PFSweb Reports Second Quarter 2019 Results

8/8, 10:05 PM (Source: GlobeNewswire)

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ALLEN, Texas, Aug. 08, 2019 (GLOBE NEWSWIRE) -- PFSweb, Inc. (NASDAQ: PFSW), a global commerce services company, is reporting results for the second quarter ended June 30, 2019.

Second Quarter 2019 Summary vs. Same Year-Ago Quarter

  • Total revenues were $68.5 million compared to $77.1 million.
  • Service fee equivalent (SFE) revenue (a non-GAAP measure defined below) was $50.7 million compared to $53.6 million.
  • Service fee gross margin was 34.8% compared to 37.3%.
  • Net loss was $1.0 million or $(0.05) per share, compared to a net loss of $0.6 million or $(0.03) per share.
  • Adjusted EBITDA (a non-GAAP measure defined below) was $3.4 million compared to $5.3 million.

Management Commentary
“As expected, our second quarter results were largely in-line with our first quarter,” said Mike Willoughby, CEO of PFSweb. “The second quarter was highlighted by strong progress in driving new client contracts in our PFS business unit, while simultaneously resetting the LiveArea business with new executive and sales leadership. We believe both developments establish a strong foundation for our expected return to growth in 2020.

“During the quarter, we appointed Jim Butler as the new executive vice president and general manager of LiveArea, and we are thrilled to have him join our senior leadership team. Jim brings a wealth of experience in technology and digital consulting and will be a strong partner as we quickly revamp LiveArea’s go-to-market strategy and enhance our sales team in that business unit.

“Jim’s immediate priority is to assess and grow the LiveArea sales pipeline while increasing our market visibility and expanding our addressable market with new services and productized offerings. Since appointing Jim, we have hired proven sales, marketing, product and strategy experts with a track record of executing high-performance sales and marketing programs for commerce consultancies and digital professional services companies.

“Our PFS business has performed exceptionally well from a new sales perspective. The annual contract value from our second quarter bookings were more than three times higher than the year-ago quarter, and we are currently on pace to have one of the strongest years of new PFS bookings in company history. These new wins have been both direct-to-consumer and B2B engagements within our core target verticals—health & beauty, fashion & apparel and CPG. While these new clients will partially contribute in 2019, we expect 2019 PFS SFE revenue to be relatively flat compared to 2018 as we strive to make up for the revenue lost from two unexpected retail client bankruptcies and resulting liquidations in 2019. Also of note, our current client base and sales pipeline mix is now more diversified with a greater proportion of mid-market brands and less ‘brick-and-mortar’ general merchandise retailers.

“We continue to make strides in ramping our new Fulfillment-as-a-Service (FaaS) offerings, including both RetailConnect and CloudPick. Although we just introduced these new solutions to market earlier this year, we have already received strong indications of interest and are exploring multiple avenues to accelerate growth from these ‘asset-light’ products, including bundling both RetailConnect and CloudPick with our other service offerings in existing proposals and selling each product on a stand-alone basis.

“Looking at the second half of the year, as a result of the two retail client bankruptcies in the PFS business and our sales challenges with LiveArea, revenue and AEBITDA performance will be below our original expectations for the year. For the remainder of 2019, we plan to continue executing for our clients as they approach the key holiday season, working diligently to make the most of the opportunities in our PFS and LiveArea sales pipelines and quickly rebuilding the LiveArea sales pipeline as we head into 2020. We will also continue our strong focus on cost management, building on the savings already delivered over the past year.

“Looking toward the future, with Jim Butler onboard and a revamped LiveArea team staffed with experienced high-performance sales and marketing leaders, I am confident in the direction of LiveArea as we head into next year. Additionally, the exceptionally strong sales bookings in PFS along with the anticipated recurring revenue streams provide us with good visibility into the next 12-18 months for PFS. As a result, we are well into our financial planning process for next year and look forward to introducing our 2020 growth outlook during the next quarterly update in November.”

Second Quarter 2019 Financial Results
Total revenues in the second quarter of 2019 were $68.5 million compared to $77.1 million in the same period of 2018. Service fee revenue in the second quarter was $50.3 million compared to $53.1 million in the second quarter last year. Product revenue from the company’s last remaining client under this legacy business model was $6.1 million compared to $8.8 million in the same period of 2018.

SFE revenue was $50.7 million compared to $53.6 million in the year-ago quarter. The decline was primarily driven by the loss of revenue from one of the client bankruptcies in PFS, as well as reduced system integration project activity in the LiveArea business.

Service fee gross margin in the second quarter of 2019 was 34.8% compared to 37.3% in the same period of 2018. The decrease was primarily due to revenue mix in the PFS segment, with a higher percentage of revenues coming from lower margin fulfillment and transportation services as compared to higher margin technology related revenues. LiveArea gross margins also declined during the quarter as the company experienced increased labor costs and incremental costs on certain client projects. 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 2019 was $1.0 million or $(0.05) per share, compared to a net loss of $0.6 million or $(0.03) per share in the same period of 2018. Net loss in the second 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 $1.4 million of stock-based compensation expense, $0.5 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 second quarter was $3.4 million compared to $5.3 million in the year-ago quarter. As a percentage of SFE revenue, adjusted EBITDA was 6.8% compared to 10.0%, with the decrease primarily due to the aforementioned lower sales and gross margin in both the PFS and LiveArea businesses.

Non-GAAP net income in the second quarter of 2019 was $0.4 million compared to $1.7 million in the second quarter of 2018.

At June 30, 2019, net debt (defined as total debt, excluding operating lease liabilities, less cash and cash equivalents) was $22.8 million compared to $26.5 million at December 31, 2018. Cash and cash equivalents totaled $11.8 million compared to $15.4 million at December 31, 2018. Total debt at June 30, 2019 was $34.7 million compared to $42.0 million at the end of last year.

Subsequent Event & Revised 2019 Outlook
One of the company’s clients, Charming Charlie, serviced by the PFS Operations segment, filed for bankruptcy on July 11, 2019. The SFE revenue earned from this client in 2019 was originally estimated to be $2 million, of which more than half was expected in the second half of the year. PFS operations services for this client ended during the second quarter and pre-paid transition services are expected to conclude within the next two weeks. PFSweb wrote down approximately $0.7 million of service fee and freight program receivables related to this client bankruptcy in the second quarter of 2019.

As a result of the impact of the two client bankruptcies and unplanned excess capacity in the company’s distribution facilities, as well as the current sales challenges in its LiveArea business unit, PFSweb now expects 2019 SFE revenue to range between $215 million and $225 million, with adjusted EBITDA ranging between $14 million and $17 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, 2019.

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

Date: Thursday, August 8, 2019
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number: 1-888-220-8474
International dial-in number: 1-323-794-2591
Conference ID: 9068313

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 August 22, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 9068313

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 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) 
     
 (Unaudited)   
 June 30, December 31, 
  2019   2018  
ASSETS    
 CURRENT ASSETS:     
  Cash and cash equivalents $  11,812  $  15,419  
  Restricted cash    207     207  
  Accounts receivable, net of allowance for doubtful accounts of $1,282 and     
  $585 at June 30, 2019 and December 31, 2018, respectively    52,916     72,415  
  Inventories, net of reserves of $295 and $298 at June 30, 2019 and     
  December 31, 2018, respectively    6,536     6,090  
  Other receivables    3,531     4,014  
  Prepaid expenses and other current assets    6,355     6,943  
  Total current assets    81,357     105,088  
     
 PROPERTY AND EQUIPMENT, net    19,718     21,496  
 OPERATING LEASE RIGHT-OF-USE ASSETS    38,269     -  
 IDENTIFIABLE INTANGIBLES, net    1,469     1,803  
 GOODWILL    45,167     45,185  
 OTHER ASSETS    3,684     3,501  
  Total assets    189,664     177,073  
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
 CURRENT LIABILITIES:     
  Trade accounts payable $  35,009  $  47,580  
  Accrued expenses    19,946     24,623  
  Current portion of operating lease liabilities    8,164     -  
  Current portion of long-term debt and finance lease obligations    2,824     2,610  
  Deferred revenues    5,843     7,328  
  Performance-based contingent payments    -     -  
  Total current liabilities    71,786     82,141  
     
 LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS, less current portion    31,831     39,348  
 DEFERRED REVENUES, less current portion    1,648     1,927  
 DEFERRED RENT    -     4,625  
 OPERATING LEASE LIABILITIES    35,921     -  
 OTHER LIABILITIES    2,869     2,449  
  Total liabilities    144,055     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 shares issued at June 30, 2019 and December 31, 2018, respectively; and 19,432,410 and 19,260,829 shares outstanding at June 30, 2019 and December 31, 2018, respectively    19     19  
Additional paid-in capital    156,494     155,455  
Accumulated deficit    (109,912)    (107,773) 
Accumulated other comprehensive income    (867)    (993) 
Treasury stock at cost, 33,467 shares    (125)    (125) 
  Total shareholders' equity    45,609     46,583  
  Total liabilities and shareholders' equity $  189,664  $  177,073  
     

 

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,
  2019   2018   2019   2018 
 REVENUES:        
  Service fee revenue $  50,331  $  53,141  $  101,769  $  109,628 
  Product revenue, net    6,138     8,847     13,638     18,612 
  Pass-through revenue    12,041     15,063     25,253     27,232 
  Total revenues $  68,510  $  77,051  $  140,660  $  155,472 
        
 COSTS OF REVENUES:        
  Cost of service fee revenue $  32,809  $  33,294  $  66,767  $  68,902 
  Cost of product revenue    5,791     8,403     12,868     17,719 
  Cost of pass-through revenue    12,041     15,063     25,253     27,232 
  Total costs of revenues $  50,641  $  56,760  $  104,888  $  113,853 
  Gross profit    17,869     20,291     35,772     41,619 
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES    18,096     19,756     36,443     40,415 
  Income (loss) from operations    (227)    535     (671)    1,204 
 INTEREST EXPENSE, NET    448     585     959     1,190 
  Income (loss) before income taxes    (675)    (50)    (1,630)    14 
 INCOME TAX EXPENSE    300     576     509     1,389 
 NET LOSS $  (975) $  (626) $  (2,139) $  (1,375)
 NON-GAAP NET INCOME $  442  $  1,712  $  620  $  2,281 
        
 NET LOSS PER SHARE:        
  Basic $  (0.05) $  (0.03) $  (0.11) $  (0.07)
  Diluted $  (0.05) $  (0.03) $  (0.11) $  (0.07)
        
 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:        
  Basic  19,444   19,174   19,465   19,160 
  Diluted  19,444   19,174   19,465   19,160 
        
 EBITDA $  2,326  $  3,514  $  4,597  $  7,161 
 ADJUSTED EBITDA $  3,446  $  5,340  $  6,763  $  9,755 
        

 

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,
  2019   2018   2019   2018 
        
NET LOSS$(975) $(626) $(2,139) $(1,375)
Income tax expense 300   576   509   1,389 
Interest expense, net 448   585   959   1,190 
Depreciation and amortization 2,553   2,979   5,268   5,957 
EBITDA$2,326  $3,514  $4,597  $7,161 
Stock-based compensation 679   1,360   1,330   2,006 
Acquisition-related, restructuring and other costs 441   466   836   588 
ADJUSTED EBITDA$3,446  $5,340  $6,763  $9,755 
        
        
 Three Months Ended Six Months Ended
 June 30, June 30,
  2019   2018   2019   2018 
        
NET LOSS$(975) $(626) $(2,139) $(1,375)
Stock-based compensation 679   1,360   1,330   2,006 
Amortization of acquisition-related intangible assets 168   395   334   833 
Acquisition-related, restructuring and other costs 441   466   836   588 
Deferred tax expense - goodwill amortization 129   117   259   229 
NON-GAAP NET INCOME$442  $1,712  $620  $2,281 
        
 Three Months Ended Six Months Ended
 June 30, June 30,
  2019   2018   2019   2018 
        
TOTAL REVENUES$68,510  $77,051  $140,660  $155,472 
Pass-through revenue (12,041)  (15,063)  (25,253)  (27,232)
Cost of product revenue (5,791)  (8,403)  (12,868)  (17,719)
SERVICE FEE EQUIVALENT REVENUE$50,678  $53,585  $102,539  $110,521 
        

 

        
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, 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 Six Months Ended
 June 30, June 30,
  2019   2018   2019   2018 
 PFS Operations        
Revenues:       
Service fee revenue$31,700  $33,193  $64,754  $68,115 
Product revenue, net 6,138   8,847   13,638   18,612 
Pass-through revenue 11,412   14,575   24,289   26,375 
Total revenues$49,250  $56,615  $102,681  $113,102 
Costs of revenues:       
Cost of service fee revenue$22,755  $22,963  $46,675  $48,302 
Cost of product revenue 5,791   8,403   12,868   17,719 
Cost of pass-through revenue 11,412   14,575   24,289   26,375 
Total costs of revenues$39,958  $45,941  $83,832  $92,396 
Gross profit 9,292   10,674   18,849   20,706 
Direct operating expenses 7,163   6,741   14,195   12,472 
Direct contribution 2,129   3,933   4,654   8,234 
Depreciation and amortization 1,981   2,124   4,033   4,056 
Stock-based compensation 119   228   236   287 
Acquisition-related, restructuring and other costs 23   208   487   228 
ADJUSTED EBITDA$4,252  $6,493  $9,410  $12,805 
        
TOTAL REVENUES$49,250  $56,615  $102,681  $113,102 
Pass-thru revenue (11,412)  (14,574)  (24,288)  (26,374)
Cost of product revenue (5,791)  (8,403)  (12,868)  (17,719)
SERVICE FEE EQUIVALENT REVENUE$32,047  $33,638  $65,525  $69,009 
     
 

 

        
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,
  2019   2018   2019   2018 
 LiveArea Professional Services        
  Service fee revenue $  18,631  $  19,948  $  37,015  $  41,513 
  Pass-through revenue  629   488   964   857 
 Total revenues    19,260     20,436     37,979     42,370 
        
  Cost of service fee revenue  10,054   10,331   20,092   20,600 
  Cost of pass-through revenue  629   488   964   857 
 Total cost of revenues    10,683     10,819     21,056     21,457 
 Gross profit    8,577     9,617     16,923     20,913 
 Direct operating expenses    6,276     7,731     12,749     16,912 
 Direct contribution    2,301     1,886     4,174     4,001 
 Depreciation and amortization    284     554     615     1,246 
 Stock-based compensation    147     219     297     299 
  Acquisition-related, restructuring and other costs    25     205     58     292 
 ADJUSTED EBITDA $  2,757  $  2,864  $  5,144  $  5,838 
 
 Corporate  
 Selling, general and administrative expenses $  (4,657) $  (5,284) $  (9,499) $  (11,031)
 Depreciation and amortization    288     301     620     655 
 EBITDA $  (4,369) $  (4,983) $  (8,879) $  (10,376)
 Stock-based compensation    413     913     797     1,420 
 Acquisition-related, restructuring and other costs    393     53     291     68 
 ADJUSTED EBITDA $  (3,563) $  (4,017) $  (7,791) $  (8,888)
 
 

 

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