Market Overview

PFSweb Reports Second Quarter 2018 Results

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ALLEN, Texas, Aug. 09, 2018 (GLOBE NEWSWIRE) -- PFSweb, Inc. (NASDAQ:PFSW), a global commerce services company, is reporting results for the second quarter ended June 30, 2018.

Second Quarter 2018 Summary vs. Same Year-Ago Quarter

  • Total revenues were $77.1 million compared to $78.1 million.
  • Service fee equivalent (SFE) revenue (a non-GAAP measure defined below) was $53.6 million compared to $55.1 million.
  • Service fee gross margin increased 310 basis points to 37.3%.
  • Net loss improved to $0.6 million or $(0.03) per share, compared to a loss of $2.6 million or $(0.14) per share.
  • Adjusted EBITDA (a non-GAAP measure defined below) increased 22% to $5.3 million.

Management Commentary

"Our second quarter results continued to reflect the positive momentum from our profitability initiatives implemented in 2017," said Mike Willoughby, CEO of PFSweb. "Our high level of execution in supporting our clients and the benefit of project activity led to strong growth in service fee gross margin and adjusted EBITDA.  In fact, adjusted EBITDA was a Q2 record, increasing 22% over the prior year quarter.

"In our PFS business, we continued to experience a benefit from higher transactional volumes with certain clients, as well as incremental project work and other activity that generated favorable gross margin contribution. This was the busiest PFS second quarter on record as we shipped more than 4.2 million orders, a 27% increase from last year.

"We also performed at a high level for clients in our LiveArea business, and continue to expect growth to accelerate in the back half of the year as we ramp delayed project launches and operate new retainer engagements from the first two quarters. New bookings from LiveArea were strong in Q2 as well. While project launches were somewhat slower than expected, we are encouraged by the bookings mix in Q2 which reflects a greater percentage of retainer agreements, where revenue is recognized over a 12-month period and is typically recurring in nature, as opposed to project bookings, which are typically recognized in a 4-6 month period and are often one-time in nature.

"With an overall strong first half of the year, we are reiterating our 2018 corporate SFE revenue and adjusted EBITDA guidance. On a segmented basis, however, we expect a slight shift in revenue mix, with incremental SFE revenue expected to be generated from our PFS business unit given its strong performance, and less service fee revenue from LiveArea as a result of the timing of recognized revenue. Overall, we plan to continue executing at a high level for our clients, while continuing to build upon our position in the marketplace as an established leader in the commerce industry."

Second Quarter 2018 Financial Results

Total revenues in the second quarter of 2018 were $77.1 million compared to $78.1 million in the same period of 2017. Service fee revenue in the second quarter was $53.1 million compared to $54.7 million last year. Product revenue from the company's last remaining client under this legacy business model was $8.8 million compared to $9.9 million in the same period of 2017.

SFE revenue was $53.6 million compared to $55.1 million in the year-ago quarter. The decline was driven by expected client transitions, including certain lower margin engagements, partially offset by new and expanded client relationships.

Service fee gross margin in the second quarter of 2018 increased 310 basis points to 37.3% compared to 34.2% in the same period of 2017. The increase was due to a focus on higher-margin engagements and service offerings, benefits from client project work, as well as improved operational efficiency and the transition of certain lower-margin engagements.

Net loss in the second quarter of 2018 improved significantly to $0.6 million or $(0.03) per share, compared to a net loss of $2.6 million or $(0.14) per share in the same period of 2017. Net loss in the second quarter of 2018 included $1.4 million of stock-based compensation expense, $0.4 million in amortization of acquisition-related intangible assets, $0.5 million of acquisition-related, restructuring and other costs, and $0.1 million deferred tax expense related to goodwill amortization. This compares to $1.2 million of stock-based compensation expense, $0.8 million in amortization of acquisition-related intangible assets, $1.1 million of acquisition-related, restructuring and other costs, and $0.2 million deferred tax expense related to goodwill amortization in the same period of 2017.

Adjusted EBITDA increased 22% to $5.3 million compared to $4.4 million in the year-ago quarter. As a percentage of SFE revenue, adjusted EBITDA increased 210 basis points to 10.0% compared to 7.9% in the year-ago quarter, primarily due to the aforementioned increase in service fee gross margin and prudent cost management.

Non-GAAP net income in the second quarter of 2018 increased significantly to $1.7 million compared to $0.6 million in the second quarter of 2017.

At June 30, 2018, net debt (defined as total debt less cash and cash equivalents) was $32.2 million compared to $28.2 million at December 31, 2017. Cash and cash equivalents totaled $13.6 million compared to $19.1 million at December 31, 2017. Total debt at June 30, 2018 decreased to $45.9 million compared to $47.3 million at the end of last year.

2018 Outlook

PFSweb continues to expect 2018 SFE revenue to range between $237 million and $247 million, reflecting up to 5% growth from 2017. The company also continues to expect adjusted EBITDA to range between $24 million and $26 million, reflecting up to 13% growth from 2017.

The company now expects PFS SFE revenue to range between $149 million and $155 million (previously $142 million to $147 million) and LiveArea service fee revenue to range between $88 million and $92 million (previously $95 million to $100 million).

Conference Call

PFSweb will conduct a conference call today at 5:00 p.m. Eastern time to discuss its results for the second quarter ended June 30, 2018.

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

Date: Thursday, August 9, 2018
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number: 1-888-254-3590
International dial-in number: 1-323-994-2093
Conference ID: 1068632

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 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 August 23, 2018.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 1068632

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 Operations 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, Canada Goose, PANDORA, T.J. Maxx, 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.corporate.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 (income) 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.

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

Our service fee equivalent revenue target for 2018 includes an estimated gross margin on product sales of approximately $2 million (based on targeted product revenue of $33 million to $37 million) plus a targeted range of between $235 million to $245 million of service fee revenue.

The adjusted EBITDA outlook for 2018 has not been reconciled to the company's net loss outlook for the same period because certain items that would impact interest expense, income tax provision (benefit), depreciation and amortization (including amortization of acquisition-related intangible assets), stock-based compensation, and acquisition-related, restructuring and other costs, all of which are reconciling items between net loss and adjusted EBITDA, cannot be reasonably predicted. Accordingly, reconciliation of adjusted EBITDA outlook to net loss outlook for 2018 is not available without unreasonable effort.

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, 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, 2017 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
972-881-2900

Investor Relations:

Sean Mansouri or Scott Liolios
Liolios Investor Relations
949-574-3860
PFSW@liolios.com

 
PFSweb, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Data)
       
  (Unaudited)    
  June 30,   December 31,
    2018       2017  
ASSETS      
CURRENT ASSETS:       
Cash and cash equivalents  $   13,622     $   19,078  
Restricted cash      214         214  
Accounts receivable, net of allowance for doubtful accounts of $393 and $373
at June 30, 2018 and December 31, 2017, respectively 
    53,387         72,062  
Inventories, net of reserves of $296 and $342 at June 30, 2018
and December 31, 2017, respectively 
    5,677         5,326  
Other receivables      4,460         5,366  
Prepaid expenses and other current assets      6,470         6,633  
Total current assets      83,830         108,679  
       
PROPERTY AND EQUIPMENT, net      21,758         24,178  
IDENTIFIABLE INTANGIBLES, net      2,535         3,371  
GOODWILL      45,424         45,698  
OTHER ASSETS      3,636         3,861  
Total assets      157,183         185,787  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:       
Trade accounts payable  $   30,910     $   45,070  
Accrued expenses      22,532         29,074  
Current portion of long-term debt and capital lease obligations      5,537         9,460  
Deferred revenues      5,397         7,405  
Performance-based contingent payments      -         3,967  
Total current liabilities      64,376         94,976  
       
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion      40,329         37,866  
DEFERRED REVENUES, less current portion      2,869         4,034  
DEFERRED RENT      5,129         5,464  
OTHER LIABILITIES      2,245         2,150  
Total liabilities      114,948         144,490  
       
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;
 19,291,559 and 19,058,685 shares issued at June 30, 2018 and
 December 31, 2017, respectively; and 19,258,092 and 19,025,218
shares outstanding at June 30, 2018 and December 31, 2017, respectively 
    19         19  
Additional paid-in capital     153,429        150,614  
Accumulated deficit     (110,376 )      (109,281 )
Accumulated other comprehensive income      (712 )       70  
Treasury stock at cost, 33,467 shares      (125 )       (125 )
Total shareholders' equity      42,235         41,297  
Total liabilities and shareholders' equity  $   157,183     $   185,787  
       

 

 
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,
    2018       2017       2018       2017  
REVENUES:               
Service fee revenue  $   53,141     $   54,700     $   109,628     $   111,965  
Product revenue, net      8,847         9,947         18,612         21,265  
Pass-through revenue      15,063         13,419         27,232         23,604  
Total revenues  $   77,051     $   78,066         155,472         156,834  
               
COSTS OF REVENUES:               
Cost of service fee revenue  $   33,294     $   35,977         68,902         75,561  
Cost of product revenue      8,403         9,505         17,719         20,230  
Cost of pass-through revenue      15,063         13,419         27,232         23,604  
Total costs of revenues  $   56,760     $   58,901         113,853         119,395  
Gross profit      20,291         19,165         41,619         37,439  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES      19,756         20,735         40,415         42,453  
Income (loss) from operations      535         (1,570 )       1,204         (5,014 )
INTEREST EXPENSE, NET      585         710         1,190         1,347  
Income (loss) before income taxes      (50 )       (2,280 )       14         (6,361 )
INCOME TAX EXPENSE      576         316         1,389         1,091  
NET LOSS  $   (626 )   $   (2,596 )   $   (1,375 )   $   (7,452 )
NON-GAAP NET INCOME (LOSS)  $   1,712     $   648     $   2,281     $   (85 )
               
NET LOSS PER SHARE:               
Basic  $   (0.03 )   $   (0.14 )   $   (0.07 )   $   (0.40 )
Diluted  $   (0.03 )   $   (0.14 )   $   (0.07 )   $   (0.40 )
               
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:               
Basic    19,174       18,870       19,160       18,804  
Diluted    19,174       18,870       19,160       18,804  
               
EBITDA  $   3,514     $   2,086     $   7,161     $   2,551  
ADJUSTED EBITDA  $   5,340     $   4,381     $   9,755     $   8,035  
               

 

 
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,
    2018       2017       2018       2017  
               
NET LOSS  $   (626 )   $   (2,596 )   $   (1,375 )   $   (7,452 )
Income tax expense      576         316         1,389         1,091  
Interest expense, net      585         710         1,190         1,347  
Depreciation and amortization      2,979         3,656         5,957         7,565  
EBITDA  $   3,514     $   2,086     $   7,161     $   2,551  
Stock-based compensation      1,360         1,237         2,006         1,761  
Acquisition-related, restructuring and other costs      466         1,058         588         3,723  
ADJUSTED EBITDA  $   5,340     $   4,381     $   9,755     $   8,035  
               
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2018       2017       2018       2017  
               
NET LOSS  $   (626 )   $   (2,596 )   $   (1,375 )   $   (7,452 )
Stock-based compensation      1,360         1,237         2,006         1,761  
Amortization of acquisition-related intangible assets      395         772         833         1,542  
Acquisition-related, restructuring and other costs      466         1,058         588         3,723  
Deferred tax expense - goodwill amortization      117         177         229         341  
NON-GAAP NET INCOME (LOSS)  $   1,712     $   648     $   2,281     $   (85 )
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2018       2017       2018       2017  
               
TOTAL REVENUES $   77,051     $   78,066     $   155,472     $   156,834  
Pass-through revenue     (15,063 )       (13,419 )       (27,232 )       (23,604 )
Cost of product revenue     (8,403 )       (9,505 )       (17,719 )       (20,230 )
SERVICE FEE EQUIVALENT REVENUE $   53,585     $   55,142     $   110,521     $   113,000  
               

 

               
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 six months ended June 30, 2018, reflects 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.

The segment financial data for the three and six months ended June 30, 2017, reflects the company's current assessment for that period by business segment as if the PFS Operations and LiveArea Professional services segmentation had occurred as of the beginning of that period. 
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2018       2017       2018       2017  
PFS Operations               
Revenues:               
Service fee revenue  $   33,194     $   32,634     $   68,116     $   69,641  
Product revenue, net      8,847         9,947         18,612         21,265  
Pass-through revenue      14,574         13,079         26,374         22,990  
Total revenues  $   56,615     $   55,660     $   113,102     $   113,896  
Costs of revenues:               
Cost of service fee revenue  $   22,964     $   25,254     $   48,303     $   54,623  
Cost of product revenue      8,403         9,505         17,719         20,230  
Cost of pass-through revenue      14,574         13,079         26,374         22,990  
Total costs of revenues  $   45,941     $   47,838     $   92,396     $   97,843  
Gross profit      10,674         7,822         20,706         16,053  
Direct operating expenses      4,186         2,796         7,886         6,119  
Direct contribution      6,488         5,026         12,820         9,934  
Depreciation and amortization      1,703         1,751         3,245         3,687  
 ADJUSTED EBITDA  $   8,191     $   6,777     $   16,065     $   13,621  
               
TOTAL REVENUES $   56,615     $   55,660     $   113,102     $   113,896  
Pass-through revenue     (14,574 )       (13,079 )       (26,374 )       (22,990 )
Cost of product revenue     (8,403 )       (9,505 )       (17,719 )       (20,230 )
SERVICE FEE EQUIVALENT REVENUE $   33,638     $   33,076     $   69,009     $   70,676  
         

 

                 
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,  
    2018       2017       2018       2017    
LiveArea Professional Services                 
Revenues:                 
Service fee revenue  $   19,948     $   22,066     $   41,513     $   42,324    
Pass-through revenue      488         340         857         614    
Total revenues  $   20,436     $   22,406     $   42,370     $   42,938    
Costs of revenues:                 
Cost of service fee revenue  $   10,331     $   10,723     $   20,600     $   20,938    
Cost of pass-through revenue      488         340         857         614    
Total costs of revenues  $   10,819     $   11,063     $   21,457     $   21,552    
Gross profit      9,617         11,343         20,913         21,386    
Direct operating expenses      6,707         8,820         15,034         16,809    
Direct contribution      2,910         2,523         5,879         4,577    
Depreciation and amortization      554         994         1,245         1,986    
 ADJUSTED EBITDA  $   3,464     $   3,517     $   7,124     $   6,563    
 
Corporate   
Selling, general and administrative expenses  $   (8,863 )   $   (9,119 )   $   (17,495 )   $   (19,525 )  
Depreciation and amortization      722         911         1,467         1,890    
EBITDA  $   (8,141 )   $   (8,208 )   $   (16,028 )   $   (17,635 )  
Stock-based compensation      1,360         1,237         2,006         1,761    
Acquisition-related, restructuring and other costs      466         1,058         588         3,723    
 ADJUSTED EBITDA  $   (6,315 )   $   (5,913 )   $   (13,434 )   $   (12,151 )  
 


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