PFSweb Reports 82% Core Growth
Second Quarter Highlighted by New/Expanded Client Arrangements and Robust New Business Prospect Pipeline
PLANO, Texas--Aug. 12, 2002--PFSweb, Inc. (Nasdaq:PFSW), a leading provider of business process outsourcing solutions, today reported its results for the quarter ended June 30, 2002 and an optimistic outlook for new business opportunities.
"We are pleased with our improved financial results for the June 2002 quarter," said Thomas J. Madden, Senior Partner and Chief Financial Officer of PFSweb. "Our results include net revenues of $10.3 million, a solid gross profit margin of 38.3 percent, an LBITDA loss of $1.6 million, and a net loss of $2.4 million, or $(0.13) per common share. Excluding net service fee revenues from our former parent company in the prior year, net service fee revenue increased 82%, resulting largely from new client additions, and a seasonally high revenue period for our largest client. On a GAAP basis, net service fee revenue increased 10% over the prior year.
"Our balance sheet reflects more than $12 million in cash, of which $2.9 million is restricted, accounts receivable of $8.6 million, $10.8 million loaned to and invested in our affiliate company, Supplies Distributors, and total debt of only $5.0 million. Shareholders` equity remains solid at $31.9 million, or approximately $1.75 per share," Madden stated.
"The second quarter was a very solid quarter for PFSweb in terms of measuring our forward momentum and positive improvement in our financial results," said Mark C. Layton, Senior Partner and Chief Executive Officer of PFSweb. "I remain very optimistic about our future opportunities. This quarter was highlighted by the following key events:
Service fee revenue of $10.3 million, which was 82% greater than the same period last year (excluding former parent revenue);
Loss before D&A of $1.6 million and loss per share of $0.13;
Strong cash controls that allowed us to maintain our cash reserves at $12 million, which was the same as last quarter, plus our investment in and subordinated financing of $10.8 million in our affiliate Supplies Distributors to support our growing IBM Printing Company client;
The addition of new and expanded client relationships, resulting in year-to-date new business wins of more than $10 million;
Continued robust new business prospect pipeline; and
Continued strong performance in our quality measurements leading to high levels of customer satisfaction.
"We continue to make progress toward growing our business through new and expanded client relationships," Layton said. "Since the beginning of the year, we have completed contracts, or are near finalization, on new business activity that is targeted to generate $8 million of annualized revenue, the majority of which is now fully implemented. In addition, we have won incremental non-recurring client projects amounting to approximately $2 million.
"One of our most significant new client additions this past quarter was the completion and integration of a new contract arrangement with The Smithsonian Institution," Layton added. "PFSweb`s agreement was made with Smithsonian Business Ventures, which operates all businesses and revenue-producing activities of the Smithsonian Institution, the world`s largest museum and research complex. As we previously disclosed, based on current projections, we expect this contract to generate approximately $14 million in revenue over the five-year life of the contract.
"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 progress towards this goal.
"While we 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 control our overall costs to levels we believe are a prudent balance between maintaining the necessary resources to provide world class solutions to our clients and to 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 that as a result of our initiatives, the new business prospect pipeline has improved significantly. During 2002, we have begun to see a number of signs that the work we have been conducting is now showing results. We continue to be quite encouraged about the results that our reorganized and refocused marketing and sales efforts have driven to date," Layton explained. "Further, our new business lead pipeline continues to be robust. We currently have approximately 30 outstanding proposals for new business opportunities with both new and existing clients, estimated to represent over $35 million of annualized service fees.
"However, as I attempt to look forward a few quarters, visibility continues to be unclear," Layton added. "We continue to be faced with extending lead times to close new business that I believe is a by-product of the current economic and overall business environment volatility. There continue to be challenges that all businesses are facing in this current state of uncertainty, changing regulation and uncertain economic outlook. So while in my opinion our lead and proposal pipeline continues to be robust, the sales cycle is lengthier than in years past. Lead times to secure new business in many cases are extending to as long as one year from initial contact, versus the six month lead times we might have seen a year ago."
"Long lead times are a common characteristic of the outsourcing business model and as such, it may take some time before our financial results begin to materially reflect our progress, but we see our recent new client wins and the strong lead pipeline as positive indicators of momentum for the future. We continue to 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 will continue to focus our efforts on quality performance for our clients, on controlling costs, and on revenue growth," Layton emphasized. "We believe these combined 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 clearly 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 alliances, partners and opportunities that will enhance our growth and profitability objectives."
"We continue to see profitable results from our affiliate, Supplies Distributors," Madden added. "For the quarter ended June 30, 2002, PFSweb recognized $0.4 million of equity in earnings of our unconsolidated affiliate. In addition, due to strong working capital performance, Supplies Distributors was able to repay $3.0 million of its subordinated debt balance to PFSweb. We continue to explore the ability to obtain financing for a portion of PFSweb`s remaining subordinated balance with this affiliate."
Layton closed by adding, "I continue to be optimistic about the future for PFSweb. We are a young company with 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."
PFSweb will hold a conference call today at 4:00 p.m. Central Time. To ensure attendance on today`s call, plan to dial in by 3:50 p.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 3407460. Check www.pfsweb.com and our July 30, 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, the Smithsonian Institution, Avaya Communication (NYSE:AV), Dell (Nasdaq:DELL), 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:HPQ), 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 SmallCap Market; 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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