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PFSweb Reports First Quarter 2019 Results

ALLEN, Texas, May 09, 2019 (GLOBE NEWSWIRE) -- PFSweb, Inc. (PFSW), a global commerce services company, is reporting results for the first quarter ended March 31, 2019.

First Quarter 2019 Summary vs. Same Year-Ago Quarter

  • Total revenues were $72.1 million compared to $78.4 million.

  • Service fee equivalent (SFE) revenue (a non-GAAP measure defined below) was $51.9 million compared to $56.9 million.

  • Service fee gross margin was 34.0% compared to 37.0%.

  • Net loss was $1.2 million or $(0.06) per share, compared to a net loss of $0.7 million or $(0.04) per share.

  • Adjusted EBITDA (a non-GAAP measure defined below) was $3.3 million compared to $4.4 million.

Management Commentary
“During the first quarter, we continued to perform at a high level for clients across both our LiveArea and PFS business segments, while introducing several new growth initiatives,” said Mike Willoughby, CEO of PFSweb. “These initiatives include next-generation PFS FaaS products like RetailConnect and CloudPick, as well as expanding our technology expertise with SMB eCommerce platforms including BigCommerce and Shopify Plus. We also made progress in our effort to expand our LiveArea service offering to include implementation and support of the IBM Sterling Commerce order management platform, with our first client launch successfully completed in April.

“Looking ahead, we are keenly focused on revitalizing growth. We believe our enhanced services offering and go-to-market approach across the business will increase our addressable market, providing us the opportunity to accelerate our growth.”

First Quarter 2019 Financial Results
Total revenues in the first quarter of 2019 were $72.1 million compared to $78.4 million in the same period of 2018. Service fee revenue in the first quarter was $51.4 million compared to $56.5 million in the first quarter last year. Product revenue from the company’s last remaining client under this legacy business model was $7.5 million compared to $9.8 million in the same period of 2018.

SFE revenue was $51.9 million compared to $56.9 million in the year-ago quarter. The decline was primarily driven by lower new client project activity in LiveArea and the transition of certain client engagements in PFS, partially offset by growth from existing clients.

Service fee gross margin in the first quarter of 2019 was 34.0% compared to 37.0% in the same period of 2018. The decrease was primarily due to lower gross margins in the LiveArea business segment as a result of higher than expected costs incurred on certain client projects.

Net loss in the first quarter of 2019 was $1.2 million or $(0.06) per share, compared to a net loss of $0.7 million or $(0.04) per share in the same period of 2018. Net income in the first quarter of 2019 included $0.7 million of stock-based compensation expense, $0.4 million of acquisition-related, restructuring and other costs, $0.2 million in amortization of acquisition-related intangible assets, and $0.1 million of deferred tax expense related to goodwill amortization. This compares to $0.6 million of stock-based compensation expense, $0.4 million in amortization of acquisition-related intangible assets, $0.1 million of acquisition-related, restructuring and other costs, and a $0.1 million deferred tax credit related to goodwill amortization in the same period of 2018.

Adjusted EBITDA in the first quarter was $3.3 million compared to $4.4 million in the year-ago quarter. As a percentage of SFE revenue, adjusted EBITDA was 6.4% compared to 7.8%, with the decrease primarily due to lower gross margin in the LiveArea segment

Non-GAAP net income in the first quarter of 2019 was $0.2 million compared to $0.6 million in the first quarter of 2018.

At March 31, 2019, net debt (defined as total debt, excluding operating lease liabilities, less cash and cash equivalents) was $20.9 million compared to $26.5 million at December 31, 2018. Cash and cash equivalents totaled $14.7 million compared to $15.4 million at December 31, 2018. Total debt at March 31, 2019 was $35.5 million compared to $42.0 million at the end of last year.

2019 Outlook
PFSweb continues to expect 2019 SFE revenue to increase low-single digits on a percentage basis compared to 2018. The company also continues to expect adjusted EBITDA to increase low to mid-single digits on a percentage basis from last year, reflecting continued expected operating leverage in the business.

Conference Call
PFSweb will conduct a conference call today at 5:00 p.m. Eastern time to discuss its results for the first quarter ended March 31, 2019.

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

Date: Thursday, May 9, 2019
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number: 1-888-599-8686
International dial-in number: 1-323-994-2093
Conference ID: 6115831

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 Gateway Investor Relations at 1-949-574-3860.

The conference call will be broadcast live and available for replay here 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 8:00 p.m. Eastern time on the same day through May 23, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 6115831

About PFSweb, Inc.
PFSweb (PFSW) is a global commerce services company that manages the online customer shopping experience on behalf of major branded manufacturers and retailers. Across two business units – LiveArea for strategy consulting, creative design, digital marketing, and web development services, and PFS for order fulfillment, contact center, payment processing/fraud management, and order management services – they provide solutions to a broad range of Fortune 500® companies and household brand names such as Procter & Gamble, L’Oréal USA, Ralph Lauren, PANDORA, ASICS, the United States Mint, and many more. PFSweb enables these brands to provide a more convenient and brand-centric online shopping experience through both traditional and online business channels. The company is headquartered in Allen, TX with additional locations around the globe. For more information, please visit www.pfsweb.com.

Non-GAAP Financial Measures
This news release contains 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, acquisition-related, restructuring and other costs (including certain client related bankruptcy costs) , amortization of acquisition-related intangible assets and deferred tax expense for goodwill amortization.

EBITDA represents earnings (or losses) before interest, income taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation, as well as acquisition-related, restructuring, and other costs (including certain client related bankruptcy costs).

Service fee equivalent revenue represents service fee revenue plus the gross profit earned on product revenue and does not alter existing revenue recognition.

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, acquisition-related, restructuring and other costs (including certain client related bankruptcy costs), amortization of acquisition-related intangible assets, and deferred tax expense for goodwill amortization, and EBITDA and adjusted EBITDA further eliminate the effect of financing, remaining 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.

PFS 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. PFS' Annual Report on Form 10-K for the year ended December 31, 2018 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. PFS 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.

Company Contact:
Michael C. Willoughby
Chief Executive Officer
Or
Thomas J. Madden
Chief Financial Officer
1-972-881-2900

Investor Relations:
Sean Mansouri, CFA or Scott Liolios
Gateway Investor Relations
1-949-574-3860
PFSW@gatewayir.com


PFSweb, Inc. and Subsidiaries  
Condensed Consolidated Balance Sheets  
(In Thousands, Except Share Data)  
         
         
  March 31,   December 31,  
    2019       2018    
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents $   14,679     $   15,419    
Restricted cash     207         207    
Accounts receivable, net of allowance for doubtful accounts of $597 and $585 at March 31, 2019 and December 31, 2018, respectively     52,545         72,415    
Inventories, net of reserves of $289 and $298 at March 31, 2019 and December 31, 2018, respectively     4,124         6,090    
Other receivables     3,906         4,014    
Prepaid expenses and other current assets     7,202         6,943    
Total current assets     82,663         105,088    
         
PROPERTY AND EQUIPMENT, net     19,972         21,496    
OPERATING LEASE RIGHT-OF-USE ASSETS     38,788         -    
IDENTIFIABLE INTANGIBLES, net     1,636         1,803    
GOODWILL     45,348         45,185    
OTHER ASSETS     3,560         3,501    
Total assets     191,967         177,073    
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Trade accounts payable $   35,147     $   47,580    
Accrued expenses     19,509         24,623    
Current portion of operating lease liabilities     7,835         -    
Current portion of long-term debt and finance lease obligations     2,846         2,610    
Deferred revenues     6,883         7,328    
Performance-based contingent payments     -         -    
Total current liabilities     72,220         82,141    
         
LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS, less current portion     32,698         39,348    
DEFERRED REVENUES, less current portion     1,590         1,927    
DEFERRED RENT     (0 )       4,625    
OPERATING LEASE LIABILITIES     36,688        
OTHER LIABILITIES     2,668         2,449    
Total liabilities     145,864         130,490    
         
COMMITMENTS AND CONTINGENCIES        
         
SHAREHOLDERS' EQUITY:        
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued or outstanding     -         -    
Common stock, $0.001 par value; 35,000,000 shares authorized; 19,295,796 and 19,294,296 shares issued at March 31, 2019 and December 31, 2018, respectively; and 19,262,329 and 19,260,829 shares outstanding at March 31, 2019 and December 31, 2018, respectively     19         19    
Additional paid-in capital     156,108         155,455    
Accumulated deficit     (108,937 )       (107,773 )  
Accumulated other comprehensive income     (962 )       (993 )  
Treasury stock at cost, 33,467 shares     (125 )       (125 )  
Total shareholders' equity     46,103         46,583    
Total liabilities and shareholders' equity $   191,967     $   177,073    
         

 

PFSweb, Inc. and Subsidiaries  
Unaudited Condensed Consolidated Statements of Operations  
(In Thousands, Except Per Share Data)  
         
  Three Months Ended  
  March 31,  
    2019       2018    
REVENUES:        
Service fee revenue $   51,439     $   56,487    
Product revenue, net     7,499         9,765    
Pass-through revenue     13,211         12,169    
Total revenues $   72,149     $   78,421    
         
COSTS OF REVENUES:        
Cost of service fee revenue $   33,958     $   35,608    
Cost of product revenue     7,077         9,316    
Cost of pass-through revenue     13,211         12,169    
Total costs of revenues $   54,246     $   57,093    
Gross profit     17,903         21,328    
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES     18,346         20,659    
Income (loss) from operations     (443 )       669    
INTEREST EXPENSE, NET     512         605    
Income (loss) before income taxes     (955 )       64    
INCOME TAX EXPENSE     209         813    
NET LOSS $   (1,164 )   $   (749 )  
NON-GAAP NET INCOME $   178     $   569    
         
NET LOSS PER SHARE:        
Basic $   (0.06 )   $   (0.04 )  
Diluted $   (0.06 )   $   (0.04 )  
         
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:        
Basic   19,486       19,145    
Diluted   19,486       19,145    
         
EBITDA $   2,272     $   3,647    
ADJUSTED EBITDA $   3,318     $   4,415    
         

 

PFSweb, Inc. and Subsidiaries  
Unaudited Reconciliation of Certain Non-GAAP Items to GAAP  
(In Thousands)  
         
  Three Months Ended  
  March 31,  
    2019       2018    
         
NET LOSS $   (1,164 )   $   (749 )  
Income tax expense     209         813    
Interest expense, net     512         605    
Depreciation and amortization     2,715         2,978    
EBITDA $   2,272     $   3,647    
Stock-based compensation     651         646    
Acquisition-related, restructuring and other costs     395         122    
ADJUSTED EBITDA $   3,318     $   4,415    
         
         
  Three Months Ended  
  March 31,  
    2019       2018    
         
NET LOSS $   (1,164 )   $   (749 )  
Stock-based compensation     651         646    
Amortization of acquisition-related intangible assets     166         438    
Acquisition-related, restructuring and other costs     395         122    
Deferred tax expense - goodwill amortization     130         112    
NON-GAAP NET INCOME $   178     $   569    
         
  Three Months Ended  
  March 31,  
    2019       2018    
         
TOTAL REVENUES $   72,149     $   78,421    
Pass-through revenue   (13,211 )     (12,169 )  
Cost of product revenue     (7,077 )       (9,316 )  
SERVICE FEE EQUIVALENT REVENUE $   51,862     $   56,936    
         

 

       
PFSweb, Inc. and Subsidiaries
Unaudited Consolidated Segment Information
 and Reconciliation of Certain Non-GAAP Items to GAAP
(In Thousands)
 
Effective January 1, 2018, the company changed its organizational structure in an effort to create more effective and efficient operations and to improve client and service focus.  As a result, the company is now presenting supplemental financial data below based on the reportable operating business segments of its PFS Operations and LiveArea Professional Services units, which are comprised of strategic businesses that are defined by the types of service offerings they provide.  In addition, certain costs that are not fully directly allocable to a business unit are presented as Corporate selling, general, and administrative expenses.

The segment financial data for the three months ended March 31, 2019 and 2018, reflect the financial performance for each of the segments based on the current financial presentation reviewed by the company’s Chief Operating Decision Makers.  The company is continuing to evaluate its segregation of costs among the business units, including an effort to further allocate certain Corporate costs into the two operating business units to enhance cost focus and responsibility.

       
  Three Months Ended
  March 31,
    2019       2018  
 PFS Operations       
Revenues:      
Service fee revenue $   33,055     $   34,922  
Product revenue, net     7,499         9,765  
Pass-through revenue     12,876         11,800  
Total revenues $   53,430     $   56,487  
Costs of revenues:      
Cost of service fee revenue $   23,920     $   25,338  
Cost of product revenue     7,077         9,316  
Cost of pass-through revenue     12,876         11,800  
Total costs of revenues $   43,873     $   46,454  
Gross profit     9,557         10,033  
Direct operating expenses     7,030         5,731  
Direct contribution     2,527         4,302  
Depreciation and amortization     2,052         1,932  
Stock-based compensation     117         59  
Acquisition-related, restructuring and other costs     464         20  
ADJUSTED EBITDA $   5,160     $   6,313  
       
TOTAL REVENUES $   53,430     $   56,487  
Pass-thru revenue     (12,876 )       (11,800 )
Cost of product revenue     (7,077 )       (9,316 )
SERVICE FEE EQUIVALENT REVENUE $   33,477     $   35,371  
       

 

         
PFSweb, Inc. and Subsidiaries  
Unaudited Consolidated Segment Information  
 and Reconciliation of Certain Non-GAAP Items to GAAP  
(In Thousands)  
 
  Three Months Ended  
  March 31,  
    2019       2018    
LiveArea Professional Services         
Service fee revenue $ 18,384     $ 21,565    
Pass-through revenue   335       369    
Total revenues   18,719       21,934    
         
Cost of service fee revenue   10,038       10,270    
Cost of pass-through revenue   335       369    
Total cost of revenues   10,373       10,639    
Gross profit   8,346       11,295    
Direct operating expenses   6,473       9,181    
Direct contribution   1,873       2,114    
Depreciation and amortization   331       692    
Stock-based compensation   150       80    
Acquisition-related, restructuring and other costs   33       87    
ADJUSTED EBITDA $ 2,387     $ 2,973    
 
Corporate   
Selling, general and administrative expenses $ (4,843 )   $ (5,747 )  
Depreciation and amortization   332       354    
EBITDA $ (4,511 )   $ (5,393 )  
Stock-based compensation   384       507    
Acquisition-related, restructuring and other costs   (102 )     15    
ADJUSTED EBITDA $ (4,229 )   $ (4,871 )