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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, 2022
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)
 
9250 N. Royal Lane, Suite 100,
Irving, Texas
75063
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (972881-2900
 
505 Millennium Drive,
Allen, Texas
75013
(Former address)

Not Applicable
(Former name 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 3, 2022, there were 22,644,199 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,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$140,350 $152,332 
Restricted cash 214 
Accounts receivable, net of allowance for doubtful accounts of $375 and $867 at September 30, 2022 and December 31, 2021, respectively
50,705 78,024 
Inventories, net of reserves of $0 and $57 at September 30, 2022 and December 31, 2021, respectively
 3,133 
Other receivables7,935 7,005 
Prepaid expenses and other current assets6,254 7,244 
Total current assets205,244 247,952 
Property and equipment:
Cost85,378 92,079 
Less: accumulated depreciation(65,124)(72,764)
20,254 19,315 
Operating lease right-of-use assets, net32,098 35,371 
Goodwill20,904 22,218 
Other assets1,669 1,610 
Total assets$280,169 $326,466 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable$24,599 $36,450 
Accrued expenses22,295 31,643 
Current portion of operating lease liabilities10,581 10,104 
Current portion of finance lease obligations72 222 
Deferred revenues2,039 4,391 
Total current liabilities59,586 82,810 
Finance lease obligations, less current portion34 89 
Deferred revenue, less current portion852 833 
Operating lease liabilities, less current portion26,864 30,393 
Other liabilities2,676 2,565 
Total liabilities90,012 116,690 
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; 22,677,666 and 22,131,546 issued and 22,644,199 and 22,098,079 outstanding at September 30, 2022 and December 31, 2021, respectively
22 21 
Additional paid-in capital178,643 177,511 
Retained earnings15,642 33,522 
Accumulated other comprehensive loss(4,025)(1,153)
Treasury stock at cost, 33,467 shares
(125)(125)
Total shareholders’ equity190,157 209,776 
Total liabilities and shareholders’ equity$280,169 $326,466 








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 INCOME (LOSS)
(In Thousands, Except Per Share Data)


Three Months Ended
September 30,
Nine Months Ended September 30,
2022202120222021
Revenues:
Service fee revenue$43,658 $44,275 $134,423 $132,804 
Product revenue, net14 4,096 3,333 12,896 
Pass-through revenue21,813 12,970 58,850 37,444 
Total revenues65,485 61,341 196,606 183,144 
Costs of Revenues:
Cost of service fee revenue33,785 33,383 105,922 98,776 
Cost of product revenue4 3,895 3,059 12,265 
Cost of pass-through revenue21,813 12,970 58,850 37,444 
Total costs of revenues55,602 50,248 167,831 148,485 
Gross profit9,883 11,093 28,775 34,659 
Selling, general and administrative expenses16,341 16,161 46,846 44,768 
Loss from operations(6,458)(5,068)(18,071)(10,109)
Interest (income) expense, net(554)165 (699)873 
Loss on extinguishment of debt 426  426 
Loss from continuing operations before income taxes(5,904)(5,659)(17,372)(11,408)
Income tax expense, net186 1,152 688 1,276 
Net loss from continuing operations(6,090)(6,811)(18,060)(12,684)
Income from discontinued operations before income taxes 197,920 180 196,508 
Income tax expense, net 33,758  36,315 
Income from discontinued operations 164,162 180 160,193 
Net income (loss) $(6,090)$157,351 $(17,880)$147,509 
Basic earnings (loss) per share
Income (loss) from continuing operations per share $(0.27)$(0.32)$(0.80)$(0.60)
Income from discontinued operations per share 7.71 0.01 7.57 
Basic earnings (loss) per share $(0.27)$7.39 $(0.79)$6.97 
Diluted earnings (loss) per share
Income (loss) from continuing operations per share $(0.27)$(0.32)$(0.80)$(0.60)
Income from discontinued operations per share 7.71 0.01 7.57 
Diluted earnings (loss) per share $(0.27)$7.39 $(0.79)$6.97 
Weighted average number of shares outstanding:
Basic22,64421,28222,58021,164
Diluted22,64421,28222,58021,164
Comprehensive income (loss):
Net income (loss) $(6,090)$157,351 $(17,880)$147,509 
Foreign currency translation adjustment(1,098)(34)(2,872)(343)
Reclassifications of foreign currency translation adjustments realized upon disposal of business$ $(327)$ $(327)
Total comprehensive income (loss)$(7,188)$156,990 $(20,752)$146,839 




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, 2022
Accumulated
AdditionalOtherTotal
Common StockPaid-InRetained ComprehensiveTreasury StockShareholders'
SharesAmountCapitalEarningsLossSharesAmountEquity
Balance, June 30, 202222,676,595 $22 $177,008 $21,732 $(2,927)33,467 $(125)$195,710 
Net loss— — (6,090)— — — (6,090)
Stock-based compensation— — 1,629 — — — — 1,629 
Exercise of stock options963 — 6 — — — — 6 
Issuance of shares under stock-based compensation awards108 — — — — — — — 
Foreign currency translation— — — — (1,098)— — (1,098)
Balance, September 30, 202222,677,666 $22 $178,643 $15,642 $(4,025)33,467 $(125)$190,157 


Nine Months Ended September 30, 2022
Accumulated
AdditionalOtherTotal
Common StockPaid-InRetained ComprehensiveTreasury StockShareholders'
Shares  AmountCapital  Earnings  Loss  Shares  Amount  Equity
Balance, December 31, 202122,131,546 $21 $177,511 $33,522 $(1,153)33,467 $(125)$209,776 
Net loss— — — (17,880)— — — (17,880)
Stock-based compensation— — 2,945 — — — — 2,945 
Exercise of stock options89,837 — 442 — — — — 442 
Issuance of shares under stock-based compensation awards456,283 1 — — — — — 1 
Tax withholding on shares issued under stock-based compensation awards— — (2,255)— — — — (2,255)
Foreign currency translation— — — — (2,872)— — (2,872)
Balance, September 30, 202222,677,666 $22 $178,643 $15,642 $(4,025)33,467 $(125)$190,157 















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, 2021
Retained Accumulated
AdditionalEarningsOtherTotal
Common StockPaid-In(AccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficit)LossSharesAmountEquity
Balance, June 30, 202121,209,300 $21 $170,486 $(123,554)$(638)33,467 $(125)$46,190 
Net income— — — 157,351 — — — 157,351 
Stock-based compensation— — 4,962 — — — — 4,962 
Exercise of stock options35,050 — 227 — — — — 227 
Foreign currency translation— — — — (361)— — (361)
Balance, September 30, 202121,244,350 $21 $175,675 $33,797 $(999)33,467 $(125)$208,369 


Nine Months Ended September 30, 2021
Retained Accumulated
AdditionalEarningsOtherTotal
Common StockPaid-In(AccumulatedComprehensiveTreasury StockShareholders'
SharesAmountCapitalDeficit)LossSharesAmountEquity
Balance, December 31, 202020,408,558 $20 $168,244 $(113,712)$(329)33,467 $(125)$54,098 
Net income— — — 147,509 — — — 147,509 
Stock-based compensation— — 8,417 — — — — 8,417 
Exercise of stock options178,133 — 923 — — — — 923 
Issuance of shares under stock-based compensation awards657,659 1 (1)— — — —  
Tax withholding on shares issued under stock-based compensation awards— — (1,908)— — — — (1,908)
Foreign currency translation— — — — (670)— — (670)
Balance, September 30, 202121,244,350 $21 $175,675 $33,797 $(999)33,467 $(125)$208,369 

















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,
20222021
Cash flows from operating activities:
Net income (loss)$(17,880)$147,509 
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization5,550 6,208 
Loss on early extinguishment of debt 426 
Gain on LiveArea Transaction(180)(200,817)
Loss on lease modification1,624  
Deferred income taxes53 2,717 
Stock-based compensation expense2,945 8,417 
Other21 95 
Changes in operating assets and liabilities:
Accounts receivable25,520 9,129 
Inventories3,080 410 
Prepaid expenses, other receivables and other assets(337)(617)
Operating leases(1,238)(448)
Income taxes payable 30,211 
Trade accounts payable, deferred revenues, accrued expenses and other liabilities(20,694)(6,409)
Net cash used in operating activities(1,536)(3,169)
Cash flows from investing activities:
Purchases of property and equipment(7,459)(4,815)
Proceeds from LiveArea Transaction, net of cash divested 236,358 
Proceeds from sale of property and equipment37 31 
Net cash provided (used) by investing activities(7,422)231,574 
Cash flows from financing activities:
Net proceeds from issuance of common stock442 923 
Taxes paid on behalf of employees for withheld shares(2,255)(1,908)
Payments on finance lease obligations(187)(732)
Payments on revolving loan (160,181)
Borrowings on revolving loan 126,681 
Payments on other debt (10,046)
Borrowings on other debt 49 
Net cash provided (used) by financing activities(2,000)(45,214)
Effect of exchange rates on cash, cash equivalents and restricted cash(1,238)57 
Net increase (decrease) in cash and cash equivalents(12,196)183,248 
Cash and cash equivalents, beginning of period152,332 10,359 
Restricted cash, beginning of period214 214 
Cash and cash equivalents discontinued operations, beginning of period 392 
Cash, cash equivalents and restricted cash, beginning of period152,546 10,965 
Cash and cash equivalents, end of period140,350 193,999 
Restricted cash, end of period 214 
Cash, cash equivalents and restricted cash, end of period$140,350 $194,213 
Supplemental cash flow information:
Cash paid for income taxes$7,182 $6,293 
Cash paid for interest$9 $763 
Non-cash investing and financing activities:
Property and equipment acquired under long-term debt and finance leases$ $2,139 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8


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 income (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, 2021.  We refer to PFSweb, Inc. and its consolidated subsidiaries collectively as “PFSweb,” the “Company,” “us,” “we” and “our” in these unaudited condensed consolidated financial statements.
In July 2021, we announced an agreement to sell our LiveArea Professional Services business unit ("LiveArea") and the divestiture was completed on August 25, 2021 (the "LiveArea Transaction"). As such, the LiveArea segment has been presented as a discontinued operation beginning with the Company's Form 10-Q for the quarterly period ended June 30, 2021. See Note 3. Discontinued Operations for additional information on our sale of LiveArea.
Results of our operations for interim periods may not be indicative of results for the full fiscal year.

2. Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements and related disclosures in conformity with U.S. 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, costs of revenues and selling, general and administrative expenses in these unaudited condensed consolidated financial statements also require management estimates and assumptions.
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 U.S. 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, 2022; 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.
Long-Lived Assets, Goodwill
Long-lived assets include property and equipment, goodwill and certain other assets. We make judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation methods and useful lives. Additionally, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We review goodwill for impairment at least annually, on October 1. We record impairment losses in the period in which we determine the carrying amount is not recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. This may require us to make judgments regarding long-term forecasts of our future revenues and costs related to the assets subject to review.
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Income Taxes
For the three and nine months ended September 30, 2022 and 2021, we have utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes—Interim Reporting,” to calculate the interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as (i) the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pretax earnings by certain jurisdictions and (ii) our ongoing assessment that the recoverability of our deferred tax assets is not likely in certain jurisdictions.
Impact of Recently Issued Accounting Standards
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 and do not expect the adoption of ASU 2016-13 to have a material impact on our condensed consolidated financial statements.
3. Discontinued Operations
On July 2, 2021, the Company entered into a definitive agreement to sell LiveArea. As of June 30, 2021, the Company met the criteria set forth in ASC 205-20, "Presentation of Financial Statements - Discontinued Operations," therefore, the LiveArea segment has been presented as a discontinued operation beginning with the Company's June 30, 2021 Form 10-Q and is reported as a discontinued operation in this Form 10-Q for the three and nine months ended September 30, 2022 and 2021.
The LiveArea Transaction closed on August 25, 2021 for gross proceeds of approximately $250.0 million in cash, resulting in a pre-tax gain of $200.8 million. The Company incurred approximately $15 million in cash-based transaction related costs during 2021 and used proceeds of approximately $35 million to make estimated income tax payments related to the LiveArea Transaction, of which approximately $30 million was paid during the December 2021 quarter.
As a result of the LiveArea Transaction, the Company now only operates one business segment, PFS Operations, and therefore we no longer present segment data.
In the three months ended June 30, 2022, the Company and the purchaser reached settlement of certain customary post-closing purchase price adjustments and as a result, the Company recorded an incremental $0.2 million gain on sale in the consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2022.
In connection with the LiveArea Transaction, the Company entered into a transition services agreement with the purchaser to provide certain accounting and administrative services for a period of up to twelve months. Income generated from transition services provided to the purchaser is recorded in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income (loss) and was $0.6 million for the nine months ended September 30, 2022 and $0.4 million for the three and nine months ended September 30, 2021. There were no transition services provided during the three months ended September 30, 2022 as the transition services agreement was substantially completed by March 31, 2022.
Additionally, in connection with the LiveArea Transaction, in July 2021 the Company's Board of Directors approved a modification to the Company's existing stock-based compensation plans to provide for accelerated vesting of certain restricted stock awards and stock options for LiveArea personnel. As a result of the LiveArea Transaction, approximately 635,000 shares of restricted stock and approximately 160,000 stock options previously awarded to certain executives and employees were accelerated and fully vested on August 25, 2021. Also as a result of the LiveArea Transaction, the Company's Board of Directors approved the full payout of the 2021 cash compensation plan to certain LiveArea executives and employees. We recorded incremental compensation expense of $3.3 million and $0.3 million related to the stock-based compensation modification and full targeted payout of the 2021 cash compensation plan, respectively, which is included in net income (loss) from discontinued operations on the condensed consolidated statement of operations and comprehensive income (loss) for the three months ended September 30, 2021.
Furthermore, certain executives and employees of PFSweb, inclusive of certain LiveArea personnel, received cash transaction bonuses as a result of the successful completion of the LiveArea Transaction. We recorded compensation expense of
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$3.5 million for executives and employees of the LiveArea business segment, which is included in net income (loss) from discontinued operations on the condensed consolidated statements of operations and comprehensive income (loss) for each of the three and nine months ended September 30, 2021. In addition, we recorded compensation expense of $1.0 million for the executives and employees of PFSweb, which is included in selling, general and administrative expense on the condensed consolidated statements of operations and comprehensive income (loss) for each of the three and nine months ended September 30, 2021.
The following table presents the major components of income from discontinued operations of LiveArea for three and nine months ended September 30, 2022 and 2021 and a reconciliation to the amounts reported in the unaudited condensed consolidated statements of operations and comprehensive income (loss) (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Service fee revenue$ $13,616 $ $50,197 
Pass-through revenue 159  159 
Related party revenue   574 
Total revenues 13,775  50,930 
Costs of revenues:
Cost of service fee revenue 7,134  27,173 
Cost of pass-through revenue 159 159 
Total costs of revenues 7,293  27,332 
Gross profit 6,482  23,598 
Selling, general and administrative expenses (9,379) (27,906)
Interest expense, net   (1)
Gain on sale 200,817 180 200,817 
Income from discontinued operations before income taxes 197,920 180 196,508 
Income tax expense 33,758  36,315 
Income from discontinued operations$ $164,162 $180 $160,193 

The following table presents the depreciation and amortization, capital expenditures and significant noncash operating items for the nine months ended September 30, 2021 (in thousands):
Nine Months Ended
September 30, 2021
Cash flows from operating activities discontinued operations:
Depreciation and amortization $457 
Stock-based compensation expense$4,613 
Cash flows from investing activities discontinued operations:
Capital expenditures$159 
Proceeds from sales of discontinued operations, net of cash divested$236,358 

4. Revenue from Contracts with Clients and Customers
Contract Assets and Contract Liabilities
Costs to fulfill contract assets decreased $2.6 million from December 31, 2021 to September 30, 2022, primarily due to amortization and recognition of costs. 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.
Contract liabilities were $7.9 million at December 31, 2021, of which $3.6 million was recognized as revenue during the nine months ended September 30, 2022.
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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, 2022 were not materially impacted by any other factors.
Contract balances consist of the following (in thousands):
September 30, 2022December 31, 2021
Contract Assets
Costs to fulfill$1,778 $4,392 
Total contract assets$1,778 $4,392 
Contract Liabilities
Accrued contract liabilities$2,536 $2,673 
Deferred revenue2,891 5,224 
Total contract liabilities$5,427 $7,897 

Remaining performance obligations represent the transaction price of firm orders for which work has not yet been performed. The amount reported for remaining performance obligations 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, 2022, 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 $15.5 million. We expect to recognize revenue on approximately 25% of the remaining performance obligations in 2022, 46% in 2023, and the remaining recognized thereafter.

Disaggregation of Revenues
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,Nine Months Ended September 30,
2022202120222021
Revenues:
Over time$65,471 $57,245 $193,273 $170,248 
Point-in-time14 4,096 3,333 12,896 
Total revenues$65,485 $61,341 $196,606 $183,144 

Point-in-time revenues consist of product revenue which was dependent on the Ricoh distributor agreement. Effective March 2022, as part of Ricoh's continued restructuring of its operations, the Ricoh distributor agreement was terminated and as a result, our product revenue model with Ricoh was discontinued.
The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by region (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues by region:
United States$56,067 $54,235 $166,365 $151,015 
Canada1,071 1,052 3,393 3,559 
Europe8,347 6,054 26,848 28,570 
Total revenues$65,485 $61,341 $196,606 $183,144 


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5. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the reporting period. Diluted earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common stock and common stock equivalents outstanding for the reporting period. In periods when we recognize a net loss from continuing operations, 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, 2022 and 2021 we had outstanding common stock equivalents of approximately 1.7 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.

6. 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 as well as confidentiality and data privacy matters. 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. While we are unable to determine the ultimate outcome of any liabilities resulting from these claims, we do not believe the resolution of any particular matter will have a material adverse effect on the Company’s financial position or results of operations.

7. Leases

In September 2022, the Company entered into an agreement with CCI-Millennium, L.P., (“Landlord”) providing for the early termination of its lease agreement for its corporate headquarters office space located in Allen, Texas effective October 31, 2022 ("Lease Termination Agreement"). Such lease agreement was previously scheduled to mature in July 2024 and under the terms of the Lease Termination Agreement, the Company agreed to pay $2.6 million to Landlord in October 2022, which was paid in the fourth quarter of 2022. In accordance with ASC Topic 842, the Lease Termination Agreement was determined to be a modification of the original lease agreement which resulted in a $2.6 million increase in the lease termination obligation, and reductions of the lease liability and operating lease right-of-use asset by approximately $3.4 million and $2.4 million, respectively. The Company recognized a net loss of $1.6 million on the lease modification, which is included in selling, general and administrative expense on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2022.

On September 29, 2022, we entered into a 124 month lease for 186,000 square feet of warehouse and office space in Irving, Texas. This lease will increase our right of use asset and lease liability balances as of the lease commencement date, which is anticipated in mid-2023 when the building is completed.


8. Related Party Transactions
In December 2020, on behalf of a client, the Company entered into an agreement with Pilot Freight Services ("Pilot") under which Pilot provides the Company various freight services. David Beatson, a member of our Board of Directors was also on the Board of Directors of Pilot through May 2022 and holds less than 1% of the outstanding shares in Pilot. Pilot is a portfolio company of ATL Partners, LLC, where Mr. Beatson serves on the Executive Board and is a shareholder of its two funds (less than 1% holdings of each).
We recognized $0.1 million and $0.9 million related party cost of revenues in the nine months ended September 30, 2022 and 2021, respectively, and as of September 30, 2022, we had no trade accounts payable balance due to Pilot.
On May 2, 2022, ATL Partners, LLC closed on the sale of Pilot to an unrelated third party; as such, Pilot is no longer a related party of the Company.


9. Subsequent Event

On November 4, 2022, the Company's Board of Directors declared (i) a special cash dividend of $4.50 per share to holders of issued and outstanding shares of the Company’s Common Stock of record as of the close of business on December 1, 2022 (the “Special Dividend”), and (ii) a special dividend equivalent of $4.50 per share, to the holders of all equity awards under
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the Company’s 2020 Stock Incentive Plan, as amended, granted and outstanding as of the close of business on December 1, 2022, payable in cash upon the achievement of applicable performance goals, vesting, and issuance of such equity awards pursuant to their specific terms. The Special Dividend is payable on December 15, 2022. The ex-dividend date will be November 30, 2022. The total Special Dividend (and special dividend equivalents) amount payable is approximately $111 million, of which approximately $9 million pertain to the special dividend equivalents.
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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 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. 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, 2021 filed with the Securities and Exchange Commission (the "SEC") on May 9, 2022 (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 SEC, including our quarterly reports on Form 10-Q and our current reports on Form 8-K. 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, investors are cautioned not to place undue reliance on such forward-looking statements.
Key Events and Trends
On July 2, 2021, the Company entered into a definitive agreement to sell LiveArea for approximately $250.0 million in cash, subject to certain adjustments and customary closing conditions including receipt of regulatory approvals (the "LiveArea Transaction"). The LiveArea Transaction closed on August 25, 2021 ("the LiveArea Transaction Date"). As of June 30, 2021, the criteria for reporting LiveArea as a discontinued operation were met; as such, the LiveArea segment has been presented as a discontinued operation beginning with the Company's Form 10-Q for the quarterly period ended June 30, 2021. Unless otherwise specified, the financial information and discussion in this Form 10-Q are based on our continuing operations and exclude any results of our discontinued operations (i.e., LiveArea).
See Note 3. Discontinued Operations to the condensed consolidated financial statements included in this Form 10-Q for additional information on our discontinued operations.
COVID-19 Pandemic
We continue to monitor the impact of the COVID-19 pandemic (and any variants thereof) on all aspects of our business. 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 continuing and/or additional future economic impacts are still uncertain, especially as the pandemic continues. We have experienced labor rate increases in certain of our markets for fulfillment activities and labor shortages in all markets. We believe this will continue and will impact our overall fulfillment related costs and staffing. In the interim, we are leveraging our multi-node network and distributing work to our centers with more available labor and/or lower costs, implementing certain productivity enhancements, working together with our clients to reduce costs, and offsetting the cost increases with price increases where necessary.
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. As a result of the impact of COVID-19, many businesses continue to experience 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 through the pandemic. However, we do expect 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 any potential credit risk impact.
While many of the related restrictions have been lifted, we have also seen a resurgence of the virus (including new variants) in many geographic regions, which could have a negative impact on our business and adversely affect the Company’s results of operations, cash flows and financial position as well as that of our clients. For the three and nine months ended September 30, 2022 and 2021, costs related to the COVID-19 pandemic, excluding hourly wage rate related labor cost increases, were not material. We will continue to monitor these for potential impacts to future cash flow.
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While the COVID-19 pandemic has not had a material adverse impact on our operations to date, the extent and duration of future impacts of the pandemic (including any variants of COVID-19) and any resulting economic impact on our business are largely unknown and difficult to predict.
Overview
PFSweb is a Global Commerce Services Company. We manage the customer shopping experience for major branded manufacturers and retailers. We provide services to support or improve the physical, post-click experience, such as logistics and order fulfillment, customer care, and order-to-cash services including distributed order orchestration and payment services. We offer each of these services on an à la carte basis or as a complete solution. Major brands and other companies turn to us to optimize their customer experiences and enhance their traditional and online business channels.
Operating Results
The following table discloses certain financial information about our continuing operations for the periods presented and excludes results of our discontinued operations. The financial information below is 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
20222021Change2022202120222021Change20222021
Revenues
Service fee revenue$43,658 $44,275 $(617)66.7 %72.2 %$134,423 $132,804 $1,619 68.4 %72.5 %
Product revenue, net$14 $4,096 $(4,082)— %6.7 %$3,333 $12,896 $(9,563)1.7 %7.1 %
Pass-through revenue$21,813 $12,970 $8,843 33.3 %21.1 %$58,850 $37,444 $21,406 29.9 %20.4 %
Total revenues$65,485 $61,341 $4,144 100.0 %100.0 %$196,606 $183,144 $13,462 100.0 %100.0 %
Costs of Revenues
Cost of service fee revenue$33,785 $33,383 $402 77.4 %(1)75.4 %$105,922 $98,776 $7,146 78.8 %(1)74.4 %
Cost of product revenue$$3,895 $(3,891)28.6 %(2)95.1 %$3,059 $12,265 $(9,206)91.8 %(2)95.1 %
Cost of pass-through revenue$21,813 $12,970 $8,843 100.0 %(3)100.0 %$58,850 $37,444 $21,406 100.0 %(3)100.0 %
Total costs of revenues$55,602 $50,248 $5,354 84.9 %81.9 %$167,831 $148,485 $19,346 85.4 %81.1 %
Service fee gross profit$9,873 $10,892 $(1,019)22.6 %(1)24.6 %$28,501 $34,028 $(5,527)21.2 %(1)25.6 %
Product revenue gross profit$10 $201 $(191)71.4 %(2)4.9 %$274 $631 $(357)8.2 %(2)4.9 %
Total gross profit$9,883 $11,093 $(1,210)15.1 %18.1 %$28,775 $34,659 $(5,884)14.6 %18.9 %
Selling, general and administrative expenses$16,341 $16,161 $180 25.0 %26.3 %$46,846 $44,768 $2,078 23.8 %24.4 %
Loss from continuing operations$(6,458)$(5,068)$(1,390)(9.9)%(8.3)%$(18,071)$(10,109)$(7,962)(9.2)%(5.5)%
Interest (income) expense, net$