33% Core Growth, New Client Arrangements and a Robust New Business Prospect Pipeline Highlight Quarter
PLANO, Texas, May 7, 2002 -- PFSweb, Inc. (Nasdaq:PFSW), a leading provider of business process outsourcing solutions, today reported its results for the quarter ended March 31, 2002 and an optimistic outlook for new business opportunities during 2002.
"We are pleased with our financial results for the March 2002 quarter," said Tom Madden, Senior Partner and Chief Financial Officer of PFSweb. "Our results include net revenues of $8.3 million, a solid gross profit percentage of 37.1 percent, an LBITDA loss of $2.4 million, and a net loss of $3.2 million, or $(0.18) per common share. Net service fee revenue increased more than 33% as compared to prior year`s quarter, excluding former parent revenue.
"Our balance sheet continues to be strong with more than $12.2 million in cash, of which $2.9 million is restricted, accounts receivable of $7.9 million, $12.7 million loaned to and invested in our affiliate company, Supplies Distributors, and total debt of only $4.8 million. Shareholders` equity remains solid at $33.1 million, or approximately $1.82 per share," Madden stated.
"We are pleased that our client business levels for the first quarter were above our overall expectations and we see signs of an improving U.S. economy," said Mark C. Layton, Senior Partner and Chief Executive Officer of PFSweb. "This quarter was highlighted by the following key events:
-- Continued world-class client service to our brand name clients;
-- Continued prudent controls on operating expenses and SG&A levels;
-- A cash balance level of $12.2 million, and $12.7 million of monies
loaned to and invested in our affiliate, Supplies Distributors,
which supports our growing IBM Printing Systems client;
-- The finalization of 12 arrangements with new and existing clients
which are targeted to generate approximately $7.3 million of
annualized revenue;
-- One of these arrangements includes another major government client
and expands our government client base;
-- The progression of negotiations on several potential new client
deals that if and when implemented, are targeted to generate
approximately $5.2 million of annualized revenue; and
-- A strong new business prospect pipeline.
"Looking to the future, our primary focus is to evolve our business to a level of sustainable profitability," Layton said. "With a seasonally stronger second quarter, the positive impact of new client contracts and a continued strong new business prospect pipeline, we believe we are making good progress towards this goal.
"As we previously communicated, our results in the first quarter reflect a seasonally low revenue period for our U.S. Government contract. Further, this quarter reflects the first period since our IPO where no revenues were earned from our former parent corporation. We do continue to incur certain technology infrastructure costs which were previously used to support our former parent that are now reflected as a component of SG&A. While we do continue to operate with excess infrastructure capacity in both our North American and European operations, we are targeting to significantly leverage this existing infrastructure by adding new revenue in the future. Meanwhile, we continue to operate our overall costs at levels we believe are a prudent balance between maintaining the necessary resources to provide world class solutions to our clients and support our growth initiatives, while minimizing our losses and the resulting cash burn rate," Layton continued.
"During 2001, we enacted a strategic action plan to adjust costs and to re-energize our new business pipeline and resulting revenue growth. I am pleased to report that as a result of our initiatives, the new business prospect pipeline has improved significantly. During the early months of 2002, we have begun to see a number of signs that the work we have been conducting is now showing results. We are quite encouraged about the results that our reorganized and refocused marketing and sales efforts have driven to date, and we experienced a strong quarter of new and existing client arrangement wins," Layton explained. "Further, we believe our new business lead pipeline is as robust as it has been at any point in our history. The investments we have made to expand our product offering have resulted in recent new client wins where previously PFSweb may not have been capable of competing. More effective marketing techniques and larger market areas to address have made for greater success in our lead generation. As such, we believe these combined factors will provide a more optimistic outlook on our financial results during the next few quarters," he said.
"We believe we have now emerged from a difficult transition and economic period financially sound, better focused, with a broader suite of services and a stronger and more diversified client list. Long lead times are a common characteristic of the outsourcing business model and as such, it may yet take some time before our financial results begin to materially reflect our progress, but we see this quarter`s 33% core growth, coupled with the fact that almost 40% of the current quarter`s revenue was generated from new clients, as positive indicators of momentum for the future. We believe the wind is now at our backs and accelerating us towards meeting our profit goals. We look forward to seeing our hard work result in improved financial results in the quarters to come," Layton added.
"As we look to the remainder of 2002 and into 2003, we believe we are now well positioned to entirely focus our efforts on quality performance for our clients and on revenue growth," Layton added. "We believe that together these actions will help us reach our goal of sustainable profitability. We are focused on executing the following mix of strategies for our business to meet this goal:
-- Ensuring high quality performance for our clients, first and
foremost;
-- Growing our revenue base through growth in our existing client
relationships and through strategically focused marketing
initiatives to add new clients;
-- Hiring, training and retaining high quality professionals who can
design, implement and execute expert business solutions for our
prospective clients;
-- Inventing new technology and operational capabilities that
unmistakably differentiate PFSweb from its competitors;
-- Controlling overhead costs while we focus on adding new business
that should result in reducing our own excess infrastructure; and
-- Seeking strategic opportunities, including acquisitions, that may
further our growth objectives."
"In the September 2001 quarter, we completed the establishment and capitalization of an affiliate, Supplies Distributors," Madden added. "We capitalized a 49 percent equity interest in this entity for $0.75 million and through March 31, 2002, provided $11.8 million of subordinated debt to Supplies Distributors. The creation of this affiliate and these financing arrangements were important elements for PFSweb to achieve the two-year renewal to provide outsourcing services to IBM Printing Systems. This action also furthered our overall solutions capabilities by allowing our affiliate, Supplies Distributors, to now offer inventory and receivables solutions to prospective clients. For the quarter ended March 31, 2002, Supplies Distributors had profitable results and exceeded its forecasted goals resulting in PFSweb recognizing $0.5 million of equity in earnings of an unconsolidated affiliate."
Recently, Supplies Distributors closed on various new credit agreements that collectively provide for up to $90 million of senior borrowing capacity. Supplies Distributors entered into amended credit facilities with IBM Credit Corporation and IBM Belgium Financial Services S.A. The one-year, asset based credit facility with IBM Credit Corporation provides up to $32.5 million in financing for purchasing IBM inventory in the United States through June 30, 2002, and $27.5 million thereafter. The one-year, asset-based credit facility with IBM Belgium Services S.A. provides up to 27 million Euros (approximately U.S. $23.5 million) in financing for purchasing IBM inventory through June 30, 2002 and 22 million Euros (approximately U.S. $19.1 million) thereafter. PFSweb has provided a collateralized guaranty to secure the repayment of these credit facilities.
Additionally, Supplies Distributors entered into a three-year loan agreement with Congress Financial to provide financing for up to $25 million of eligible accounts receivables in the United States and Canada. This Congress credit facility is secured by all of the assets of Supplies Distributors, as well as collateralized guaranties by PFSweb. In Europe, Supplies Distributors S.A. entered into a two-year factoring agreement with Fortis to provide factoring for up to 10 million Euros (approximately U.S. $8.7 million) of accounts receivables.
"The Supplies Distributors product offering provides critical financial services elements necessary to successfully offer working capital solutions that allow our clients to implement channel strategy changes. With this expanded facility, Supplies Distributors is now well positioned to begin to grow its overall customer base, which we believe will provide additional new business opportunities for PFSweb as well," Madden continued. "In conjunction with Supplies Distributors finalizing its long-term financing objectives, we anticipate that up to several million of PFSweb`s subordinated debt will be repaid. Additionally, we are exploring the ability to obtain financing for a portion of PFSweb`s remaining subordinated balance."
Layton closed by adding, "I continue to be bullish about the future for PFSweb. We are a young company with a solid financial foundation and outstanding growth prospects. We offer a suite of products that are in high demand, business solutions designed by a team of world-class professionals and technology tools that differentiate us well from the pack of traditional outsource providers. I continue to stress patience as we evolve our business model, and I remain confident that shareholders with a longer-term vision will be well rewarded by their investment in PFSweb."
PFSweb will hold a conference call on Wednesday, May 8, 2002 at 10:00 a.m. Central Time. To ensure attendance on tomorrow`s call, plan to dial in by 9:50 a.m. to 973-628-6885. Ask to be placed on the PFSweb Earnings Release Conference Call. Two hours after the conference, a recorded playback can be heard for 14 days at 973-341-3080, using the confirmation number 3102443. Check www.pfsweb.com and our April 24, 2002 investor conference call press release for more details on the call.
About PFSweb, Inc.
When the world`s brand names need proven, fast and secure business infrastructure to enable traditional and e-commerce strategies, they choose PFSweb for comprehensive outsourcing solutions. The PFSweb team of experts designs diverse solutions for clients around a flexible core business infrastructure. PFSweb provides solutions that include: professional consulting services, order management, web-enabled customer contact centers, customer relationship management, international distribution services, kitting and assembly services, managed web hosting and site design, billing and collection services and ERP information interfacing utilizing the Entente Suite (SM).
Our services are available for a multitude of industries and company types, including such clients as International Business Machines (NYSE: IBM), Adaptec (Nasdaq: ADPT), the U.S. Mint, Avaya Communication (NYSE: AV), Dell (Nasdaq: DELL), Emtec Magnetics, a manufacturer of BASF-branded data media and audio visual products, Lancome, a cosmetics division of L`Oreal International (ADR: LORLY), Xerox (NYSE: XRX), Thomson multimedia (NYSE: TMS), Pharmacia&Upjohn (NYSE: PHA), Nokia (NYSE: NOK), Hewlett-Packard (NYSE: HWP), and Roots.
The matters discussed in this news release (except for historical information) and, in particular, information regarding future revenue, earnings and business plans and goals, consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and are subject to and involve risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties include, but are not limited to, our ability to retain and expand relationships with existing clients and attract new clients; our reliance on the fees generated by the transaction volume or product sales of our clients; our reliance on our clients` projections or transaction volume or product sales; our client mix and the seasonality of their business; our ability to finalize pending contracts; the impact of strategic alliances and acquisitions; trends in the market for our services; trends in e-commerce; whether we can continue and manage growth; changes in the trend toward outsourcing; increased competition; our ability to generate more revenue and achieve sustainable profitability; effects of changes in profit margins; the customer concentration of our business; the unknown effects of possible system failures and rapid changes in technology; trends in government regulation both foreign and domestic; foreign currency risks and other risks of operating in foreign countries; potential litigation involving our e-commerce intellectual property rights; our dependency on key personnel; our ability to raise additional capital; our guarantees of the working capital indebtedness of our affiliate, Supplies Distributors; the continued listing of our common stock on the NASDAQ; and our relationship with and separation from Daisytek, our former parent corporation.. A description of these factors, as well as other factors, which could affect the Company`s business, is set forth in the Company`s Prospectus dated December 2, 1999 and Form 10-K for the nine-month transition period ended December 31, 2001.
In addition, some forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. We undertake no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. There may be additional risks that we do not currently view as material or that are not presently known.
To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit our website at www.pfsweb.com. The PFSweb web site is not part of this release. PFSweb is a registered trademark. Entente Suite is a service mark of PFSweb. All rights reserved.
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