Press Release

Sales Momentum Across LiveArea and PFS Leads to Expected Return to Growth in 2020

ALLEN, Texas, March 12, 2020 (GLOBE NEWSWIRE) -- PFSweb, Inc. (NASDAQ: PFSW), a global commerce services company, is reporting results for the fourth quarter and full year ended December 31, 2019.

Q4 2019 Summary vs. Q4 2018

• Total revenues were $85.4 million compared to $93.0 million.
• Service fee equivalent (SFE) revenue (a non-GAAP measure defined and reconciled below) was $63.4 million compared to $68.3 million.
• Service fee gross margin was 32.5% compared to 34.7%.
• Net income was $1.6 million or $0.08 per share, compared to $3.3 million or $0.17 per share.
• Adjusted EBITDA (a non-GAAP measure defined and reconciled below) was $6.3 million compared to $9.1 million.

Full Year 2019 Summary vs. Full Year 2018

• Total revenues were $294.0 million compared to $326.2 million.
• Service fee equivalent (SFE) revenue was $215.8 million compared to $232.1 million.
• Service fee gross margin was 33.9% compared to 36.3%.
• Net loss was $2.2 million or $(0.11) per share, compared to net income of $1.2 million or $0.06 per share.
• Adjusted EBITDA was $16.2 million compared to $24.4 million.

Management Commentary

“We continued to execute at a high level for our LiveArea and PFS clients in Q4, and we closed out 2019 with another strong quarter of new client bookings,” said Mike Willoughby, CEO of PFSweb. “As we have previously stated, 2019 was a transition year as we worked to replace lost revenue from two client bankruptcies in PFS and to recover from lower bookings in LiveArea in the first half of the year. As such, during 2019 we made strategic sales and marketing investments in both segments that resulted in significant improvements in our client engagement, bookings and sales pipeline. The benefit of those investments has laid the foundation for our expected return to growth in 2020.

“In the PFS business, we renewed our focus on our core verticals in 2019, and we expanded our service offerings to begin targeting small and medium sized businesses. Both strategic initiatives enabled the strongest year of PFS bookings in company history based on estimated annual contract value. Further, we introduced multiple new products within the FaaS (Fulfillment-as-a-Service) category, including RetailConnect and CloudPick, two potentially disruptive eCommerce offerings that create a new ‘asset-light’ model for PFS. RetailConnect has been successfully piloted in two retail locations in Dallas and we are working to roll out the solution to clients this year.

“In LiveArea, we revamped our go-to-market strategy and hired new executive leadership, sales and marketing personnel to establish a more revenue-focused team. This team has successfully rebuilt our sales pipeline by creating new services and productized offerings that differentiate LiveArea and expand our addressable market. In less than six months, our team has made tremendous progress, including record project and engagement bookings in both Q3 and Q4 2019, and LiveArea has entered 2020 on much stronger footing.

“As we emerge from our transition, we believe the improvements made over the last year across both segments have positioned us for a return to growth. We are reiterating our expectations for 2020 SFE revenue to grow in the mid-to-high single digits compared to 2019, and we continue to expect adjusted EBITDA margin expansion for the year as well.”

Fourth Quarter 2019 Financial Results
Total revenues in the fourth quarter of 2019 were $85.4 million compared to $93.0 million in the same period of 2018. Service fee revenue in the fourth quarter was $63.0 million compared to $68.0 million in the fourth quarter last year. Product revenue from the company’s last remaining client under this legacy business model was $6.4 million compared to $7.3 million in the same period of 2018.

SFE revenue was $63.4 million compared to $68.3 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 fourth quarter of 2019 was 32.5% compared to 34.7% in the same period of 2018. The decrease was primarily due to lower gross margins applicable to PFS fulfillment and LiveArea technology services activity.   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 income in the fourth quarter of 2019 was $1.6 million or $0.08 per share, compared to $3.3 million or $0.17 per share in the same period of 2018. Net income in the fourth quarter of 2019 included $0.8 million of stock-based compensation expense, $0.2 million in amortization of acquisition-related intangible assets, $0.2 million of acquisition-related, restructuring and other costs, and $0.1 million of deferred tax expense related to goodwill amortization. This compares to $1.0 million of stock-based compensation expense, $0.8 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 fourth quarter was $6.3 million compared to $9.1 million in the year-ago quarter. As a percentage of SFE revenue, adjusted EBITDA was 9.9% compared to 13.3%, with the decrease primarily due to decreased gross margins in both segments.

Non-GAAP net income (a non-GAAP measure defined and reconciled below) was $3.0 million in the fourth quarter of 2019 compared to $5.6 million in the fourth quarter of 2018.

At December 31, 2019, net debt (a non-GAAP measure defined as total debt, excluding operating lease liabilities, less cash and cash equivalents) was $25.4 million compared to $26.5 million at December 31, 2018. Cash and cash equivalents totaled $12.4 million compared to $15.4 million at December 31, 2018. Total debt at December 31, 2019 was $37.8 million compared to $42.0 million at the end of last year.

2020 Outlook
PFSweb 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.

At this time, the recent COVID-19 virus outbreak has not had a discernable impact on the company’s business. Accordingly, the company has not included any impact from the outbreak into its 2020 outlook and will provide updates as appropriate when the longer term impact becomes more clear. 

Conference Call
PFSweb will conduct a conference call today at 5:00 p.m. Eastern time to discuss its results for the fourth quarter and full year ended December 31, 2019.

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

Date: Thursday, March 12, 2020
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: 1-646-828-8193
Conference ID: 3000783

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 March 26, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 3000783

About PFSweb, Inc.
PFSweb (NASDAQ:PFSW) is a global commerce services company that manages the online customer shopping experience on behalf of major branded manufacturers and retailers. Across two business units – LiveArea for strategy consulting, creative design, digital marketing, and web development services, and PFS for order fulfillment, contact center, payment processing/fraud management, and order management services – they provide solutions to a broad range of Fortune 500® companies and household brand names such as Procter & Gamble, L’Oréal USA, ASICS, PANDORA, Ralph Lauren, Shiseido, Camping World, 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)
	December 31,				December 31,
		2019				2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	12,434			$	15,419
Restricted cash		214				207
Accounts receivable, net of allowance for doubtful accounts of $1,071 and $585 at December 31, 2019 and December 31, 2018, respectively		72,262				72,415
Inventories, net of reserves of $291 and $298 at December 31, 2019 and December 31, 2018, respectively		3,281				6,090
Other receivables		3,324				4,014
Prepaid expenses and other current assets		6,954				6,943
Total current assets		98,469				105,088
PROPERTY AND EQUIPMENT, net		18,436				21,496
OPERATING LEASE RIGHT-OF-USE ASSETS, net		36,403				-
IDENTIFIABLE INTANGIBLES, net		1,135				1,803
GOODWILL		45,393				45,185
OTHER ASSETS		3,772				3,501
Total assets	$	203,608			$	177,073
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable	$	44,640			$	47,580
Accrued expenses		21,625				24,623
Current portion of operating lease liabilities		8,904				-
Current portion of long-term debt and capital lease obligations		2,971				2,610
Deferred revenues		6,058				7,328
Total current liabilities		84,198				82,141
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion		34,829				39,348
DEFERRED REVENUES, less current portion		1,398				1,927
DEFERRED RENT		-				4,625
OPERATING LEASE LIABILITIES		33,295				-
OTHER LIABILITIES		3,046				2,449
Total liabilities		156,766				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 December 31, 2019 and December 31, 2018, respectively; and 19,432,410 and 19,260,829 outstanding at December 31, 2019 and December 31, 2018, respectively		19				19
Additional paid-in capital		158,192				155,455
Accumulated deficit		(109,943	)			(107,773	)
Accumulated other comprehensive income		(1,301	)			(993	)
Treasury stock at cost, 33,467 shares		(125	)			(125	)
Total shareholders' equity		46,842				46,583
Total liabilities and shareholders' equity	$	203,608			$	177,073

PFSweb, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
		2019			2018			2019				2018
REVENUES:
Service fee revenue	$	63,010		$	67,965		$	214,382			$	230,484
Product revenue, net		6,397			7,269			26,613				34,350
Pass-through revenue		15,964			17,752			53,027				61,326
Total revenues		85,371			92,986			294,022				326,160
COSTS OF REVENUES:
Cost of service fee revenue		42,553			44,348			141,616				146,827
Cost of product revenue		6,041			6,891			25,158				32,710
Cost of pass-through revenue		15,964			17,752			53,027				61,326
Total costs of revenues		64,558			68,991			219,801				240,863
Gross profit		20,813			23,995			74,221				85,297
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		18,005			19,378			73,334				78,800
Income from operations		2,808			4,617			887				6,497
INTEREST EXPENSE, NET		484			697			1,896				2,499
Income (loss) before income taxes		2,324			3,920			(1,009	)			3,998
INCOME TAX EXPENSE		722			630			1,161				2,770
NET INCOME (LOSS)	$	1,602		$	3,290		$	(2,170	)		$	1,228
NON-GAAP NET INCOME	$	2,965		$	5,573		$	3,946			$	9,769
NET INCOME (LOSS) PER SHARE:
Basic	$	0.08		$	0.17		$	(0.11	)		$	0.06
Diluted	$	0.08		$	0.17		$	(0.11	)		$	0.06
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic		19,435			19,262			19,449				19,203
Diluted		19,912			19,811			19,449				19,826
EBITDA	$	5,233		$	7,288		$	11,254			$	17,864
ADJUSTED EBITDA	$	6,303		$	9,083		$	16,188			$	24,366

PFSweb, Inc. and Subsidiaries
Unaudited Reconciliation of Certain Non-GAAP Items to GAAP
(In Thousands)
	Three Months Ended								Twelve Months Ended
	December 31,								December 31,
		2019				2018				2019				2018
NET INCOME (LOSS)	$	1,602			$	3,290				(2,170	)		$	1,228
Income tax expense		722				630				1,161				2,770
Interest expense, net		484				697				1,896				2,499
Depreciation and amortization		2,425				2,671				10,367				11,367
EBITDA		5,233				7,288				11,254				17,864
Stock-based compensation		846				959				3,028				4,032
Acquisition-related, restructuring and other costs		224				836				1,906				2,470
ADJUSTED EBITDA	$	6,303			$	9,083			$	16,188			$	24,366
	Three Months Ended								Twelve Months Ended
	December 31,								December 31,
		2019				2018				2019				2018
NET INCOME (LOSS)	$	1,602			$	3,290				(2,170	)		$	1,228
Stock-based compensation		846				959				3,028				4,032
Amortization of acquisition-related intangible assets		167				358				668				1,556
Acquisition-related, restructuring and other costs		224				836				1,906				2,470
Deferred tax expense - goodwill amortization		126				130				514				483
NON-GAAP NET INCOME	$	2,965			$	5,573			$	3,946			$	9,769
	Three Months Ended								Twelve Months Ended
	December 31,								December 31,
		2019				2018				2019				2018
TOTAL REVENUES	$	85,371			$	92,986			$	294,022			$	326,160
Pass-through revenue		(15,964	)			(17,752	)			(53,027	)			(61,326	)
Cost of product revenue		(6,041	)			(6,891	)			(25,158	)			(32,710	)
SERVICE FEE EQUIVALENT REVENUE	$	63,366			$	68,343			$	215,837			$	232,124

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 twelve months ended December 31, 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				Twelve Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
PFS Operations
Revenues:
Service fee revenue	$ 43,559		$ 47,849		$ 139,490		$ 148,072
Product revenue, net	6,397		7,269		26,613		34,350
Pass-through revenue	15,247		17,238		50,296		59,314
Total revenues	65,203		72,356		216,399		241,736
Costs of revenues:
Cost of service fee revenue	32,084		34,015		101,108		105,155
Cost of product revenue	6,041		6,891		25,158		32,710
Cost of pass-through revenue	15,247		17,238		50,296		59,314
Total costs of revenues	53,372		58,144		176,562		197,179
Gross profit	11,831		14,212		39,837		44,557
Direct operating expenses	6,668		6,892		28,292		25,611
Direct contribution	5,163		7,320		11,545		18,946
Depreciation and amortization	1,894		1,952		8,047		7,920
Stock-based compensation	98		290		478		848
Acquisition-related, restructuring and other costs	56		24		1,457		252
ADJUSTED EBITDA	$ 7,211		$ 9,586		$ 21,527		$ 27,966
TOTAL REVENUES	$ 65,203		$ 72,356		$ 216,399		$ 241,736
Pass-through revenue	(15,247)		(17,238)		(50,296)		(59,314)
Cost of product revenue	(6,041)		(6,891)		(25,158)		(32,710)
SERVICE FEE EQUIVALENT REVENUE	$ 43,915		$ 48,227		$ 140,945		$ 149,712

PFSweb, Inc. and Subsidiaries
Unaudited Consolidated Segment Information
and Reconciliation of Certain Non-GAAP Items to GAAP
(In Thousands)
	Three Months Ended				Twelve Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
LiveArea Professional Services
Revenues:
Service fee revenue	$ 19,451		$ 20,115		$ 74,892		$ 82,413
Pass-through revenue	717		514		2,731		2,011
Total revenues	20,168		20,629		77,623		84,424
Costs of revenues:
Cost of service fee revenue	10,469		10,333		40,508		41,669
Cost of pass-through revenue	717		514		2,731		2,011
Total costs of revenues	11,186		10,847		43,239		43,680
Gross profit	8,982		9,782		34,384		40,744
Direct operating expenses	6,502		7,000		25,137		30,487
Direct contribution	2,480		2,782		9,247		10,257
Depreciation and amortization	271		511		1,162		2,276
Stock-based compensation	311		165		869		634
Acquisition-related, restructuring and other costs	139		271		250		637
ADJUSTED EBITDA	$ 3,201		$ 3,729		$ 11,528		$ 13,804
Corporate
Selling, general and administrative expenses	$ (4,835)		$ (5,485)		$ (19,905)		$ (22,706)
Depreciation and amortization	260		209		1,158		1,171
EBITDA	(4,575)		(5,276)		(18,747)		(21,535)
Stock-based compensation	437		504		1,681		2,550
Acquisition-related, restructuring and other costs	29		541		199		1,581
ADJUSTED EBITDA	$ (4,109)		$ (4,231)		$ (16,867)		$ (17,404)

Source: PFSweb, Inc.