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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
__________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to              
Commission File Number 000-28275
___________________________________________
PFSweb, Inc.
(Exact name of registrant as specified in its charter)
___________________________________________
Delaware75-2837058
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
505 Millennium Drive,
Allen,Texas75013
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (972881-2900
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valuePFSWNASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller Reporting Company
Emerging growth company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No  
As of November 4, 2020, there were 20,248,171 shares of registrant’s common stock outstanding.



PFSWEB, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
PART I. FINANCIAL INFORMATIONPage
Number
2


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
3


PFSWEB, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited) September 30,
2020
December 31,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$10,397 $12,434 
Restricted cash214 214 
Accounts receivable, net of allowance for doubtful accounts of $1,437 and $1,071 at September 30, 2020 and December 31, 2019, respectively
56,156 72,262 
Inventories, net of reserves of $128 and $291 at September 30, 2020 and December 31, 2019, respectively
5,086 3,281 
Other receivables3,199 3,324 
Prepaid expenses and other current assets7,213 6,954 
Total current assets82,265 98,469 
PROPERTY AND EQUIPMENT:
Cost104,836 99,750 
Less: accumulated depreciation(85,290)(81,314)
19,546 18,436 
OPERATING LEASE RIGHT-OF-USE ASSETS36,529 36,403 
IDENTIFIABLE INTANGIBLES, net772 1,135 
GOODWILL45,192 45,393 
OTHER ASSETS3,919 3,772 
Total assets$188,223 $203,608 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade accounts payable$22,907 $44,640 
Accrued expenses23,431 21,625 
Current portion of operating lease liabilities9,491 8,904 
Current portion of long-term debt and finance lease obligations3,155 2,971 
Deferred revenues3,031 6,058 
Total current liabilities62,015 84,198 
LONG-TERM DEBT AND FINANCE LEASE OBLIGATIONS, less current portion36,334 34,829 
DEFERRED REVENUES, less current portion1,528 1,398 
OPERATING LEASE LIABILITIES31,777 33,295 
OTHER LIABILITIES5,828 3,046 
Total liabilities137,482 156,766 
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; 20,281,638 and 19,465,877 issued at September 30, 2020 and December 31, 2019, respectively; and 20,248,171 and 19,432,410 outstanding at September 30, 2020 and December 31, 2019, respectively
20 19 
Additional paid-in capital166,204 158,192 
Accumulated deficit(113,980)(109,943)
Accumulated other comprehensive loss(1,378)(1,301)
Treasury stock at cost, 33,467 shares
(125)(125)
Total shareholders’ equity50,741 46,842 
Total liabilities and shareholders’ equity$188,223 $203,608 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In Thousands, Except Per Share Data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
REVENUES:
Service fee revenue$60,194 $49,602 $176,488 $151,371 
Product revenue, net4,229 6,579 17,677 20,216 
Pass-through revenue12,661 11,810 42,053 37,063 
Total revenues77,084 67,991 236,218 208,650 
COSTS OF REVENUES:
Cost of service fee revenue40,877 32,296 116,358 99,062 
Cost of product revenue4,019 6,250 16,732 19,117 
Cost of pass-through revenue12,661 11,810 42,053 37,063 
Total costs of revenues57,557 50,356 175,143 155,242 
Gross profit19,527 17,635 61,075 53,408 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES21,389 18,886 62,301 55,329 
Loss from operations(1,862)(1,251)(1,226)(1,921)
INTEREST EXPENSE, net365 458 1,154 1,418 
Loss before income taxes(2,227)(1,709)(2,380)(3,339)
INCOME TAX EXPENSE (BENEFIT), net592 (71)1,657 438 
NET LOSS$(2,819)$(1,638)$(4,037)$(3,777)
NET LOSS PER SHARE:
Basic$(0.14)$(0.08)$(0.20)$(0.19)
Diluted$(0.14)$(0.08)$(0.20)$(0.19)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic20,211 19,432 19,899 19,454 
Diluted20,211 19,432 19,899 19,454 
COMPREHENSIVE LOSS:
Net loss$(2,819)$(1,638)$(4,037)$(3,777)
Foreign currency translation adjustment944 (458)(77)(332)
TOTAL COMPREHENSIVE LOSS$(1,875)$(2,096)$(4,114)$(4,109)











The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)

Three Months Ended September 30, 2020
Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, June 30, 202019,976,731 $19 $163,139 $(111,161)$(2,322)33,467 $(125)$49,550 
Net loss— — — (2,819)— — — (2,819)
Stock-based compensation— — 3,235 — — — — 3,235 
Exercise of stock options41,583 — 226 — — — — 226 
Issuance of shares under stock-based compensation awards263,324 — — — — — 1 
Tax withholding on shares under stock-based compensation awards— — (396)— — — — (396)
Foreign currency translation— — — — 944 — — 944 
Balance, September 30, 202020,281,638 $20 $166,204 $(113,980)$(1,378)33,467 $(125)$50,741 


Nine Months Ended September 30, 2020
Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, December 31, 201919,465,877 $19 $158,192 $(109,943)$(1,301)33,467 $(125)$46,842 
Net loss— — — (4,037)— — — (4,037)
Stock-based compensation— — 8,934 — — — — 8,934 
Exercise of stock options76,083 — 352 — — — — 352 
Issuance of shares under stock-based compensation awards739,678 — — — — — 1 
Tax withholding on shares under stock-based compensation awards— — (1,274)— — — — (1,274)
Foreign currency translation— — — — (77)— — (77)
Balance, September 30, 202020,281,638 $20 $166,204 $(113,980)$(1,378)33,467 $(125)$50,741 



















The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (cont.)
(In Thousands, Except Share Data)

Three Months Ended September 30, 2019

Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, June 30, 201919,465,877 $19 $156,494 $(109,912)$(867)33,467 $(125)$45,609 
Net loss— — — (1,638)— — — (1,638)
Stock-based compensation— — 852 — — — — 852 
Foreign currency translation adjustment, net of taxes— — — — (458)— — (458)
Balance, September 30, 201919,465,877 $19 $157,346 $(111,550)$(1,325)33,467 $(125)$44,365 


Nine Months Ended September 30, 2019

Accumulated
AdditionalOtherTotal
Common StockPaid-InAccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, December 31, 201819,294,296 $19 $155,455 $(107,773)$(993)33,467 $(125)$46,583 
Net loss— — — (3,777)— — — (3,777)
Stock-based compensation— — 2,181 — — — — 2,181 
Exercise of stock options9,500 — 14 — — — — 14 
Issuance of shares under stock-based compensation awards162,081 — — — — — —  
Tax withholding on shares under stock-based compensation awards— — (304)— — — — (304)
Foreign currency translation adjustment, net of taxes— — — — (332)— — (332)
Balance, September 30, 201919,465,877 $19 $157,346 $(111,550)$(1,325)33,467 $(125)$44,365 




















The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


PFSWEB, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended September 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(4,037)$(3,777)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization6,278 7,942 
Deferred income taxes527 258 
Stock-based compensation expense8,934 2,181 
Other494 1,200 
Changes in operating assets and liabilities:
Accounts receivable15,901 20,194 
Inventories(1,790)2,030 
Prepaid expenses, other receivables and other assets(194)2,463 
Operating leases(1,033)53 
Trade accounts payable, deferred revenues, accrued expenses and other liabilities(23,577)(20,502)
Net cash provided by operating activities1,503 12,042 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(2,755)(3,164)
Proceeds from sale of property and equipment145  
Net cash used in investing activities(2,610)(3,164)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock352 14 
Taxes paid on behalf of employees for withheld shares(1,274)(304)
Payments on finance lease obligations(968)(1,330)
Payments on revolving loan(88,407)(107,703)
Borrowings on revolving loan90,407 101,294 
Payments on other debt(1,414)(3,522)
Borrowings on other debt148 1,105 
Net cash used in financing activities(1,156)(10,446)
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH226 (340)
NET DECREASE IN CASH AND CASH EQUIVALENTS(2,037)(1,908)
Cash and cash equivalents, beginning of period12,434 15,419 
Restricted cash, beginning of period214 207 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period12,648 15,626 
Cash and cash equivalents, end of period10,397 13,511 
Restricted cash, end of period214 207 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period$10,611 $13,718 
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes$1,079 $726 
Cash paid for interest$1,078 $1,451 
Non-cash investing and financing activities:
Property and equipment acquired under long-term debt and finance leases$4,454 $2,357 






The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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PFSWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of PFSweb, Inc. and its subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include all normal and recurring adjustments necessary to present fairly the unaudited condensed consolidated balance sheets, statements of operations and comprehensive loss, statements of shareholders' equity, and statements of cash flows for the periods indicated. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.  We refer to PFSweb, Inc. and its subsidiaries collectively as “PFSweb,” the “Company,” “us,” “we” and “our” in these unaudited condensed consolidated financial statements.
Results of our operations for interim periods may not be indicative of results for the full fiscal year. We reclassify certain prior year amounts, as applicable, to conform to the current year presentation.
Recent Developments
We continue to monitor the impact of the 2019 novel coronavirus, or COVID-19, on all aspects of our business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency. While the COVID-19 pandemic has not had a material adverse impact on our results of operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. Beginning in late March 2020 and continuing through the third quarter of 2020, we experienced an increase in demand from certain clients for our services in our PFS Operations segment, as more consumers around the world practiced social distancing, complied with stay-at-home restrictions and many retail stores were closed toward the end of the March 2020 quarter and into the June 2020 quarter. This generated increased volume of online ordering. This trend has continued into the third quarter of 2020 but at a reduced rate from the March through June 2020 period. However, going forward there could be significant volatility in customer demand and buying habits as the pandemic continues and the resulting adverse economic impacts continue or deepen. We have begun experiencing labor rate increases in certain of our markets for fulfillment activities. We believe this will continue and that this could impact our overall fulfillment related costs and staffing.
We have taken a number of precautionary measures designed to help minimize the risk of the spread of the virus to our employees and adjusted our operations wherever necessary to help ensure a safe environment for our staff across business functions. Beginning in April 2020, we began to receive requests from a limited number of our clients to assist them with extended payment terms and/or pricing adjustments for a short time period. We have also experienced delays in certain limited projects and requests from certain clients to reduce current staffing on some of our projects. Prolonged delays or cancellations could have a material adverse impact to our overall business and financial results. As a result of the impact of COVID-19, many businesses have or will be experiencing short-term or long-term liquidity issues. It is possible that the COVID-19 pandemic, the restrictive measures taken by national and local governments to contain the virus and the resulting economic impact may cause disruptions and impact our business as we continue to move through the fiscal year which may materially and adversely affect the Company’s results of operations, cash flows and financial position as well as that of our customers.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States’ economy and fund a nationwide effort to curtail the effect of COVID-19. The Company has made use of the allowance granted under section 2302 of the CARES Act, which permits employers to forgo timely payment of the employer portions of Social Security and RRTA taxes that would otherwise be due from March 27 through December 31, 2020, without penalty or interest charges. Similarly, the UK and Belgium governments have granted businesses the option to defer the payment of certain value-added tax ("VAT") amounts. The Company has elected this option and we continue to examine the impact that the CARES Act and similar international statutes may have on our business.

2. Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The recognition and allocation of certain revenues and selling, general and administrative expenses in these unaudited condensed consolidated financial statements also require management estimates and assumptions.
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Estimates and assumptions about future events and their effects cannot be determined with certainty. The Company bases its estimates on historical experience and various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as the operating environment changes. These changes have been included in the unaudited condensed consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Based on a critical assessment of accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes the Company’s unaudited condensed consolidated financial statements are fairly stated in accordance with US GAAP and provide a fair presentation of the Company’s financial position and results of operations.
Furthermore, we considered the impact of the COVID-19 pandemic on the use of estimates and assumptions used for financial reporting and determined that there was no adverse material impact to our results of operations for the three and nine months ended September 30, 2020; however, the extent and duration of future impacts of the COVID-19 pandemic and any resulting economic impact are largely unknown and difficult to predict due to these unknown factors which may have a material impact on our financial position and results of operations in the future.
For a complete set of our significant accounting policies, refer to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. During the three and nine-month periods ended September 30, 2020, there were no significant changes to our significant accounting policies.  
Impact of Recently Issued Accounting Standards
Pronouncements Recently Adopted
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment” (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2022, with early adoption permitted. The Company elected to adopt this new guidance early, beginning on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15 "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract; Disclosures for Implementation Costs Incurred for Internal-Use Software and Cloud Computing Arrangements" (“ASU 2018-15”), which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC Subtopic 350-40, in order to determine which costs to capitalize and recognize as an asset. ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. We have adopted ASU 2018-15 on January 1, 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on our condensed consolidated financial statements.
Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," ("ASU 2016-13") which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019 for all public entities, excluding smaller reporting companies, and after December 15, 2022 for smaller reporting companies. It requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. We will adopt ASU 2016-13 on January 1, 2023. We are currently in the early phase of evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements.

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3. Revenue from Contracts with Clients and Customers
The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by revenue source (in thousands):
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
PFS OperationsLiveArea Professional ServicesTotalPFS OperationsLiveArea Professional ServicesTotal
Revenues:
Service fee revenue$39,339 $20,855 $60,194 $114,184 $62,304 $176,488 
Product revenue, net4,229  4,229 17,677  17,677 
Pass-through revenue11,836 825 12,661 39,708 2,345 42,053 
Total revenues$55,404 $21,680 $77,084 $171,569 $64,649 $236,218 

Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
PFS OperationsLiveArea Professional ServicesTotalPFS OperationsLiveArea Professional ServicesTotal
Revenues:
Service fee revenue$31,176 $18,426 $49,602 $95,930 $55,441 $151,371 
Product revenue, net6,579  6,579 20,216  20,216 
Pass-through revenue10,760 1,050 11,810 35,049 2,014 37,063 
Total revenues$48,515 $19,476 $67,991 $151,195 $57,455 $208,650 

The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by timing of revenue recognition (in thousands):
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
PFS OperationsLiveArea Professional ServicesTotalPFS OperationsLiveArea Professional ServicesTotal
Revenues:
Over time$51,175 $21,680 $72,855 $153,892 $64,649 $218,541 
Point-in-time4,229  4,229 17,677  17,677 
Total revenues$55,404 $21,680 $77,084 $171,569 $64,649 $236,218 

Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
PFS OperationsLiveArea Professional ServicesTotalPFS OperationsLiveArea Professional ServicesTotal
Revenues:
Over time$41,936 $19,476 $61,412 $130,979 $56,477 $187,456 
Point-in-time6,579  6,579 20,216 978 21,194 
Total revenues$48,515 $19,476 $67,991 $151,195 $57,455 $208,650 
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The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by region (in thousands):
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
PFS OperationsLiveArea Professional ServicesTotalPFS OperationsLiveArea Professional ServicesTotal
Revenues by region:
North America$43,440 $18,557 $61,997 $135,552 $56,286 $191,838 
Europe11,964 3,123 15,087 36,017 8,363 44,380 
Total revenues$55,404 $21,680 $77,084 $171,569 $64,649 $236,218 

Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
PFS OperationsLiveArea Professional ServicesTotalPFS OperationsLiveArea Professional ServicesTotal
Revenues by region:
North America$41,052 $17,260 $58,312 $125,950 $50,803 $176,753 
Europe7,463 2,216 9,679 25,245 6,652 31,897 
Total revenues$48,515 $19,476 $67,991 $151,195 $57,455 $208,650 

Contract Assets and Contract Liabilities
Changes in costs to fulfill contract assets during the period decreased $1.7 million from December 31, 2019 to September 30, 2020, primarily due to a decrease of approximately $3.6 million for amortization and recognition of costs, offset by approximately $1.9 million from new projects in the nine months ended September 30, 2020. Costs to fulfill contract assets relate to deferred costs, which are included within other current assets and/or other assets, and software development costs, which are included within property and equipment, in our condensed consolidated balance sheets.
Changes in contract liabilities during the period decreased $3.8 million from December 31, 2019 to September 30, 2020, primarily due to a decrease of approximately $10.8 million for amortization and recognition of revenue, offset by approximately $7.0 million from new projects in the nine months ended September 30, 2020.  Contract losses recognized for the nine months ended September 30, 2020 were not material. Accrued contract liabilities below are included within accrued expenses in our condensed consolidated balance sheets.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, and customer advances and deposits (contract liabilities) on the condensed consolidated balance sheets. Changes in the contract asset and liability balances during the nine months ended September 30, 2020 were not materially impacted by any other factors.
Contract balances consist of the following (in thousands):
September 30, 2020December 31, 2019
Contract Assets
Trade accounts receivable, net$55,815 $71,183 
Unbilled accounts receivable341 1,079 
Costs to fulfill3,159 4,875 
Total contract assets$59,315 $77,137 
Contract Liabilities
Accrued contract liabilities$934 $1,806 
Deferred revenue4,559 7,456 
Total contract liabilities$5,493 $9,262 
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Remaining performance obligations represent the transaction price of firm orders for which work has not yet been performed. This amount does not include 1) contracts that are less than one year in duration, 2) contracts for which we recognize revenue based on the right to invoice for services performed, or 3) variable consideration allocated entirely to a wholly unsatisfied performance obligation. Much of our revenue qualifies for one of these exemptions. As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or more was $9.5 million. We expect to recognize revenue on approximately 60% of the remaining performance obligations in 2020, 33% in 2021, and the remaining recognized thereafter.

4. Inventory Financing
Supplies Distributors, a wholly-owned subsidiary, has a short-term credit facility with IBM Credit LLC and its assignees (“IBM Credit Facility”) to finance its purchase and distribution of Ricoh products in the United States, providing financing for eligible Ricoh inventory and certain receivables up to $7.5 million, as per an amended agreement. The agreement has no stated maturity date and provides either party the ability to exit the facility following a 90-day notice.
Given the structure of this facility and as outstanding balances, which represent inventory purchases, are repaid within twelve months, we have classified the outstanding amounts under this facility, which were $3.1 million and $3.0 million as of September 30, 2020 and December 31, 2019, respectively, as trade accounts payable in the condensed consolidated balance sheets. As of September 30, 2020, Supplies Distributors had $2.1 million of available credit under this facility. The credit facility contains cross default provisions, various restrictions upon the ability of Supplies Distributors to, among other things, merge, consolidate, sell assets, incur indebtedness, make loans and payments to related parties (including entities directly or indirectly owned by PFSweb, Inc.), provide guarantees, make investments and loans, pledge assets, make changes to capital stock ownership structure and pay dividends. The credit facility also contains financial covenants, such as annualized revenue to working capital, net profit after tax to revenue, and total liabilities to tangible net worth, as defined, and is secured by certain of the assets of Supplies Distributors, as well as a collateralized guaranty of PFSweb. Additionally, PFSweb is required to maintain a minimum Subordinated Note receivable balance from Supplies Distributors of $1.0 million, as per an amended agreement. Borrowings under the credit facility accrue interest, after a defined free financing period, at prime rate plus 0.5%, which resulted in a weighted average interest rate of 3.75% and 5.25% as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, the Company was in compliance with all financial covenants.

5. Debt and Finance Lease Obligations
Outstanding debt and finance lease obligations consist of the following (in thousands): 
September 30, 2020December 31, 2019
U.S. Credit Agreement
Revolver$32,200 $30,200 
Equipment loan6,066 5,426 
Debt issuance costs(244)(303)
Finance Leases1,305 2,177 
Other162 300 
Total39,489 37,800 
Less current portion of long-term debt3,155 2,971 
Long-term debt, less current portion$36,334 $34,829 
U.S. Credit Agreement
On November 1, 2018, we entered into Amendment No. 1 to our Credit Agreement with Regions Bank (the “Amended Facility”). The Amended Facility provided for an increase in availability of our revolving loans to $60.0 million, with the ability for a further increase of $20.0 million to a total of $80.0 million, and the elimination of the term loan. Amounts outstanding under the term loan were reconstituted as revolving loans. The Amended Facility also extended the maturity date to November 1, 2023 and provided for, subject to approval, up to an additional $10.0 million in equipment financing.
As of September 30, 2020, we had $26.3 million of available credit under the revolving loan facility. As of September 30, 2020 and December 31, 2019, the weighted average interest rate on the revolving loan facility was 2.46% and 3.96%, respectively.
As of September 30, 2020, we had approval for $6.0 million of available credit in equipment financing.
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As of September 30, 2020, we were in compliance with all debt covenants.
6. Earnings (Loss) Per Share
Basic net loss per common share was computed by dividing net loss by the weighted-average number of common shares outstanding for the reporting period. In periods when we recognize a net loss, we exclude the impact of outstanding common stock equivalents from the diluted loss per share calculation as their inclusion would have an antidilutive effect. As of September 30, 2020 and September 30, 2019, we had outstanding common stock equivalents of approximately 3.7 million and 2.5 million, respectively, that have been excluded from the calculations of diluted earnings per share attributable to common stockholders because their effect would have been antidilutive.

7. Segment Information
Our segments are comprised of strategic businesses that are defined by the service offerings they provide and consist of PFS Operations (which provides client services in relation to the customer physical experience, such as order management (OMS), order fulfillment, customer care and financial services) and LiveArea Professional Services (which provides client services in relation to the digital experience of shopping online, such as strategic commerce consulting, strategy, design and digital marketing services and technology services). Each segment is led by a separate Business Unit Executive who reports directly to our Chief Operating Decision Maker.
The following table presents information concerning operations by segment (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Revenues:
PFS Operations$55,404 $48,515 $171,569 $151,195 
LiveArea Professional Services21,680 19,476 64,649 57,455 
Total revenues$77,084 $67,991 $236,218 $208,650 
Business unit direct contribution:
PFS Operations$2,538 $1,702 $10,030 $6,357 
LiveArea Professional Services2,541 2,594 6,172 6,768 
Total business unit direct contribution5,079 4,296 16,202 13,125 
Unallocated corporate expenses(6,941)(5,547)(17,428)(15,046)
Loss from operations$(1,862)$(1,251)$(1,226)$(1,921)
Depreciation and amortization:
PFS Operations$1,616 $2,120 $4,811 $6,153 
LiveArea Professional Services204 276 633 891 
Unallocated corporate expenses209 278 834 898 
Total depreciation and amortization$2,029 $2,674 $6,278 $7,942 

8. Commitments and Contingencies
The Company is subject to claims in the ordinary course of business, including claims of alleged infringement by the Company or its subsidiaries of the patents, trademarks and other intellectual property rights of third parties. The Company is generally required to indemnify its service fee clients against any third party claims asserted against such clients alleging infringement by the Company of the patents, trademarks and other intellectual property rights of third parties. In the opinion of management, any liabilities resulting from these claims, would not have a material adverse effect on the Company’s financial position or results of operations.
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9. Related Party Transaction
In June 2020 the Company entered into an agreement with Hardinge, Inc. ("Hardinge") in which our LiveArea segment is to provide various services related to eCommerce. Benjamin Rosenzweig ("Mr. Rosenzweig"), a member of our Board of Directors, is a partner at Privet Fund Management LLC ("Privet"). Privet is the general partner and investment manager of funds that own Hardinge and Mr. Rosenzweig also serves on the Board of Directors of Hardinge.
We recognized $0.3 million in revenue in the three and nine months ended September 30, 2020. As of September 30, 2020, there was an accounts receivable balance of $0.2 million from Hardinge.


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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q.

Forward-Looking Information
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, or management strategies). You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “potential,” “project,” “predict,” “future,” “target,” “seek,” “continue” and other similar expressions. These forward-looking statements involve risks and uncertainties, and may include assumptions as to how we may perform in the future, including the impact of the COVID-19 pandemic on our business, results of operations and global economic conditions. Although we believe the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee these expectations will actually be achieved. In addition, some forward-looking statements are based upon assumptions about future events that may not prove to be accurate. Therefore, our actual results may differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Part I, Item 1A: Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as supplemented by our Form 10-K/A filed on April 29, 2020 (the “Annual Report”), as well as in our consolidated financial statements, related notes, and the other information appearing elsewhere in the Annual Report and our other filings with the Securities and Exchange Commission, or the SEC, including any quarterly reports on Form 10-Q. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. There may be additional risks we do not currently view as material or that are not presently known or that are beyond our ability to control or predict. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Key Events and Trends
COVID-19 Pandemic
We continue to closely monitor the impact of the 2019 novel coronavirus, or COVID-19, pandemic on all aspects of our business. Our focus has been, and continues to be, on protecting our employees, while continuing to serve our clients. While the COVID-19 pandemic has not had a material adverse impact on our results of operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving.

 Beginning in late March 2020 and continuing through the third quarter of 2020, we experienced an increase in demand from certain clients for our services in our PFS Operations segment, as more consumers around the world practiced social distancing, complied with stay-at-home restrictions and many retail stores were closed during the March 2020 to June 2020 period. This generated increased volume of online ordering. This trend has continued into the third quarter of 2020 but at a reduced rate from the March 2020 through June 2020 period.  However, going forward there could be significant volatility in customer demand and buying habits as the pandemic continues and the resulting adverse economic impacts continue or deepen. We have begun experiencing labor rate increases in certain of our markets for fulfillment activities. We believe this will continue and that this could impact our overall fulfillment related costs and staffing.
Both our LiveArea and PFS Operations business segments are engaged in the support of our clients’ direct to consumer online business activity. Due to restrictions on traditional brick and mortar activities introduced by government mandates in 2020, many businesses, including many of our clients, have migrated an incremental amount of their investments and business volumes to their online channel, including both website development and marketing activity as well as the physical movement of product. This is a trend which has continued through the third quarter of 2020. We believe this has resulted in, and is currently expected to continue to provide us with strong demand for our service offerings. As the restrictions on brick and mortar activities are lessened, this may lead to reduced demand for the services of LiveArea and PFS Operations as customers return to stores. Despite the unpredictability of volumes brought on by the COVID-19 pandemic, the contracts that had been secured during the pandemic with new clients and amended contracts with existing clients were entered into with the intention to support volumes post-COVID-19 that are the same or higher than those pre-COVID-19. As a result of the increased volumes that are currently occurring and those potentially expected, we have secured additional warehouse space and headcount to meet the current and expected future volumes for the PFS Operations business.
We are incurring additional costs related to the enhanced cleaning regimen implemented in our facilities and purchasing personal protective equipment ("PPE") which we are providing to our employees. As of September 30, 2020, we have incurred approximately $1.1 million in costs related to the COVID-19 pandemic, excluding hourly wage rate related labor cost increases
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and performance based incentives. Included in this $1.1 million, are capital expenditures related to COVID-19 which amounted to approximately $0.5 million. Beginning in April 2020, we began to receive requests from a limited number of our clients to assist them with extended payment terms and/or pricing adjustments for a short time period. For the nine months ended September 30, 2020, this has not resulted in a material impact to cash flows. We have also begun to see delays in certain limited projects and requests from certain clients to reduce current staffing on our time and materials projects.  While we believe this will have a short-term impact on cash flow and revenues, we do not currently anticipate these identified modifications to date will have a material impact to our overall business and financial results. We will continue to monitor these for potential impacts to future cash flow.
Overall, while there is an increased level of uncertainty in our financial forecasts for the remainder of 2020 due to the macro-economic uncertainty related to the COVID-19 pandemic, we currently continue to target growth in service fee revenues for both of our business segments for the remainder of the year as compared to 2019. For our LiveArea business, we expect some short-term impact on revenue and profitability continuing into the fourth quarter of 2020, as a result of the client requested project deferrals and adjustments, but we expect to have continuing success in winning new or expanded client relationships that are expected to offset this impact. For our PFS business segment, we are expecting an overall stronger level of service fees from existing clients who have migrated more of their business to the online channel that we support. However, we expect some shortfalls versus our original projections in winning new client opportunities due to the COVID-19 pandemic related restrictions on our prospects’ abilities to adjust their business operations in the near term and implement such business within 2020.
As a result of the impact of the COVID-19 pandemic, many businesses have or will be experiencing short-term or long-term liquidity issues. Based on our current expectations, we believe we have the appropriate financial structure in place to support our own business operations. However, we do expect increased potential risk from the viability of clients and their ability to make payments on time. We have and will continue to closely monitor our clients’ financial results, payment patterns and business updates in an effort to minimize the potential impact of our credit risk.
While the COVID-19 pandemic has not yet had a material adverse impact on our operations to date, the extent and duration of future impacts of the pandemic and any resulting economic impact on our business are largely unknown and difficult to predict. We recommend that you review Item 1A. “Risk Factors” in the Annual Report on Form 10-K for fiscal year ended December 31, 2019, as supplemented by our Form 10-K/A filed on April 29, 2020 for a description of the risks related to the COVID-19 pandemic.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. The Company has made use of the allowance granted under section 2302 of the CARES Act, which permits employers to forgo timely payment of the employer portions of Social Security and RRTA taxes that would otherwise be due from March 27 through December 31, 2020, without penalty or interest charges. We have elected this option and it has resulted in deferred payments through September 30, 2020 totaling $2.5 million, due in equal payments on December 31, 2021 and December 31, 2022. We expect to defer between $3.5 million and $4.0 million through December 31, 2020. Similarly, the UK and Belgium governments have granted businesses the option to defer the payment of certain value-added tax ("VAT") amounts. We have elected to take advantage of the options available to us but the effects have been immaterial. We continue to examine the impact that the CARES Act and similar international statutes may have on our business.
In March 2020, we established a COVID-19 task force, comprised of leaders from a cross function of each of our operational sites and business units. The objectives of the task force are to:
Gather daily key information from each site regarding risks, opportunities and developments related to the pandemic's impact and Company's response to ensure unfiltered access to information for the Company’s leadership.
Identify and accumulate data required for decision making at the leadership level, including providing recommended courses of action.
Coordinate communication plans for all of our geographic locations.
Access, establish, monitor and adjust our business operations continuity plans for each geographic location.
Ensure formal tracking of any known or suspected employee cases of COVID-19.
We have taken a number of precautionary measures designed to help minimize the risk of the spread of the virus to our employees, including suspending all non-essential travel worldwide for our employees, and adjusting our operations wherever necessary to help ensure a safe environment for our staff across business functions. 
We have transitioned our professional staff and contact center agents to a work-from-home solution, with only a few exceptions. While all of our distribution facilities are considered essential businesses in the jurisdictions in which they are located and have continued to operate, we have established procedures to ensure the safety of our distribution facility staff, including:
Employees are not required to come to work if they are not comfortable doing so.
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Employees that are experiencing or have been exposed to anyone exhibiting symptoms of COVID-19 have been told not to come to work and to seek medical attention and/or testing and stay home until they receive a negative test result, have self-quarantined for 14 days and/or receive clearance from a medical professional.
Performing temperature checks at entry doors. Employees exhibiting any symptoms of COVID-19 or who have an elevated temperature are not allowed in the facility.
Provide PPE for employees including gloves, face masks and in certain facilities, face shields. We have provided training for proper use of the equipment.
Require distancing among employees inside of the working areas of the distribution facilities and require that all employees use the greatest social distancing available inside of the facilities with constant enforcement being maintained.
Provide mobile cleaning stations for employee use at any time and access to hand sanitizer stations.
Increased and enhanced cleaning regimen in all facilities. Facilities are cleaned on a daily basis, as well as a nightly cleaning that includes disinfectant fogging at some facilities.
Facilitating virtual focus groups with employees to seek out ways to provide suggestions to the task force.
Overview
We are a global commerce services company. We manage the entire commerce customer experience for major branded manufacturers and retailers through two business segments, LiveArea Professional Services ("LiveArea") and PFS Operations. LiveArea provides a comprehensive set of services to support and improve B2B, B2C and B2B2C digital and physical shopping experiences or eCommerce. Service areas include eCommerce strategy and consulting, omni-channel experience design, digital marketing, data strategy and technology services including development and system integration. PFS Operations provides services to support and improve the physical experience, such as order management, order fulfillment, customer care and payment services. We offer our services on an a la carte basis or as a complete end-to-end solution.

Operating Results
The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change, percentage change and as a percentage of total revenues (in thousands, except percentages):
Three Months Ended
September 30,
% of Total
Revenues
Nine Months Ended
September 30,
% of Total
Revenues
20202019Change2020201920202019Change20202019
Revenues
Service fee revenue$60,194 $49,602 $10,592 78.1 %73.0 %$176,488 $151,371 $25,117 74.7 %72.5 %
Product revenue, net4,229 6,579 (2,350)5.5 %9.7 %17,677 20,216 (2,539)7.5 %9.7 %
Pass-through revenue12,661 11,810 851