy certain criteria necessary to maintain the abatements and that the municipal authority planned to make an adjustment to the Company’s tax abatement. The Company disputed the adjustment and such dispute has been settled with the municipality. However, the amount of additional property taxes to be assessed against the Company and the timing of the related payments has not been finalized. As of March 31, 2018, the Company believes it has adequately accrued for the expected assessment.
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