PFSweb Reports First Quarter 2014 Results

ALLEN, TX--(Marketwired - May 7, 2014) - PFSweb, Inc. (NASDAQ: PFSW), a global provider of end-to-end eCommerce solutions, reported financial results for the first quarter ended March 31, 2014.

First Quarter 2014 Financial Summary

Increased project activity and operating efficiencies resulted in stronger service fee revenue and operating margin during the first quarter of 2014 than originally anticipated, although lower than the year-ago quarter due to impact of the previously announced client transitions.

• Service fee equivalent revenue (a non-GAAP measure defined and discussed below) was $28.8 million compared to $30.0 million during the same period in 2013
  
  

• Service fee gross margin was 30.4% compared to 31.8% during the same period in 2013
  
  

• Adjusted EBITDA (a non-GAAP measure defined and discussed below) was $2.2 million compared to $2.9 million during the same period in 2013
  
  

• Cash and cash equivalents totaled $23.8 million compared to $22.4 million as of December 31, 2013
  
  

• Debt totaled $11.0 million compared to $11.1 million as of December 31, 2013
  
  

First Quarter 2014 Financial Results

Total revenues in the first quarter of 2014 were $57.2 million compared to $63.1 million in the same period in 2013. Service fee revenue in the first quarter of 2014 totaled $27.6 million compared to $28.2 million in the same period in 2013. This decrease, which was primarily due to client transitions in 2013, was partially offset by revenues generated from higher than expected project activity as well as new and expanded client relationships. Product revenue decreased to $21.7 million compared to $25.3 million in the same period in 2013, primarily due to ongoing restructuring activities by the company's largest client in this segment.

Service fee equivalent revenue in the first quarter of 2014 was $28.8 million compared to $30.0 million in the same period in 2013.

Service fee gross margin in the first quarter decreased to 30.4% compared to 31.8% in the same period in 2013. This decrease was primarily due to the impact of client transition related activity in 2013, partially offset by operating efficiencies with existing clients and an increased level of higher margin project activity in the first quarter of 2014.

Adjusted EBITDA was $2.2 million in the first quarter of 2014 compared to $2.9 million in the same period in 2013.

Net loss in the first quarter of 2014 was $1.8 million, or $(0.11) per diluted share, compared to a net loss of $2.6 million, or $(0.20) per diluted share, in the same period in 2013. Net loss in the first quarter of 2014 included approximately $0.8 million in stock-based compensation expense compared to approximately $0.3 million in stock-based compensation expense and $2.3 million in restructuring and other charges in the same period in 2013.

Non-GAAP net loss (a non-GAAP measure defined and discussed below) in the first quarter of 2014 was $1.0 million, or $(0.06) per diluted share, compared to non-GAAP net income of $21,000, or $0.00 per diluted share, in the first quarter of 2013.

Management Commentary

"The momentum in our business that we reestablished in 2013 has carried into the first quarter of 2014," said Michael Willoughby, CEO of PFSweb. "Higher project activity and operating efficiencies with existing clients helped us achieve stronger service fee revenue and operating margin during the quarter than originally anticipated; however, the previously announced client transitions and expected decline in lower-margin product revenue continued to weigh on our top and bottom lines.

"Excluding the impact of these client transitions, our service fee equivalent revenue increased 22% in the first quarter of 2014 as compared to the prior year. Given the expected benefit from our recent client wins, such as the United States Mint that is anticipated to rollout later this year, and our steady pipeline of opportunities from both current and prospective clients, we believe we are well positioned to strengthen our financial performance as we exit 2014 and look ahead into 2015.

"In addition to the healthy U.S. e-commerce market, we continue to experience increased traction from international markets, particularly in Canada and Europe. We also see further opportunities applicable to Asia in conjunction with our strategic relationship with transcosmos. We expect our proven ability to continuously improve our clients' sales channels through technology, agency and infrastructure services will ultimately define our company as a leading omni-channel commerce and business outsourcing provider."

2014 Outlook

PFSweb reiterates its 2014 service fee equivalent revenue guidance to range between $127 million to $133 million, increasing 7% to 12% as compared to 2013. The company also reiterates its outlook for 2014 adjusted EBITDA target to range between $12 million and $14 million, representing an increase of 12% to 31% as compared to 2013.

Conference Call

PFSweb will conduct a conference call today at 11:00 a.m. Eastern time to discuss its results for the first quarter ended March 31, 2014.

The company's CEO Mike Willoughby and CFO Tom Madden will host the conference call, followed by a question and answer period.

Date: Wednesday, May 7, 2014
Time: 11:00 a.m. Eastern time (10:00 a.m. Central time)
Dial-in number: 1-877-941-8416
International number: 1-480-629-9808
Conference ID: 4681043

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

The conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=108924 and via the investor relations section of the company's website at www.pfsweb.com.

A replay of the conference call will be available after 2:00 p.m. Eastern time on the same day through May 21, 2014.

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay ID: 4681043

About PFSweb Inc.

PFSweb (NASDAQ: PFSW) is a global business process outsourcing provider of end-to-end eCommerce solutions. The company provides these solutions and services to major brand names and other companies seeking to optimize their supply chain and enhance their traditional and online business channels, which include both direct-to-consumer and business-to-business sales channels. PFSweb supports organizations across various industries, including Procter & Gamble, L'Oreal, LEGO, Columbia Sportswear, Riverbed, Ricoh, Roots Canada Ltd., Diageo, BCBGMAXAZRIA, T.J. Maxx, the United States Mint, and many more. PFSweb is headquartered in Allen, TX with additional locations in Tennessee, Mississippi, Canada, Belgium, and the Philippines. For more information, please visit www.pfsweb.com.

Non-GAAP Financial Measures

This news release may contain certain non-GAAP measures, including non-GAAP net income (loss), earnings before interest, income taxes, depreciation and amortization (EBITDA), Adjusted EBITDA and service fee equivalent revenue.

Non-GAAP net income (loss) represents net income (loss) calculated in accordance with U.S. GAAP as adjusted for the impact of non-cash stock-based compensation expense and restructuring and other charges.

EBITDA represents earnings (or losses) before interest, income taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation and restructuring and other charges.

Service fee equivalent revenue represents service fee revenue plus the gross profit earned on product revenue.

Non-GAAP net income (loss), EBITDA, Adjusted EBITDA and service fee equivalent revenue are used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry. The calculation of non-GAAP net income (loss) eliminates the effect of stock-based compensation, restructuring and other charges and EBITDA and adjusted EBITDA further eliminate 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. Service fee equivalent revenue allows client contracts with similar operational support models but different financial models to be combined as if all contracts were being operated on a service fee revenue basis.

PFSweb believes these non-GAAP measures provide useful information to both management and investors by focusing on certain operational metrics and excluding certain expenses in order to present its core operating performance and results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables.

Forward-Looking Statements

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 for the year ended December 31, 2013 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 of the Company and the Risk Factors described therein. 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.

PFSweb, Inc. and Subsidiaries
Preliminary Unaudited Condensed Consolidated Balance Sheets (A)
(In Thousands, Except Share Data)
				March 31,				December 31,
				2014				2013
			ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	23,753			$	22,418
	Restricted cash				169				130
	Accounts receivable, net of allowance for doubtful accounts of $410 and $382 at March 31, 2014 and December 31, 2013, respectively				46,098				55,292
	Inventories, net of reserves of $947 and $962 at March 31, 2014 and December 31, 2013, respectively				11,372				14,169
	Other receivables				5,481				5,241
	Prepaid expenses and other current assets				4,585				4,713
		Total current assets			91,458				101,963
PROPERTY AND EQUIPMENT, net					26,379				27,190
OTHER ASSETS					3,021				2,883
		Total assets			120,858				132,036
	LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
	Current portion of long-term debt and capital lease obligations			$	8,579			$	8,231
	Trade accounts payable				27,472				34,096
	Deferred revenue				8,813				8,181
	Accrued expenses				21,525				25,045
		Total current liabilities			66,389				75,553
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion					2,440				2,876
DEFERRED REVENUE					6,948				7,491
DEFERRED RENT					5,041				5,191
		Total liabilities			80,818				91,111
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
	Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and outstanding				-				-
	Common stock, $.001 par value; 35,000,000 shares authorized; 16,653,008 and 16,540,904 shares issued at March 31, 2014 and December 31, 2013, respectively; and 16,619,541 and 16,507,437 shares outstanding as of March 31, 2014 and December 31, 2013, respectively				17				17
	Additional paid-in capital				125,505				124,522
	Accumulated deficit				(87,110	)			(85,300	)
	Accumulated other comprehensive income				1,753				1,811
	Treasury stock at cost, 33,467 shares				(125	)			(125	)
		Total shareholders' equity			40,040				40,925
		Total liabilities and shareholders' equity		$	120,858			$	132,036

(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, 2013.

PFSweb, Inc. and Subsidiaries
Preliminary Unaudited Condensed Consolidated Statements of Operations (A)
(In Thousands, Except Per Share Data)
				Three Months Ended
				March 31,
				2014				2013
REVENUES:
	Product revenue, net			$	21,722			$	25,267
	Service fee revenue				27,598				28,217
	Pass-thru revenue				7,909				9,657
			Total revenues		57,229				63,141
COSTS OF REVENUES:
	Cost of product revenue				20,516				23,515
	Cost of service fee revenue				19,220				19,258
	Cost of pass-thru revenue				7,909				9,657
			Total costs of revenues		47,645				52,430
			Gross profit		9,584				10,711
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES					11,022				12,801
		Income (loss) from operations			(1,438	)			(2,090	)
INTEREST EXPENSE (INCOME), NET					143				218
		Income (loss) before income taxes			(1,581	)			(2,308	)
INCOME TAX PROVISION (BENEFIT)					229				267
NET INCOME (LOSS)				$	(1,810	)		$	(2,575	)
NON-GAAP NET INCOME (LOSS)				$	(1,016	)		$	21
NET INCOME (LOSS) PER SHARE:
	Basic			$	(0.11	)		$	(0.20	)
	Diluted			$	(0.11	)		$	(0.20	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
	Basic				16,522				12,786
	Diluted				16,522				12,786
EBITDA				$	1,452			$	318
ADJUSTED EBITDA				$	2,246			$	2,914

(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, 2013.

PFSweb, Inc. and Subsidiaries
Reconciliation of certain Non-GAAP Items to GAAP
(In Thousands, Except Per Share Data)
			Three Months Ended
			March 31,
			2014				2013
NET INCOME (LOSS)			$	(1,810	)		$	(2,575	)
		Income tax expense		229				267
		Interest expense, net		143				218
		Depreciation and amortization		2,890				2,408
EBITDA			$	1,452			$	318
		Stock-based compensation		794				303
		Restructuring and other charges		-				2,293
ADJUSTED EBITDA			$	2,246			$	2,914
			Three Months Ended
			March 31,
			2014				2013
NET INCOME (LOSS)			$	(1,810	)		$	(2,575	)
	Stock-based compensation			794				303
	Restructuring and other charges			-				2,293
NON-GAAP NET INCOME (LOSS)			$	(1,016	)		$	21
NET INCOME (LOSS) PER SHARE:
	Basic		$	(0.11	)		$	(0.20	)
	Diluted		$	(0.11	)		$	(0.20	)
NON-GAAP NET INCOME (LOSS) Per Share:
	Basic		$	(0.06	)		$	0.00
	Diluted		$	(0.06	)		$	0.00
			Three Months Ended
			March 31,
			2014				2013
TOTAL REVENUES			$	57,229			$	63,141
	Pass-thru revenue			(7,909	)			(9,657	)
	Cost of product revenue			(20,516	)			(23,515	)
SERVICE FEE EQUIVALENT REVENUE			$	28,804			$	29,969

PFSweb, Inc. and Subsidiaries
Preliminary Unaudited Consolidating Statements of Operations
For the Three Months Ended March 31, 2014
(In Thousands)
									Business &
					PFSweb				Retail Connect			Eliminations				Consolidated
REVENUES:
	Product revenue, net				$	-			$	21,722		$	-			$	21,722
	Service fee revenue					24,153				3,445			-				27,598
	Service fee revenue - affiliate					3,690				615			(4,305	)			-
	Pass-thru revenue					7,909				-			-				7,909
			Total revenues			35,752				25,782			(4,305	)			57,229
COSTS OF REVENUES:
	Cost of product revenue					-				20,516			-				20,516
	Cost of service fee revenue					19,520				3,615			(3,915	)			19,220
	Cost of pass-thru revenue					7,909				-			-				7,909
			Total costs of revenues			27,429				24,131			(3,915	)			47,645
			Gross profit			8,323				1,651			(390	)			9,584
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES						10,176				1,236			(390	)			11,022
		Income (loss) from operations				(1,853	)			415			-				(1,438	)
INTEREST EXPENSE (INCOME), NET						(2	)			145			-				143
		Income (loss) before income taxes				(1,851	)			270			-				(1,581	)
INCOME TAX PROVISION (BENEFIT)						132				97							229
NET INCOME (LOSS)					$	(1,983	)		$	173		$	-			$	(1,810	)
NON-GAAP NET INCOME (LOSS)					$	(1,189	)		$	173		$	-			$	(1,016	)
EBITDA					$	994			$	458		$	-			$	1,452
ADJUSTED EBITDA					$	1,788			$	458		$	-			$	2,246
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)					$	(1,983	)		$	173		$	-				(1,810	)
		Income tax expense (benefit)				132				97			-				229
		Interest expense (income), net				(2	)			145			-				143
		Depreciation and amortization				2,847				43			-				2,890
EBITDA					$	994			$	458		$	-			$	1,452
		Stock-based compensation				794				-			-				794
ADJUSTED EBITDA					$	1,788			$	458		$	-			$	2,246
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)					$	(1,983	)		$	173		$	-			$	(1,810	)
		Stock-based compensation				794				-			-				794
NON-GAAP NET INCOME (LOSS)					$	(1,189	)		$	173		$	-			$	(1,016	)
Note: Business and Retail Connect includes our Supplies Distributors and PFSweb Retail Connect operations, which operate similar financial models on behalf of our client relationships.

PFSweb, Inc. and Subsidiaries
Unaudited Consolidating Statements of Operations
For the Three Months Ended March 31, 2013
(In Thousands)
									Business &
					PFSweb				Retail Connect			Eliminations				Consolidated
REVENUES:
	Product revenue, net				$	-			$	25,267		$	-			$	25,267
	Service fee revenue					26,441				1,776			-				28,217
	Service fee revenue - affiliate					2,355				362			(2,717	)			-
	Pass-thru revenue					9,657				-			-				9,657
			Total revenues			38,453				27,405			(2,717	)			63,141
COSTS OF REVENUES:
	Cost of product revenue					-				23,515			-				23,515
	Cost of service fee revenue					19,780				1,798			(2,320	)			19,258
	Cost of pass-thru revenue					9,657				-			-				9,657
			Total costs of revenues			29,437				25,313			(2,320	)			52,430
			Gross profit			9,016				2,092			(397	)			10,711
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES						11,563				1,635			(397	)			12,801
		Income (loss) from operations				(2,547	)			457			-				(2,090	)
INTEREST EXPENSE (INCOME), NET						67				151			-				218
		Income (loss) before income taxes				(2,614	)			306			-				(2,308	)
INCOME TAX PROVISION (BENEFIT)						120				147			-				267
NET INCOME (LOSS)					$	(2,734	)		$	159		$	-			$	(2,575	)
NON-GAAP NET INCOME (LOSS)					$	(138	)		$	159		$	-			$	21
EBITDA					$	(178	)		$	496		$	-			$	318
ADJUSTED EBITDA					$	2,418			$	496		$	-			$	2,914
A reconciliation of NET INCOME (LOSS) to EBITDA and ADJUSTED EBITDA follows:
NET INCOME (LOSS)					$	(2,734	)		$	159		$	-				(2,575	)
		Income tax expense (benefit)				120				147			-				267
		Interest expense (income), net				67				151			-				218
		Depreciation and amortization				2,369				39			-				2,408
EBITDA					$	(178	)		$	496		$	-			$	318
		Stock-based compensation				303				-			-				303
		Restructuring and other charges				2,293				-			-				2,293
ADJUSTED EBITDA					$	2,418			$	496		$	-			$	2,914
A reconciliation of NET INCOME (LOSS) to NON-GAAP NET INCOME (LOSS) follows:
NET INCOME (LOSS)					$	(2,734	)		$	159		$	-			$	(2,575	)
		Stock-based compensation				303				-			-				303
		Restructuring and other charges				2,293				-			-				2,293
NON-GAAP NET INCOME (LOSS)					$	(138	)		$	159		$	-			$	21
Note: Business and Retail Connect includes our Supplies Distributors and PFSweb Retail Connect operations, which operate similar financial models on behalf of our client relationships.

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidating Balance Sheets
as of March 31, 2014
(In Thousands)
								Business &
				PFSweb				Retail Connect				Eliminations				Consolidated
			ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	17,701			$	6,052			$	-			$	23,753
	Restricted cash				-				169				-				169
	Accounts receivable, net				29,678				17,732				(1,312	)			46,098
	Inventories, net				-				11,372				-				11,372
	Other receivables				-				5,481				-				5,481
	Prepaid expenses and other current assets				3,472				1,113				-				4,585
		Total current assets			50,851				41,919				(1,312	)			91,458
PROPERTY AND EQUIPMENT, net					26,162				217				-				26,379
RECEIVABLE/INVESTMENT IN AFFILIATES					10,891				-				(10,891	)			-
OTHER ASSETS					2,946				75				-				3,021
		Total assets			90,850				42,211				(12,203	)			120,858
	LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
	Current portion of long-term debt and capital lease obligations			$	4,156			$	4,423			$	-			$	8,579
	Trade accounts payable				7,249				21,535				(1,312	)			27,472
	Deferred revenue				8,813				-				-				8,813
	Accrued expenses				16,211				5,314				-				21,525
		Total current liabilities			36,429				31,272				(1,312	)			66,389
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion					2,440				-				-				2,440
PAYABLE TO AFFILIATES					-				23,045				(23,045	)			-
DEFERRED REVENUE					6,948				-				-				6,948
DEFERRED RENT					5,041				-				-				5,041
		Total liabilities			50,858				54,317				(24,357	)			80,818
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
	Common stock				17				19				(19	)			17
	Capital contributions				-				1,000				(1,000	)			-
	Additional paid-in capital				125,505				28,060				(28,060	)			125,505
	Retained earnings (accumulated deficit)				(87,158	)			(43,503	)			43,551				(87,110	)
	Accumulated other comprehensive income				1,753				2,318				(2,318	)			1,753
	Treasury stock				(125	)			-				-				(125	)
		Total shareholders' equity			39,992				(12,106	)			12,154				40,040
		Total liabilities and shareholders' equity		$	90,850			$	42,211			$	(12,203	)		$	120,858

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidating Balance Sheets
as of December 31, 2013
(In Thousands)
								Business &
				PFSweb				Retail Connect				Eliminations				Consolidated
			ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	15,028			$	7,390			$	-			$	22,418
	Restricted cash				-				130				-				130
	Accounts receivable, net				37,857				18,697				(1,262	)			55,292
	Inventories, net				-				14,169				-				14,169
	Other receivables				-				5,241				-				5,241
	Prepaid expenses and other current assets				3,552				1,161				-				4,713
		Total current assets			56,437				46,788				(1,262	)			101,963
PROPERTY AND EQUIPMENT, net					26,945				245				-				27,190
RECEIVABLE/INVESTMENT IN AFFILIATES					12,777				-				(12,777	)			-
OTHER ASSETS					2,800				83				-				2,883
		Total assets			98,959				47,116				(14,039	)			132,036
	LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
	Current portion of long-term debt and capital lease obligations			$	4,419			$	3,812			$	-			$	8,231
	Trade accounts payable				11,602				23,756				(1,262	)			34,096
	Deferred revenue				8,181				-				-				8,181
	Accrued expenses				18,114				6,931				-				25,045
		Total current liabilities			42,316				34,499				(1,262	)			75,553
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion					2,876				-				-				2,876
PAYABLE TO AFFILIATES					-				23,045				(23,045	)			-
DEFERRED REVENUE					7,491				-				-				7,491
DEFERRED RENT					5,191				-				-				5,191
		Total liabilities			57,874				57,544				(24,307	)			91,111
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
	Common stock				17				19				(19	)			17
	Capital contributions				-				1,000				(1,000	)			-
	Additional paid-in capital				124,522				28,060				(28,060	)			124,522
	Retained earnings (accumulated deficit)				(85,146	)			(41,850	)			41,696				(85,300	)
	Accumulated other comprehensive income				1,817				2,343				(2,349	)			1,811
	Treasury stock				(125	)			-				-				(125	)
		Total shareholders' equity			41,085				(10,428	)			10,268				40,925
		Total liabilities and shareholders' equity		$	98,959			$	47,116			$	(14,039	)		$	132,036