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PFSweb Reports Record Second Quarter 2020 Results

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- Strong eCommerce Demand and Fulfillment Volumes Drive Record Q2 Results -

ALLEN, Texas, Aug. 07, 2020 (GLOBE NEWSWIRE) -- PFSweb, Inc. (NASDAQ: PFSW), a global commerce services company, is reporting results for the second quarter ended June 30, 2020.

Q2 2020 Highlights vs. Q2 2019

  • Total revenues increased 20% to $82.4 million.

  • Service fee equivalent (SFE) revenue (a non-GAAP measure defined and reconciled below) increased 23% to $62.3 million.

  • Service fee gross margin was 34.2% compared to 34.8%.

  • Net loss remained flat at $1.0 million or $(0.05) per share.

  • Adjusted EBITDA (a non-GAAP measure defined and reconciled below) more than doubled to $7.2 million compared to $3.4 million.

Management Commentary

“Our business continues to benefit from heightened eCommerce demand in this new COVID-19 environment,” said Mike Willoughby, CEO of PFSweb. “We had a record second quarter for PFS fulfillment volumes, SFE revenue and adjusted EBITDA, and the growth was spread across our client portfolio as most of our core verticals experienced strong momentum, including health & beauty, jewelry, activewear and consumer-packaged goods. More specifically, we witnessed peak levels of consumer demand through online channels in April when stay-at-home mandates were implemented across the country, and we continued to see strong demand even as various economies re-opened in May and June.

“We recently published research on rapidly evolving consumer behavior including adoption of curb-side delivery as an extension of ‘buy online, pick up in store’ and the emergence of a new online conscious consumer. These trends intersect strategically with our PFS product strategy for RetailConnect and CloudPick, as well as LiveArea’s productized offerings including the innovative ‘Scan and Go’ prototype we have developed in collaboration with one of our clients to provide fast, efficient and safe shopping experiences.

“In PFS, we have continued to serve as a vital partner to our clients as we help them navigate this dynamic environment. We increased personnel in our distribution centers, and added at-home personnel and new technology solutions to our virtual contact center environment to better align with the holiday-like volumes. We also experienced our strongest level of Mother’s Day related fulfillment volumes in company history as an increased number of consumers shopped online for their gifts. We believe this is a likely indication of what to expect for the Q4 holiday season, as many analysts predict this will be the strongest digital holiday of all time.

“In LiveArea, as we previously communicated, we experienced a few project delays and lower bookings early in the quarter due to COVID-19 related uncertainties. However, we exited June with a very robust pipeline of prospects looking to enhance their digital capabilities in response to recent online shopping trends resulting from COVID-19. We still have work to do to convert these prospective engagements in order to continue the strong LiveArea performance into the back half of the year and build up our project and engagement backlog as we look ahead to 2021.

“Given the record level of activity in PFS and strong LiveArea backlog and pipeline, we are increasing our 2020 outlook and now expect consolidated SFE revenue growth to be between 9% to 12%, subject to the unknown effects of the pandemic. We also expect adjusted EBITDA margin expansion for the year driven by our improved revenue performance and continued cost focus, partially offset by incremental investments in both the PFS and LiveArea segments in preparation for the upcoming holiday season and 2021, as well as certain anticipated labor cost increases.

“Although we remain comfortable with our balance sheet, liquidity and client receivables, we will continue to monitor the effects of the pandemic on our clients’ operations and prudently manage our own costs and liquidity as a precautionary measure. The incremental investments we are making, including our recently announced new fulfillment center, are imperative in supporting our clients as we begin preparing for the expected record online holiday shopping season. Ensuring we have the necessary capacity and capabilities to support our clients during these unprecedented times will only strengthen our partnerships over the long term, as we anticipate eCommerce will remain a key, if not primary, fixture of consumer shopping long after the pandemic is gone.”

Second Quarter 2020 Financial Results
Total revenues in the second quarter of 2020 increased 20% to $82.4 million compared to $68.5 million in the same period of 2019. Service fee revenue in the second quarter increased 23% to $62.0 million compared to $50.3 million in the second quarter last year. Product revenue from the company’s last remaining client under this legacy business model was $5.9 million compared to $6.1 million in the same period of 2019.

SFE revenue in the second quarter increased 23% to $62.3 million compared to $50.7 million in the year-ago quarter. The increase was primarily driven by the benefit of higher fulfillment activity in PFS.

Service fee gross margin in the second quarter of 2020 was 34.2% compared to 34.8% in the same period of 2019. The slight decrease was primarily due to revenue mix. Gross margins for both segments continued to be within the guidance range of 25% to 30% for the PFS segment and 40% to 50% for the LiveArea segment.

Net loss in the second quarter of 2020 remained flat at $1.0 million or $(0.05) per share compared to the same period of 2019.

Adjusted EBITDA in the second quarter increased significantly to $7.2 million compared to $3.4 million in the year-ago quarter. As a percentage of SFE revenue, adjusted EBITDA margin increased 480 basis points to 11.6% compared to 6.8%. The increase was primarily due to strong growth in SFE revenue and operating leverage.

Non-GAAP net income (a non-GAAP measure defined and reconciled below) increased significantly to $4.5 million in the second quarter of 2020 compared to $0.4 million in the second quarter of 2019.

At June 30, 2020, net debt (a non-GAAP measure defined and reconciled below as total debt, excluding operating lease liabilities, less cash and cash equivalents) was $31.0 million compared to $25.4 million at December 31, 2019. The expected increase was primarily due to a change in the credit card collection program for one of the company’s PFS clients.

Cash and cash equivalents at June 30, 2020 totaled $9.7 million compared to $12.4 million at December 31, 2019, and total debt was $40.6 million compared to $37.8 million at the end of last year.

2020 Outlook
In light of heightened demand in the company’s PFS segment and the robust LiveArea backlog and pipeline, PFSweb has increased its expectations for consolidated SFE revenue growth to be between 9% to 12% compared to 2019 (previously expected mid-to-high single digit growth), while continuing to expect growth for each of its business units in 2020. Coupled with an ongoing focus on costs, PFSweb also continues to expect to improve adjusted EBITDA margin in 2020.

COVID-19 Response
PFSweb maintains information related to its ongoing response to the COVID-19 crisis on its corporate website at www.pfsweb.com/covid-19-response/.

Conference Call
PFSweb will conduct a conference call today at 8:30 a.m. Eastern time to discuss its results for the second quarter ended June 30, 2020.

PFSweb management will host the conference call, followed by a question and answer period.

Date: Friday, August 7, 2020
Time: 8:30 a.m. Eastern time (7:30 a.m. Central time)
Toll-free dial-in number: (866) 220-4153
International dial-in number: (864) 663-5228
Conference ID: 9670505

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 11:30 a.m. Eastern time on the same day through August 21, 2020.

Toll-free replay number: (855) 859-2056
International replay number: (404) 537-3406
Replay ID: 9670505

About PFSweb, Inc.
PFSweb (NASDAQ: 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, ASICS, PANDORA, Ralph Lauren, Shiseido Americas, 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), net debt, 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.

Net debt represents total debt, excluding operating lease liabilities, less cash and cash equivalents.

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. You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “potential,” “project,” “seek,” “strive,” “predict,” “continue,” “target,” and “estimate” and other similar expressions. These forward-looking statements involve risks and uncertainties and may include assumptions as to how we may perform in the future, including the impact of the COVID-19 pandemic on our business, results of operations and global economic conditions. Although we believe the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee these expectations will actually be achieved. PFS' Annual Report on Form 10-K, as amended, for the year ended December 31, 2019 and any subsequent amendments or quarterly reports on Form 10-Q identify 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 periodic reports 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)

(Unaudited)

June 30,

December 31,

2020

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

9,680

$

12,434

Restricted cash

214

214

Accounts receivable, net of allowance for doubtful accounts of $1,696 and $1,071 at June 30, 2020 and December 31, 2019, respectively

64,597

72,262

Inventories, net of reserves of $164 and $291 at June 30, 2020 and December 31, 2019, respectively

4,399

3,281

Other receivables

4,005

3,324

Prepaid expenses and other current assets

8,282

6,954

Total current assets

91,177

98,469

PROPERTY AND EQUIPMENT, net

17,439

18,436

OPERATING LEASE RIGHT-OF-USE ASSETS, net

32,399

36,403

IDENTIFIABLE INTANGIBLES, net

889

1,135

GOODWILL

44,868

45,393

OTHER ASSETS

3,853

3,772

Total assets

$

190,625

$

203,608

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Trade accounts payable

$

29,146

$

44,640

Accrued expenses

22,663

21,625

Current portion of operating lease liabilities

8,798

8,904

Current portion of long-term debt and capital lease obligations

3,121

2,971

Deferred revenues

5,072

6,058

Total current liabilities

68,800

84,198

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion

37,514

34,829

DEFERRED REVENUES, less current portion

1,671

1,398

OPERATING LEASE LIABILITIES

28,629

33,295

OTHER LIABILITIES

4,461

3,046

Total liabilities

141,075

156,766

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; 19,976,731 and 19,465,877 issued at June 30, 2020 and December 31, 2019, respectively; and 19,943,264 and 19,432,410 outstanding at June 30, 2020 and December 31, 2019, respectively

19

19

Additional paid-in capital

163,139

158,192

Accumulated deficit

(111,161

)

(109,943

)

Accumulated other comprehensive income

(2,322

)

(1,301

)

Treasury stock at cost, 33,467 shares

(125

)

(125

)

Total shareholders' equity

49,550

46,842

Total liabilities and shareholders' equity

$

190,625

$

203,608



PFSweb, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

REVENUES:

Service fee revenue

$

61,996

$

50,331

$

116,294

$

101,769

Product revenue, net

5,915

6,138

13,447

13,638

Pass-through revenue

14,524

12,041

29,393

25,253

Total revenues

82,435

68,510

159,134

140,660

COSTS OF REVENUES:

Cost of service fee revenue

40,765

32,809

75,481

66,767

Cost of product revenue

5,590

5,791

12,713

12,868

Cost of pass-through revenue

14,524

12,041

29,393

25,253

Total costs of revenues

60,879

50,641

117,587

104,888

Gross profit

21,556

17,869

41,547

35,772

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

21,541

18,096

40,911

36,443

Income (loss) from operations

15

(227

)

636

(671

)

INTEREST EXPENSE, NET

375

448

788

959

Income (loss) before income taxes

(360

)

(675

)

(152

)

(1,630

)

INCOME TAX EXPENSE

627

300

1,066

509

NET LOSS

(987

)

(975

)

(1,218

)

(2,139

)

NON-GAAP NET INCOME

$

4,531

$

442

$

5,608

$

620

NET LOSS PER SHARE:

Basic

$

(0.05

)

$

(0.05

)

$

(0.06

)

$

(0.11

)

Diluted

$

(0.05

)

$

(0.05

)

$

(0.06

)

$

(0.11

)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

Basic

19,800

19,444

19,739

19,465

Diluted

19,800

19,444

19,739

19,465

EBITDA

$

1,979

$

2,326

$

4,885

$

4,597

ADJUSTED EBITDA

$

7,245

$

3,446

$

11,202

$

6,763



PFSweb, Inc. and Subsidiaries

Unaudited Reconciliation of Certain Non-GAAP Items to GAAP

(In Thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

NET LOSS

$

(987

)

$

(975

)

$

(1,218

)

$

(2,139

)

Income tax expense

627

300

1,066

509

Interest expense, net

375

448

788

959

Depreciation and amortization

1,964

2,553

4,249

5,268

EBITDA

1,979

2,326

4,885

4,597

Stock-based compensation

5,154

679

5,699

1,330

Acquisition-related, restructuring and other costs

112

441

618

836

ADJUSTED EBITDA

$

7,245

$

3,446

$

11,202

$

6,763

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

NET LOSS

$

(987

)

$

(975

)

$

(1,218

)

$

(2,139

)

Stock-based compensation

5,154

679

5,699

1,330

Amortization of acquisition-related intangible assets

122

168

245

334

Acquisition-related, restructuring and other costs

112

441

618

836

Deferred tax expense - goodwill amortization

130

129

264

259

NON-GAAP NET INCOME

$

4,531

$

442

$

5,608

$

620

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

TOTAL REVENUES

$

82,435

$

68,510

$

159,134

$

140,660

Pass-through revenue

(14,524

)

(12,041

)

(29,393

)

(25,253

)

Cost of product revenue

(5,590

)

(5,791

)

(12,713

)

(12,868

)

SERVICE FEE EQUIVALENT REVENUE

$

62,321

$

50,678

$

117,028

$

102,539



PFSweb, Inc. and Subsidiaries

Unaudited Consolidated Segment Information

and Reconciliation of Certain Non-GAAP Items to GAAP

(In Thousands)

The segment financial data for the three and six months ended June 30, 2020 and 2019, 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

Six months ended

June 30,

June 30,

2020

2019

2020

2019

PFS Operations

Revenues:

Service fee revenue

$

41,414

$

31,700

$

74,845

$

64,754

Product revenue, net

5,915

6,138

13,447

13,638

Pass-through revenue

13,916

11,412

27,873

24,289

Total revenues

61,245

49,250

116,165

102,681

Costs of revenues:

Cost of service fee revenue

29,434

22,755

52,739

46,675

Cost of product revenue

5,590

5,791

12,713

12,868

Cost of pass-through revenue

13,916

11,412

27,873

24,289

Total costs of revenues

48,940

39,958

93,325

83,832

Gross profit

12,305

9,292

22,840

18,849

Direct operating expenses

7,903

7,163

15,348

14,195

Direct contribution

4,402

2,129

7,492

4,654

Depreciation and amortization

1,421

1,981

3,195

4,033

Stock-based compensation

871

119

940

236

Acquisition-related, restructuring and other costs

97

23

737

487

ADJUSTED EBITDA

$

6,791

$

4,252

$

12,364

$

9,410

TOTAL REVENUES

$

61,245

$

49,250

$

116,165

$

102,681

Pass-through revenue

(13,916

)

(11,412

)

(27,873

)

(24,289

)

Cost of product revenue

(5,590

)

(5,791

)

(12,713

)

(12,868

)

SERVICE FEE EQUIVALENT REVENUE

$

41,739

$

32,047

$

75,579

$

65,524



PFSweb, Inc. and Subsidiaries

Unaudited Consolidated Segment Information

and Reconciliation of Certain Non-GAAP Items to GAAP

(In Thousands)

Three Months Ended

Six months ended

June 30,

June 30,

2020

2019

2020

2019

LiveArea Professional Services

Revenues:

Service fee revenue

$

20,582

$

18,631

$

41,449

$

37,015

Pass-through revenue

608

629

1,520

964

Total revenues

21,190

19,260

42,969

37,979

Costs of revenues:

Cost of service fee revenue

11,331

10,054

22,742

20,092

Cost of pass-through revenue

608

629

1,520

964

Total costs of revenues

11,939

10,683

24,262

21,056

Gross profit

9,251

8,577

18,707

16,923

Direct operating expenses

8,802

6,276

15,076

12,749

Direct contribution

449

2,301

3,631

4,174

Depreciation and amortization

206

284

429

615

Stock-based compensation

2,256

147

2,391

297

Acquisition-related, restructuring and other costs

5

25

6

58

ADJUSTED EBITDA

$

2,916

$

2,757

$

6,457

$

5,144

Corporate

Selling, general and administrative expenses

$

(4,836

)

$

(4,657

)

$

(10,487

)

$

(9,499

)

Depreciation and amortization

337

288

625

620

EBITDA

(4,499

)

(4,369

)

(9,862

)

(8,879

)

Stock-based compensation

2,027

413

2,368

797

Acquisition-related, restructuring and other costs

10

393

(125

)

291

ADJUSTED EBITDA

$

(2,462

)

$

(3,563

)

$

(7,619

)

$

(7,791

)