(BSNS WIRE) PFSweb December Quarter Results Ahead of Target; Service Fee
PFSweb December Quarter Results Ahead of Target; Service Fee Revenues Grow 350
Percent to $14.0 Million
Business Editors & Technology Writers
PLANO, Texas--(BUSINESS WIRE)--Feb. 3, 2000--PFSweb, Inc.
(Nasdaq:PFSW), a leading e-commerce transaction management services
company for both traditional and e-commerce companies, today reported
its results for the quarter ended Dec. 31, 1999. PFSweb is an 80%
owned subsidiary of Daisytek International Corporation (Nasdaq:DZTK),
which has announced its intention to spin-off PFSweb in the year 2000.
IMPORTANT NOTE FOR FINANCIAL COMPARISON:
The accompanying financial data in this press release includes
certain adjusted financial data as well as the historical financial
performance of PFSweb. We believe the adjusted financial data provided
in Schedule I is more reflective of the ongoing operations of PFSweb.
The historical financial statements (Schedule II) are only of limited
use in evaluating our current and future financial performance as a
result of PFSweb's initial public offering (IPO) in December 1999,
Daisytek's planned spin-off of PFSweb, modifications to the IBM
agreements and the new transaction management services agreement
between PFSweb and Daisytek, as well as certain other adjustments. We
believe that beginning with our March 2000 quarter, our reported
financial results will be more reflective of the ongoing operations.
"Our adjusted service fee revenues of $14.0 million exceeded our
target this quarter, and reflects growth of 351% over the prior year
(as adjusted)," said Mark C. Layton, President and CEO of PFSweb. "The
significant increase was a result of new client activity, the addition
of Daisytek as a client, and strong growth in Internet based holiday
sales volume. We were fortunate to have added approximately 15 new
clients during calendar year 1999, of which the majority became
operational in the last four months of the year. Our adjusted gross
profit percentage for the three months ended Dec. 31, 1999, was 33.1%,
which represents a slight decline versus previous sequential quarters.
This decline was expected as a result of changes in customer mix as
well as incremental investments in personnel, technology, capacity and
infrastructure during the latter half of 1999."
Adjusted service fee revenues and gross profit reflect,
retroactively, what PFSweb's service fee revenue and gross profit
would have been if (i) PFSweb's modified agreement with IBM had been
in effect during the periods presented, (ii) our new agreement with
Daisytek had been in effect for the entire calendar year of 1999,
(iii) the acquisition by PFSweb of certain assets and liabilities from
Daisytek which was effective upon completion of the IPO had occurred
as of the beginning of the periods presented, and (iv) for the quarter
ended Dec. 31, 1999, an adjustment to the costing methodology applied
to start-up activity on new client implementations.
PFSweb provides a full suite of e-commerce transaction management
services to both business-to-business and business-to-consumer
e-commerce entities. PFSweb's comprehensive outsourcing solution
provides both traditional and web-based companies with a virtual
back-end infrastructure that facilitates the rapid implementation of
their e-commerce strategies. PFSweb's services include order
management, customer care services, billing services, distribution
services and information management.
PFSweb's clients include more than 30 retailers, e-tailers and
manufacturers such as American Eagle Outfitters (Nasdaq:AEOS), Thomson
Direct (Nasdaq:TMS), Apple Computer (Nasdaq:AAPL), Global Sports
Interactive (Nasdaq:GSPT), Hewlett Packard (NYSE:HWP), IBM (NYSE:IBM),
Nokia Mobile Phones (NYSE:NOK), Sharper Image (Nasdaq:SHRP) and
Daisytek International (Nasdaq:DZTK).
"PFSweb's service offering is designed specifically to focus on
solving the significant supply chain and customer service challenges
that arise when conducting business electronically," said Layton. "It
is critical for companies with e-commerce strategies to realize that
the infrastructure to support such initiatives is much different than
what is required in a traditional business environment. PFSweb aims to
provide this high-quality infrastructure and allow our clients to
focus on their core competencies. Today, PFSweb provides unique,
comprehensive and fully integrated services to over 30 clients in the
United States, Canada and in Europe. We provide our clients with
outstanding benefits; quick access to the e-commerce market, a
world-class call center and distribution infrastructure, a
high-quality e-experience for their clients and international scope
and scale. We truly provide everything from 'the click of the mouse to
the knock at the house.'(SM)
"This past Christmas season we shipped over 1/2 million packages.
PFSweb took orders on behalf of our clients until December 23rd and
was able to deliver merchandise to their customers on the 24th," said
Layton. "We answered nearly 200,000 phone calls in December with an
average answer time of 28 seconds and completed over 70,000 secure
credit card transactions. We now hold in stock over 80,000 different
products for our clients ranging from clothing to outdoor advertising
materials. We are now operating approximately 1.5 million sq. feet of
distribution space and on an annual run rate this past quarter we
moved more than $1.2 billion worth of our clients' product.
"Over the next few months we are committing significant resources
to enhance and further increase the reliability of our operating
environment in preparation for new customers and continuing growth
within many of our clients," Layton added. "Specifically, we are
adding further web interfacing capability and stability, we are
implementing the latest in credit card fraud detection from
Cybersource (Nasdaq:CYBS), bringing on-line an additional 25,000
packages per day of fully automated distribution capacity in the U.S.
and in Europe and planning ahead for even more.
"Over the next several months, we expect to provide you with
further details in regards to recent client additions, recent
expansions of existing client relationships, and new strategic
alliance partnerships. Unfortunately, due to nondisclosure
arrangements, we are not able to provide any further information on
these developments at this time," Layton added.
"Our ongoing sales pipeline and marketing efforts continue to be
very strong, both here in North America as well as in Europe, and we
continue to target service revenue growth of more than 40% for
calendar year 2000, and it is our objective to operate our business
profitably during this period. To achieve this growth, we are
executing the following five growth strategies:
1. Target clients with major brand names.
2. Expanding existing client relationships.
3. Promote our PFSweb brand.
4. Seek strategic alliances and acquisitions.
5. Expand our international presence.
"As a result of the proceeds from the initial public offering,
PFSweb's balance sheet is very attractive, currently operating with
between $20-25 million of cash and minimal debt," Layton added. "This
places us in a strong financial position to drive these growth
initiatives."
Daisytek, which continues to own 80% of PFSweb, also announced
that it currently expects to receive a response to its ruling request
with the Internal Revenue Service with regards to the tax-free status
of the PFSweb spin-off within four to six months. Daisytek is
proceeding diligently with its previously announced plans to complete
the spin-off of its remaining ownership of PFSweb in calendar year
2000. More information about the impact of this process is available
at daisytek.com.
Layton, PFSweb president and CEO, recently relinquished his roles
as Daisytek's president and CEO to assume full-time duties with
PFSweb. Layton will continue to serve as chairman of Daisytek.
Currently, the two companies continue to operate with a common board
of directors, but company officials said they expect each company to
have a separate board going forward as part of the spin-off.
About PFSweb, Inc.
PFSweb is a leading international provider of transaction
management and e-commerce logistics business services. PFSweb's
comprehensive outsourcing solution provides both traditional and
Web-based companies with a virtual back-end infrastructure that
facilitates the rapid implementation of their e-commerce strategies.
PFSweb's services include order management, customer care services,
billing services, distribution services and information management.
PFSweb provides everything "from the click of the mouse to the knock
at the house."(SM)
The matters discussed in this news release 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 risks
and uncertainties include, but are not limited to, our reliance on the
fees generated by the transaction volume or product sales of our
clients; 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; effects of changes in profit
margins; the unknown effects of possible system failures and rapid
changes in technology; trends in government regulation; and our
relationship with and separation from Daisytek. 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.
This news release and more information about PFSweb are available
at www.pfsweb.com. PFSweb is a registered trademark. Daisytek is a
registered trademark of Daisytek, Incorporated. All rights reserved.
-0-
*T
PFSweb, Inc. and Subsidiaries SCHEDULE I
Unaudited Adjusted Financial Data
(In Thousands, Except Per Share Data)
In order to show how we will present our financial statements in
the future because of our new arrangements with IBM and Daisytek, we
have set forth below an adjusted presentation of our total historical
revenue and cost of revenue. This presentation shows, retroactively,
what our service fee revenue and cost of service fee revenue would
have been if (i) our modified agreement with IBM had been in effect
during the periods presented, (ii) our new agreement with Daisytek had
been in effect for the entire calendar year ended 1999, (iii) our
acquisition of the assets and liabilities that Daisytek transferred to
us upon completion the IPO had occurred as of the beginning of the
periods presented, and (iv) for the quarter and year ended December
31, 1999, an adjustment to the costing methodology applied to start-up
activity on new client implementations.
Three Months Ended
December 31,
------------------
1999 1998 (A) Growth %
---------- ---------- ----------
Service fee revenue $ 13,965 $ 3,094 351.4%
Cost of service fee revenue 9,349 1,724 442.3%
Service fee gross profit 4,616 1,370 236.9%
Service fee gross profit margin 33.1% 44.3%
Calendar Year Ended
December 31,
------------------
1999 1998 (A) Growth %
---------- ---------- ----------
Service fee revenue $ 42,287 $ 8,901 375.1%
Cost of service fee revenue 26,781 5,332 402.3%
Service fee gross profit 15,506 3,569 334.5%
Service fee gross profit margin 36.7% 40.1%
(A) The adjusted operating results for 1998 periods do not reflect
our new agreement with Daisytek or our acquisition of the assets
and liabilities that Daisytek transferred to us upon completion
of the IPO had occurred as of the beginning of the respective
periods presented. Had the transactions with Daisytek been
reflected during the 1998 periods presented, the adjusted
financial operating data would have reflected service fee revenue
of $7,808 and $29,323 for the three months and year ended
December 31, 1998. Service fee gross profit would have been
$3,254 (41.7%) and $11,979 (40.9%), respectively.
PFSweb based the following adjusted operating data on available
information and certain estimates and assumptions. PFSweb believes
that such assumptions provide a reasonable basis for presenting the
results of PFSweb, adjusting for the transactions described above.
This adjusted financial information does not reflect what our
operating income or net income would have been during the periods
presented or what our results of operations may be in the future.
PFSweb, Inc. and Subsidiaries SCHEDULE II
Unaudited Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
Historical Financial Presentation
---------------------------------
We believe our historical financial statements are only of
minimal use in evaluating its current and future financial performance
for the reasons described below.
In 1996, PFSweb entered into an agreement with the printer
supplies division of IBM. Under this agreement, PFSweb provided IBM
with various transaction management services, such as call center
services and order fulfillment and distribution. PFSweb also served as
an IBM master distributor of printer supply products. Under this
master distributor arrangement, PFSweb purchased the printer supply
products from IBM and resold them to IBM customers. Following its
initial agreement with the printer supplies division, PFSweb entered
into several similar agreements with other divisions of IBM, both in
the U.S. and Europe, and expanded its existing agreements to include
more product lines.
During the quarter ended September 30, 1999, PFSweb, Daisytek and
IBM entered into new agreements to conform to PFSweb's current
business model. Under these new agreements, Daisytek will act as the
master distributor of the IBM products and PFSweb will continue to
provide various transaction management services. As part of this
restructuring, PFSweb transferred to Daisytek the IBM product
inventory which PFSweb held as the master distributor, together with
its customer accounts receivable and its accounts payable owing to IBM
in respect of the product inventory. The purpose of the restructuring
was to separate the master distributor and transaction management
responsibilities between PFSweb and Daisytek so that each could focus
on its core competencies.
As a result of the restructuring of the IBM agreements, PFSweb's
historical financial statements may not provide a meaningful
comparison to its future financial statements. This is because, as a
master distributor under its prior agreement, PFSweb recorded revenue
as product revenue as PFSweb sold the product to IBM customers.
Similarly, PFSweb's gross profit was based upon the difference between
its revenue from product sales and the cost of purchasing the product
from IBM. In the future, however, PFSweb's revenue under the new IBM
agreements will be service fee revenue that will be payable by
Daisytek and will be based upon a variable percentage of Daisytek's
gross profit arising from its IBM product sales.
As a result of this restructuring of PFSweb's IBM agreements,
PFSweb's total revenues arising under its new IBM agreements will be
reduced, as compared to the total revenues arising under the prior IBM
agreements. However, PFSweb's gross profit margin as a percent of
service fee revenue under the new IBM agreements is anticipated to be
significantly higher as compared to PFSweb's gross profit margin as a
percent of product revenue under the prior IBM agreements.
In addition, upon completion of the IPO on December 2, 1999,
PFSweb entered into a new transaction management services agreement
with Daisytek. Under this agreement, PFSweb provides transaction
management services for Daisytek's U.S. wholesale consumable computer
supplies business. PFSweb receives service fee revenue based upon a
percentage of Daisytek's shipped product revenue. Consequently,
PFSweb's historical financial statements reflect the service fee
revenue PFSweb received from Daisytek under this new agreement for
only one month in the three and nine months results ended December 31.
PFSweb's historical data for the three and nine months ended
December 31, 1999, included incremental costs on new contract
implementations as well as certain incremental charges including
certain costs applicable to the PFSweb separation from Daisytek.
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues:
Product revenue $ -- $ 23,635 $ 55,778 $ 64,962
Service fee revenue 10,868 2,026 17,872 4,787
--------- --------- --------- ---------
Total revenues 10,868 25,661 73,650 69,749
Costs of revenues:
Cost of product revenue -- 22,265 52,639 61,508
Cost of service fee
revenue 9,772 1,317 14,670 3,472
--------- --------- --------- ---------
Total costs of revenues 9,772 23,582 67,309 64,980
--------- --------- --------- ---------
Gross profit 1,096 2,079 6,341 4,769
Selling, general and
administrative expenses 6,593 1,850 12,464 4,426
--------- --------- --------- ---------
Income (loss) from
operations (5,497) 229 (6,123) 343
Interest expense (income) 137 (52) 787 87
--------- --------- --------- ---------
Income (loss) before
income taxes (5,634) 281 (6,910) 256
Provision (benefit) for
income taxes (857) 117 (1,360) 108
--------- --------- --------- ---------
Net income (loss) $ (4,777) $ 164 $ (5,550) $ 148
========= ========= ========= =========
Net income (loss) per share:
Basic and diluted $ (0.31) $ 0.01 $ (0.38) $ 0.01
========= ========= ========= =========
Weighted average number
of shares outstanding:
Basic and diluted 15,447 14,305 14,687 14,305
========= ========= ========= =========
SEE IMPORTANT NOTE FOR FINANCIAL COMPARISON
PFSweb, Inc. and Subsidiaries SCHEDULE III
Unaudited Consolidated Balance Sheet Data
(In Thousands)
December 31, March 31,
1999 1999
------------ ------------
Cash $ 30,798 $ 587
Trade accounts receivable, net $ 8,260 $ 22,190
Inventories $ -- $ 29,856
Net property and equipment $ 17,674 $ 2,711
Total assets $ 67,106 $ 69,057
Trade accounts payable $ 7,207 $ 38,329
Payable to Daisytek $ 6,613 $ 29,029
Shareholders' equity $ 48,074 $ 581
As a result of PFSweb's IPO in December 1999, the Company raised
net proceeds of approximately $53 million. The company used a portion
of the proceeds to repay the intercompany payable to Daisytek of
approximately $28 million. Additionally, Daisytek transferred to
PFSweb fixed assets and other assets which will be used in PFSweb's
business. PFSweb paid Daisytek a portion of the net proceeds of the
IPO (approximately $5 million) and assumed capital and operating lease
obligations related to these assets.
*T
--30--na/da*
CONTACT: PFSweb, Inc.
Mark C. Layton/Thomas J. Madden, 972/881-2900
mlayton@pfsweb.com
tmadden@pfsweb.com
or
Michael A. Burns & Associates
Craig McDaniel, 214/521-8596 or 214/616-7186 mobile
cmcdaniel@mbapr.com
KEYWORD: TEXAS
INDUSTRY KEYWORD:E-COMMERCE RETAIL EARNINGS
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