PFSweb Reports Third Quarter 2019 Results

11/11, 1:30 PM (Source: GlobeNewswire)

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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 Results
Total 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 Outlook
PFSweb 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 Call
PFSweb 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, 2019
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Toll-free dial-in number: 1-888-220-8474
International dial-in number: 1-646-828-8193
Conference 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: 1-844-512-2921
International replay number: 1-412-317-6671
Replay 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 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)
September 30,
2019
 December 31,
2018
 
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 September 30, 2019 and December 31, 2018, respectively 50,613   72,415  
Inventories, net of reserves of $291 and $298 at September 30, 2019 and December 31, 2018, respectively 4,061   6,090  
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 19,432,410 and 19,260,829 outstanding at September 30, 2019 and December 31, 2018, respectively 19   19  
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
September 30,
 Nine Months Ended
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
September 30,
 Nine Months Ended
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
September 30,
 Nine Months Ended
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
September 30,
 Nine Months Ended
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
September 30,
 Nine Months Ended
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
September 30,
 Nine Months Ended
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)
        

 

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