PFSweb Reports 2007 First Quarter Results

Business Wire, May 15, 2007

eCOST.com Shows Continued Improvement and Momentum

PLANO, Texas -- PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process outsourcing ("BPO") solutions for both online and traditional commerce, today announced its financial results for the first quarter ended March 31, 2007.

Summary of consolidated results for the first quarter ended March 31, 2007:

* Total reported revenue was $104.4 million, compared to $110.7 million for the first quarter of 2006

* Adjusted EBITDA (as defined) was $0.8 million versus $1.6 million for the same period last year

* Net loss was $2.4 million, or $0.05 per basic and diluted share, compared to net loss of $1.6 million, or $0.05 per basic and diluted share, for the first quarter of 2006

          -- Weighted average number of basic and diluted shares
             outstanding was 46,475,000, compared to 34,904,000 for
             the first quarter of 2006

* Merchandise sales (as defined) totaled approximately $650 million for the first quarter of 2007

* Total cash, cash equivalents and restricted cash equaled $15.4 million as of March 31, 2007

Please note that the prior year's quarterly consolidated results only include the financial results for eCOST.com from the date the merger closed on February 1, 2006 through March 31, 2006.

"Our first quarter results demonstrate continued improvements at eCOST.com, which reported a slight increase in revenue for the first quarter of 2007 as compared to the seasonally strong fourth quarter of 2006. We believe eCOST.com's performance this quarter is a solid indicator of a return to growth. The continued improvements we have made to eCOST.com's gross profit and cost structure, combined with a stable revenue performance, resulted in a significantly reduced operating loss during the quarter, a trend we believe will continue. Our Services Fee Business, which is historically softer in the first quarter due to seasonality, also demonstrated solid results including a 7% increase in revenues due to revenues earned from new business contracts signed in 2006, partially offset by a reduction in project activity. We continue to maintain our consolidated revenue target of $420 to $435 million and an Adjusted EBITDA target of $8-$10 million for calendar year 2007," stated Mark Layton, Chief Executive Officer of PFSweb.

Summary of results by business:

Service Fee Business:

For the first quarter of 2007, Service Fee revenue was $17.0 million, an increase of 7%, compared with $15.9 million in 2006. The Service Fee business reported Adjusted EBITDA of $0.3 million for the first quarter of 2007, compared to $1.3 million for the same period last year. The drop in Adjusted EBITDA is primarily attributable to a decrease in project work in 2007, as well as increased SG&A costs primarily related to facilities, travel and the impact of foreign currency fluctuations.

Mr. Layton stated, "Our Service Fee business grew approximately $1.1 million in revenues in the first quarter of 2007, as compared to the same period of the prior year. This increase is attributable to expanded relationships with key clients and the addition of several new clients such as Lego, Riverbed and others within the past few quarters. Gross margins for the business were within our targeted range of 25-35%. During the period we completed the implementation of substantially all of the new business we previously announced in 2006 that had not yet been operational. Overall, we are pleased with the performance of our Service Fee business and are targeting a solid pipeline of potential new business for the remainder of the year."

Supplies Distributors Business:

For the first quarter of 2007, Supplies Distributors revenue was $58.8 million, compared to $68.4 million for the same period last year. Gross margin remained flat at 6.5% compared to the same period last year. Adjusted EBITDA was $1.4 million for the first quarter of 2007, compared to $1.8 million for the same period last year.

Mr. Layton continued, "During the period we experienced a decline in our Supplies Distributors business, primarily as a result of decreased vendor promotional activity, the impact of foreign currency fluctuations, and lower unit volumes as compared to the same period last year. We remain confident in this business, which provides a steady flow of revenue and increased scale to our operations that positively affects our other two businesses."

eCOST.com Business:

For the first quarter of 2007, eCOST.com revenue was $21.6 million, compared to $21.8 million for the same period in 2006. Adjusted EBITDA for eCOST.com in the quarter was a loss of $0.9 million, compared to a loss of $1.4 million for the same period last year. Please note, the prior year period results for eCost.com reflect only two months of activity from the date of acquisition of February 1, 2006 through March 31, 2006.

"In the first quarter, eCOST.com moved closer toward achieving our near-term gross profit goal of 9% to 10%, reporting its best quarterly gross margin and bottom-line performance since 2004. The many improvements we have made since the merger continue to be positively reflected in the sequential quarterly comparisons. For instance, revenue in the first quarter of 2007 slightly exceeded revenue from the fourth quarter of 2006, which is traditionally the seasonally strongest quarter for retailers. This return to growth at eCOST.com, together with our improving gross margins, are encouraging signs of the progress that we are making. We continue to look at new ways to improve eCOST.com's operations and customer service to further increase revenues, while minimizing costs," Mr. Layton concluded.