PLANO, Texas, Feb 20, 2003 -- PFSweb, Inc. (Nasdaq:PFSW), a leading provider of business process outsourcing solutions, today reported its results for the quarter and fiscal year ended December 31, 2002. The results demonstrate the positive effects of the significant restructuring plan implemented during the quarter ended September 30, 2002 and reflect consolidated results including the acquisition of Supplies Distributors on October 1, 2002.
"Our consolidated results for the December 2002 quarter include total revenues of $65.1 million, a positive EBITDA of $0.6 million, and a net loss of $1.1 million, ($0.06) per share," said Tom Madden, Senior Partner and Chief Financial Officer of PFSweb. "These results are much improved from our recent historical results. Our consolidated balance sheet as of December 31, 2002 reflects $106.8 million in total assets, including $12.5 million in cash (of which $3.9 million is restricted), and shareholders` equity of $26.5 million, or $1.45 per share."
"The fourth quarter represented the first time in more than three years that PFSweb operated at nearly cash flow break even," said Mark C. Layton, Senior Partner and Chief Executive Officer of PFSweb. "Our results are highlighted by the following key items:
-- 2002 revenue growth of more than 30% in our PFSweb business segment net service fee revenue as compared to the previous year (excluding former parent company revenue);
-- Substantially reduced SG&A expenses to $5.6 million for our PFSweb service fee business segment this quarter, compared to $6.7 million during the previous quarter ended September 30, 2002;
-- Significantly improved bottom line performance as evidenced by a $1.1 million net loss this quarter compared to a $2.5 million net loss during the previous quarter ended September 30, 2002, excluding restructuring charges; and
-- Improved cash levels, on a consolidated basis, of $1.0 million to $12.5 million at year-end.
"I am pleased to report that our December 2002 quarter results show solid progress towards profitability," Layton added. "We believe our results for the December quarter were positively impacted by three primary factors:
1. Successful implementation of our previously announced restructuring plan. This plan was targeted to improve our bottom line performance by approximately $1.5 million per quarter. Our December quarter reflects an improvement of approximately $1.2 million as a result of swift and successful implementation of the plan.
2. Stronger than expected service fee revenue for the December quarter due to higher sales and business transaction volumes from certain clients during the holiday selling season.
3. Completion of the acquisition of Supplies Distributors, Inc. that resulted in an accretive earnings contribution to PFSweb, Inc. during the quarter.
"The restructuring actions allowed us to significantly reduce our cash burn rate. We believe our current cash position is strong and provides PFSweb with the necessary financing requirements as we look out to the future. To further enhance our cash position, we have selected a bank to provide financing for the PFSweb service fee receivables via a line of credit. The proposed facility is for a maximum of $7.5 million of borrowings, subject to a collateral calculation of eligible receivables. We are targeting to finalize this arrangement by the end of March 2003."
"While we did not finalize all of the restructuring activities during the September and December quarters, we have come a long way in meeting our desired targets," Madden said. "We currently anticipate the possibility of incurring additional restructuring charges in the March or June quarters of calendar year 2003. We expect these additional charges to aggregate between $0.5 million and $1.0 million.
"PFSweb`s service fee business segment generated net service fee revenue of $9.4 million for the December 2002 quarter compared to $8.4 million of service fee revenues in the same period of the prior year (excluding $0.8 million of service fees earned from our former parent company, see Exhibit A - Footnote B). On a calendar year basis, net service fee revenue from PFSweb`s service fee business segment was $37.6 million in 2002, compared to $28.6 million in the same period last year (excluding $11.1 million of service fees earned from our former parent company).
"As previously announced, PFSweb, Inc. completed the acquisition of Supplies Distributors, Inc. ("SD") on October 1, 2002 by purchasing the remaining 51% of SD it did not own," continued Madden. "This acquisition was immediately accretive to PFSweb and resulted in a $0.2 million extraordinary gain during the December 2002 quarter. SD provides clients an owned inventory model alternative versus PFSweb`s traditional consigned inventory model. As a result, and typical of a master distributor, SD`s financial model reflects high product revenues, low gross and net operating margins and significant working capital assets. IBM Credit Corporation, Congress Financial Corporation (Southwest) and Fortis Commercial Finance N.V. provide more than $80.0 million of senior financing facilities to fund SD`s working capital requirements. PFSweb provides services for SD to support its business activities and has provided equity, subordinated debt financing and certain guarantees to support SD`s financing requirements. PFSweb is required to maintain certain levels of subordinated debt and investment in the SD business.
"For the December quarter, Supplies Distributors performed well, exceeding its targeted expectations. Total product revenues were $57.5 million and our gross profit was approximately 5%. Net profit for Supplies Distributors was approximately $0.3 million during the December quarter."
"Additional growth via new business remains critical to achieving our future goals," added Layton. "I remain very encouraged about our ability to continue growing given the state of our current lead and proposal pipeline, which is much stronger than it was at this time last year. Our marketing and lead generation engine is working effectively and is providing a consistent flow of new business leads. These lead generation efforts continue to show very solid results as we continue to have a number of requests for proposals to evaluate and potentially pursue. We are currently pursuing more than 25 outstanding proposals for new business opportunities with both new and existing clients, having an estimated potential value of more than $15 million per year in service fee revenue. The annual service fees applicable to our 2002 cumulative new business wins are currently estimated to be approximately $13.0 million, including certain one-time opportunities.
"As we look to 2003, we have adopted a simple but effective strategy statement to drive our actions for the year, `QGP in 2003`," Layton said. "The acronym stands for Quality, Growth and Profit in 2003. If we can achieve solid performance during 2003 on these three basic elements, they will provide for an outstanding foundation for PFSweb`s future as we enter 2004. We have created internal goals that we are using to define success and measure our progress towards these 2003 strategic targets. If we are successful in reaching our 2003 targets, we believe our clients will speak to our high quality performance, our revenue will show solid levels of growth year on year, and our bottom line will finally show sustainable profitability as we exit 2003.
"It is important to reiterate that our service fee business segment`s business is currently seasonal in nature. The March quarter is our slowest quarter while the June quarter is our peak. As such, we expect our financial results to fluctuate downward during the March 2003 quarter and take an upturn in results for the June 2003 quarter. These seasonal fluctuations are driven by the business characteristics of our largest client."
"One final note, our GAAP results reflect the consolidation of the SD business since the October 1, 2002 acquisition," stated Madden. "For clarity and comparison purposes we also have provided consolidating financial statements showing the historical PFSweb service fee business unit, the newly acquired Supplies Distributors business unit and the resulting elimination adjustments related to services that PFSweb provides for SD. This is included as Exhibit B. Note that on a consolidated basis, as required by GAAP, we eliminate PFSweb service fee revenues earned from SD, as well as the corresponding expense in SD`s results applicable to these service fees. Further, we also have provided a pro forma consolidating income statement for PFSweb and Supplies Distributors for the full calendar year 2002, as if the acquisition had occurred as of January 1, 2002. This is included as Exhibit C."
PFSweb will hold a conference call Friday, February 21, 2003 at 10:00 a.m. Central Time. To ensure attendance on the call, plan to dial in by 9:50 a.m. to 973-582-2741. 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 3747782. Check www.pfsweb.com and our February 18, 2003 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), 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), Smithsonian Business Ventures 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 subsidiary, Supplies Distributors; the ability of our subsidiary Supplies Distributors to maintain and renew its working capital indebtedness; the continued listing of our common stock on the NASDAQ SmallCap Market; our relationship with and separation from Daisytek, our former parent corporation; and our ability to obtain a line of credit with a bank. 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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