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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

PFSweb Reports Third Quarter 2019 Results

November 11, 2019

ALLEN, Texas, Nov. 11, 2019 (GLOBE NEWSWIRE) -- PFSweb, Inc. (NASDAQ: PFSW), a global commerce services company, is reporting results for the third quarter ended September 30, 2019.

Third Quarter 2019 Summary vs. Same Year-Ago Quarter

-- Total revenues were $68.0 million compared to $77.7 million. -- Service fee equivalent (SFE) revenue (a non-GAAP measure defined below) was $49.9 million compared to $53.3 million. -- Service fee gross margin was 34.9% compared to 36.5%. -- Net loss was $1.6 million or $(0.08) 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 $3.1 million compared to $5.5 million.

Management Commentary“As expected, our third quarter results were largely in line with our second quarter,” said Michael Willoughby, CEO of PFSweb. “2019 continues to be a transition year in terms of our financial performance, primarily driven by the loss of revenue and unplanned excess facility capacity in our PFS segment from two client bankruptcies earlier this year, as well as reduced project activity in the LiveArea business. However, the investments and leadership changes we have made over the last year to revamp our sales and marketing strategy are bearing fruit. As such, we believe we are establishing an increasingly strong foundation for our expected return to SFE revenue and profitability growth in 2020.

“Driven by our renewed focus on our core vertical industry expertise and expansion of service offerings to small and medium-sized businesses, PFS had another successful quarter of new client wins, putting us on pace for one of the strongest years of new PFS bookings in company history. While some of these bookings positively contribute to our current year financial results, we expect to see even stronger contribution in 2020 as we realize more of a full year benefit from these new client programs.

“Additionally, we had a very strong quarter of client bookings for our LiveArea practice, which benefitted from our new executive, sales and marketing leadership gaining traction in the market. We are increasingly seeing the market-differentiating advantage of our full end-to-end commerce service offering, which combines the broad technology platform and digital experience from LiveArea with the physical experience from PFS.

“As we prepare for the upcoming holiday season, our PFS clients are once again forecasting overall strong online holiday sales growth. We have already begun to ramp personnel and technology across our various distribution centers, and we look forward to once again executing at a high level for our clients during this important time of the year.

“Looking beyond the holidays, with a LiveArea team staffed with high-performance sales and marketing leaders driving early strong results, coupled with the high level of recurring revenue bookings in PFS, we believe we have good visibility into 2020 and are well-positioned to return to growth next year. As a result, we currently anticipate our 2020 consolidated SFE revenue to grow in the mid-to-high single digits compared to 2019, with an improved adjusted EBITDA margin performance as well.”

Third Quarter 2019 Financial ResultsTotal revenues in the third quarter of 2019 were $68.0 million compared to $77.7 million in the same period of 2018. Service fee revenue in the third quarter was $49.6 million compared to $52.9 million in the third quarter last year. Product revenue from the company’s last remaining client under this legacy business model was $6.6 million compared to $8.5 million in the same period of 2018.

SFE revenue was $49.9 million compared to $53.3 million in the year-ago quarter. The decline was primarily driven by the loss of PFS revenue related to two client bankruptcies earlier in the year and reduced system integration project activity in LiveArea, partially offset by new client wins.

Service fee gross margin in the third quarter of 2019 was 34.9% compared to 36.5% in the same period of 2018. The decrease was primarily due to LiveArea gross margins declining as the company continued to experience increased labor and incremental costs on certain client projects. Additionally, the decrease was due to revenue mix in the PFS segment, with a higher percentage of revenues generated from lower margin transportation management and fulfillment services. 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 third quarter of 2019 was $1.6 million or $(0.08) per share, compared to a net loss of $0.7 million or $(0.04) per share in the same period of 2018. Net loss in the third quarter of 2019 included $0.9 million of stock-based compensation expense, $0.8 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 $1.1 million of stock-based compensation expense, $1.0 million of acquisition-related, restructuring and other costs, $0.4 million in amortization of acquisition-related intangible assets, and a $0.1 million deferred tax credit related to goodwill amortization in the same period of 2018.

Adjusted EBITDA in the third quarter was $3.1 million compared to $5.5 million in the year-ago quarter. As a percentage of SFE revenue, adjusted EBITDA was 6.3% compared to 10.4%, with the decrease primarily due to the aforementioned lower sales, as well as the impact of incremental sales and marketing spend and PFS facility related costs.

Non-GAAP net income in the third quarter of 2019 was $0.4 million compared to $1.9 million in the third quarter of 2018.

At September 30, 2019, net debt (defined as total debt, excluding operating lease liabilities, less cash and cash equivalents) was $23.3 million compared to $26.5 million at December 31, 2018. Cash and cash equivalents totaled $13.5 million compared to $15.4 million at December 31, 2018. Total debt at September 30, 2019 was $36.8 million compared to $42.0 million at the end of last year.

2019 & 2020 OutlookPFSweb continues to expect consolidated 2019 SFE revenue to range between $215 million and $225 million, with adjusted EBITDA ranging between $14 million and $17 million.

Based on the success of its sales and marketing efforts, PFSweb currently expects to report growth for each of its business units in 2020, with consolidated SFE revenue growing mid-to-high single digits compared to 2019. Coupled with an ongoing focus on costs, PFSweb also expects to improve its adjusted EBITDA margin performance in 2020.

Conference CallPFSweb will conduct a conference call today at 8:30 a.m. Eastern time to discuss its results for the third quarter ended September 30, 2019.

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

Date: Monday, November 11, 2019Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)Toll-free dial-in number: 1-888-220-8474International dial-in number: 1-646-828-8193Conference ID: 6331760

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 November 25, 2019.

Toll-free replay number: 1-844-512-2921International replay number: 1-412-317-6671Replay ID: 6331760

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, 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 MeasuresThis 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 StatementsThe 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. WilloughbyChief Executive OfficerOrThomas J. MaddenChief Financial Officer1-972-881-2900

Investor Relations:Sean Mansouri, CFA or Scott LioliosGateway Investor Relations1-949-574-3860 PFSW@gatewayir.com

PFSweb, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In Thousands, Except Share Data) (Unaudited) September December 31, 30, 2018 2019 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 13,511 $ 15,419 Restricted cash 207 207 Accounts receivable, net of allowance for doubtful accounts of $917 and $585 at 50,613 72,415 September 30, 2019 and December 31, 2018, respectively Inventories, net of reserves of $291 and $298 at September 30, 2019 and December 4,061 6,090 31, 2018, respectively Other receivables 3,018 4,014 Prepaid expenses and other current assets 5,678 6,943 - -------- - - -------- - Total current assets 77,088 105,088 PROPERTY AND EQUIPMENT, net 19,466 21,496 OPERATING LEASE RIGHT-OF-USE ASSETS 36,340 - IDENTIFIABLE INTANGIBLES, net 1,301 1,803 GOODWILL 44,936 45,185 OTHER ASSETS 3,829 3,501 Total assets $ 182,960 $ 177,073 - -------- - - -------- - LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Trade accounts payable $ 32,992 $ 47,580 Accrued expenses 18,004 24,623 Current portion of operating lease liabilities 8,457 - Current portion of long-term debt and finance lease obligations 3,002 2,610 Deferred revenues 4,287 7,328 - -------- - - -------- - Total current liabilities 66,742 82,141 LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS, less current portion 33,811 39,348 DEFERRED REVENUES, less current portion 1,532 1,927 DEFERRED RENT - 4,625 OPERATING LEASE LIABILITIES 33,581 - OTHER LIABILITIES 2,929 2,449 Total liabilities 138,595 130,490 - -------- - - -------- - 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; 19,465,877 and 19,294,296 issued at September 30, 2019 and December 31, 2018, respectively; and 19 19 19,432,410 and 19,260,829 outstanding at September 30, 2019 and December 31, 2018, respectively Additional paid-in capital 157,346 155,455 Accumulated deficit (111,550 ) (107,773 ) Accumulated other comprehensive income (1,325 ) (993 ) Treasury stock at cost, 33,467 shares (125 ) (125 ) Total shareholders’ equity 44,365 46,583 - -------- - - -------- - Total liabilities and shareholders’ equity $ 182,960 $ 177,073 - -------- - - -------- -

PFSweb, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Data) Three Months Ended Nine Months Ended September 30, September 30, ------------------- -------------------- 2019 2018 2019 2018 - ------- - ------ - ------- - ------- REVENUES: Service fee revenue $ 49,602 $ 52,890 $ 151,371 $ 162,519 Product revenue, net 6,579 8,469 20,216 27,081 Pass-through revenue 11,810 16,342 37,063 43,573 Total revenues 67,991 77,701 208,650 233,173 - ------- - ------ - ------- - ------- COSTS OF REVENUES: Cost of service fee revenue 32,296 33,576 99,062 102,478 Cost of product revenue 6,250 8,099 19,117 25,819 Cost of pass-through revenue 11,810 16,342 37,063 43,573 Total costs of revenues 50,356 58,017 155,242 171,870 - ------- - ------ - ------- - ------- Gross profit 17,635 19,684 53,408 61,303 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,886 19,007 55,329 59,423 - ------- - ------ - ------- - ------- Income (loss) from operations (1,251) 677 (1,921) 1,880 INTEREST EXPENSE, net 458 612 1,418 1,802 - ------- - ------ - ------- - ------- Income (loss) before income taxes (1,709) 65 (3,339) 78 INCOME TAX (BENEFIT) EXPENSE, net (71) 751 438 2,140 - ------- - ------ - ------- - ------- NET LOSS $ (1,638) $ (686) $ (3,777) $ (2,062) - ------- - ------ - ------- - ------- NON-GAAP NET INCOME $ 357 $ 1,918 $ 976 $ 4,195 - ------- - ------ - ------- - ------- NET LOSS PER SHARE: Basic $ (0.08) $ (0.04) $ (0.19) $ (0.11) - ------- - ------ - ------- - ------- Diluted $ (0.08) $ (0.04) $ (0.19) $ (0.11) - ------- - ------ - ------- - ------- WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 19,432 19,258 19,454 19,193 - ------- - ------ - ------- - ------- Diluted 19,432 19,258 19,454 19,193 - ------- - ------ - ------- - ------- EBITDA $ 1,423 $ 3,416 $ 6,021 $ 10,577 - ------- - ------ - ------- - ------- ADJUSTED EBITDA $ 3,121 $ 5,528 $ 9,884 $ 15,283 - ------- - ------ - ------- - -------

PFSweb, Inc. and Subsidiaries Unaudited Reconciliation of Certain Non-GAAP Items to GAAP (In Thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2019 2018 2019 2018 - ------- - - ------- - - ------- - - ------- - NET LOSS $ (1,638 ) $ (686 ) $ (3,777 ) $ (2,062 ) Income tax (benefit) expense, net (71 ) 751 438 2,140 Interest expense, net 458 612 1,418 1,802 Depreciation and amortization 2,674 2,739 7,942 8,697 - ------- - - ------- - - ------- - - ------- - EBITDA 1,423 3,416 6,021 10,577 Stock-based compensation 852 1,067 2,181 3,073 Acquisition-related, restructuring and other costs 846 1,045 1,682 1,633 ADJUSTED EBITDA $ 3,121 $ 5,528 $ 9,884 $ 15,283 - ------- - - ------- - - ------- - - ------- - Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2019 2018 2019 2018 - ------- - - ------- - - ------- - - ------- - NET LOSS $ (1,638 ) $ (686 ) $ (3,777 ) $ (2,062 ) Stock-based compensation 852 1,067 2,181 3,073 Amortization of acquisition-related intangible assets 167 368 501 1,198 Acquisition-related, restructuring and other costs 846 1,045 1,682 1,633 Deferred tax expense - goodwill amortization 130 124 389 353 NON-GAAP NET INCOME $ 357 $ 1,918 $ 976 $ 4,195 - ------- - - ------- - - ------- - - ------- - Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2019 2018 2019 2018 - ------- - - ------- - - ------- - - ------- - TOTAL REVENUES $ 67,991 $ 77,701 $ 208,650 $ 233,173 Pass-through revenue (11,810 ) (16,342 ) (37,063 ) (43,573 ) Cost of product revenue (6,250 ) (8,099 ) (19,117 ) (25,819 ) SERVICE FEE EQUIVALENT REVENUE $ 49,931 $ 53,260 $ 152,470 $ 163,781 - ------- - - ------- - - ------- - - ------- -

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 and nine months ended September 30, 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 Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2019 2018 2019 2018 - ------- - - ------- - - ------- - - ------- - PFS Operations Revenues: Service fee revenue $ 31,176 $ 32,106 $ 95,930 $ 100,222 Product revenue, net 6,579 8,469 20,216 27,081 Pass-through revenue 10,760 15,702 35,049 42,076 - ------- - - ------- - - ------- - - ------- - Total revenues 48,515 56,277 151,195 169,379 Costs of revenues: Cost of service fee revenue 22,349 22,837 69,023 71,135 Cost of product revenue 6,250 8,099 19,117 25,819 Cost of pass-through revenue 10,760 15,702 35,049 42,076 Total costs of revenues 39,359 46,638 123,189 139,030 - ------- - - ------- - - ------- - - ------- - Gross profit 9,156 9,639 28,006 30,349 Direct operating expenses 7,454 6,251 21,649 18,724 - ------- - - ------- - - ------- - - ------- - Direct contribution 1,702 3,388 6,357 11,625 Depreciation and amortization 2,120 1,913 6,153 5,971 Stock-based compensation 144 271 379 558 Acquisition-related, restructuring and other costs 914 - 1,401 228 - ------- - - ------- - - ------- - - ------- - ADJUSTED EBITDA $ 4,880 $ 5,572 $ 14,290 $ 18,382 - ------- - - ------- - - ------- - - ------- - TOTAL REVENUES $ 48,515 $ 56,277 $ 151,195 $ 169,379 Pass-through revenue (10,760 ) (15,702 ) (35,049 ) (42,076 ) Cost of product revenue (6,250 ) (8,099 ) (19,117 ) (25,819 ) SERVICE FEE EQUIVALENT REVENUE $ 31,505 $ 32,476 $ 97,029 $ 101,484 - ------- - - ------- - - ------- - - ------- -

PFSweb, Inc. and Subsidiaries Unaudited Consolidated Segment Information and Reconciliation of Certain Non-GAAP Items to GAAP (In Thousands) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------- 2019 2018 2019 2018 - ------ - - ------ - - ------- - - ------- - LiveArea Professional Services Revenues: Service fee revenue $ 18,426 $ 20,784 $ 55,441 $ 62,297 Pass-through revenue 1,050 640 2,014 1,497 - ------ - - ------ - - ------- - - ------- - Total revenues 19,476 21,424 57,455 63,794 Costs of revenues: Cost of service fee revenue 9,947 10,739 30,039 31,343 Cost of pass-through revenue 1,050 640 2,014 1,497 - ------ - - ------ - - ------- - - ------- - Total costs of revenues 10,997 11,379 32,053 32,840 - ------ - - ------ - - ------- - - ------- - Gross profit 8,479 10,045 25,402 30,954 Direct operating expenses 5,885 6,575 18,634 23,487 - ------ - - ------ - - ------- - - ------- - Direct contribution 2,594 3,470 6,768 7,467 Depreciation and amortization 276 520 891 1,765 Stock-based compensation 261 170 558 469 Acquisition-related, restructuring and other costs 53 74 111 366 - ------ - - ------ - - ------- - - ------- - ADJUSTED EBITDA $ 3,184 $ 4,234 $ 8,328 $ 10,067 - ------ - - ------ - - ------- - - ------- - Corporate Selling, general and administrative expenses $ (5,547 ) $ (6,181 ) $ (15,046 ) $ (17,212 ) Depreciation and amortization 278 306 898 961 - ------ - - ------ - - ------- - - ------- - EBITDA (5,269 ) (5,875 ) (14,148 ) (16,251 ) Stock-based compensation 447 626 1,244 2,046 Acquisition-related, restructuring and other costs (121 ) 971 170 1,039 - ------ - - ------ - - ------- - - ------- - ADJUSTED EBITDA $ (4,943 ) $ (4,278 ) $ (12,734 ) $ (13,166 ) - ------ - - ------ - - ------- - - ------- -