GSI Commerce Reports Fiscal 2007 Year and Fourth Quarter Operating Results
KING OF PRUSSIA, Pa., Feb. 13, 2008 – GSI Commerce Inc. (Nasdaq: GSIC) today announced its financial results for its fiscal 2007 year and fourth quarter ended Dec. 29, 2007.
Fiscal Year 2007 Compared to Fiscal Year 2006
• Net revenue increased 23 percent to $750.0 million from $609.6 million.
• Income from operations decreased 49 percent to $4.9 million from $9.6 million.
• Non-GAAP income from operations (previously referred to as adjusted EBITDA) increased
36 percent to $52.3 million from $38.5 million.
• Net income decreased to $3.0 million or $0.06 per fully diluted share from $53.7 million or $1.10 per fully diluted share. Fiscal year 2006 net income included an income tax benefit of $43.7 million compared to a benefit of $0.1 million in fiscal year 2007.
Included in income from operations, non-GAAP income from operations and net income was a charge related to a legal matter. The company disclosed the potential for this charge in its pre-release announcement on Jan. 24.
A definition of the non-GAAP measure, non-GAAP income from operations, and a discussion of the importance of this financial metric to GSI’s business can be found under “Non-GAAP Financial Measures” provided later in this news release.
“We are pleased with the strong growth we delivered in fiscal 2007,” said Michael G. Rubin, chairman and CEO of GSI. “The year had many highlights and included significant activity surrounding new business wins and renewals in the U.S. and Europe, the expansion of our fulfillment center network, the acquisitions of Accretive Commerce and Zendor as well as meaningful growth in our marketing services division. We are optimistic about our prospects for growth in 2008 and are excited to have completed the acquisition of e-Dialog today.”
Key Events Since Oct. 24, 2007
• GSI today announced that it closed its acquisition of e-Dialog Inc., a Lexington, Mass.-based, market-leading provider of advanced e-mail marketing services and solutions to more than 100 blue-chip companies in the U.S. and Europe.
• GSI obtained a $75 million revolving secured line of credit from a bank group led by PNC Capital Markets.
• GSI closed its acquisition of Zendor.com Ltd., a Manchester, U.K.-based leading provider of fulfillment, customer care and e-commerce solutions.
• GSI announced a new e-commerce partnership with the Casual Male Retail Group Inc. (Nasdaq: CMRG) to design, develop and operate the online stores for both the Casual Male XL and Rochester Big & Tall brands in six European countries.
• GSI extended multiyear e-commerce agreements with three Accretive Commerce partners to provide their combined five online stores with fully integrated e-commerce solutions. All five Web stores are scheduled to launch on GSI’s e-commerce platform during 2008.
• GSI signed a multiyear agreement to provide privately held Spanx®, a women’s hosiery and shapewear company, with a full-service, e-commerce solution.
• GSI signed a multiyear extension to continue to provide customer care services for the direct-to-consumer business of Restoration Hardware, and signed a multiyear contract extension with a global financial services company to continue servicing that company’s loyalty program in the U.S. Both Restoration Hardware and the global financial services company are Accretive Commerce partners.
• GSI launched a new Web store for New York-based, Marc Ecko Enterprises, an innovative, global fashion and lifestyle company (http://www.shopecko.com).
• GSI launched a new Web store for Nautica (http://www.nautica.com), a leading global lifestyle brand.
• GSI signed a multiyear agreement to provide customer care services for the online store of Belk Inc., the largest privately owned department store company in the U.S.
• GSI has become the new, full-service e-commerce solution provider for Major League Soccer (MLS) recently re-launching the league’s Web store at (http://www.MLSgear.com).
• Lawrence S. Smith was elected by the company’s board of directors to serve as a director of the company. Smith served as executive vice president and co-chief financial officer of Comcast Corporation from 1988 to 2007, and also serves on the boards of Air Products and Chemicals Inc., MGM Holdings Inc. and Tyco Electronics Ltd.
Fiscal Year 2008 and First Quarter Guidance
The following forward-looking statements reflect GSI’s expectations as of Feb. 13, 2008. Given the potential changes in general economic conditions and consumer spending, the growth rate of e-commerce and various other risk factors discussed below and in our public reports, actual results may differ materially.
Beginning with this news release, we will use and provide guidance for the non-GAAP metric of non-GAAP income from operations, which the company previously referred to as adjusted EBITDA. Beginning with the 2008 fiscal first quarter, GSI will no longer provide guidance or actual results for the non-GAAP metric of merchandise sales. We believe that merchandise sales is a less meaningful metric for management and investors to understand growth in the company’s overall business. GSI also will no longer provide guidance on net income or non-GAAP net income because we believe that income from operations and non-GAAP income from operations are sufficient to indicate the general direction of profitability for the company.
Fiscal Year 2008 Guidance
The company provides the following guidance for fiscal year 2008:
• Net revenue is expected to be approximately $1.0 billion.
• Income from operations is expected to be in a range of $3.0 million to $6.0 million (a).
• Non-GAAP income from operations is expected to be in a range of $80.0 million to $83.0 million (b).
(a) At this time, the company has not completed estimates for the following primarily non-cash items related to the e-Dialog acquisition: the amount of amortization from acquisition related intangibles (non cash), the amount of acquisition-related integration expenses (cash), the amount of stock-based compensation related to e-Dialog employees (non cash), and the amount of incremental depreciation that may result from the step-up of the value of fixed assets (non cash). Because these items have not been estimated at this time, they have been excluded from our guidance on income from operations. As a result, the company’s actual for income from operations could decrease materially.
(b) The following is a reconciliation of GAAP income from operations to non-GAAP income from operations: add to projected GAAP income from operations estimated depreciation and amortization of $56.0 million (inclusive of amortization from acquisition-related intangibles of $7.0 million), estimated stock-based compensation of $14.0 million, and acquisition-related integration costs of approximately $7.0 million.
Capital expenditures for fiscal year 2008 are estimated to be approximately $70.0 million including acquisition-related integration capital expenditures of approximately $11.0 million.
Fiscal 2008 First Quarter Guidance
The company provides the following guidance for fiscal 2008 first quarter:
• Net revenue is expected to be approximately $188.0 million to $193.0 million.
• Income from operations is expected to range between a loss of $18.0 million and a loss of $19.0 million (a).
• Non-GAAP income from operations is expected to range between a loss of $1.0 million and breakeven (b).
(a) At this time, the company has not completed estimates for the following primarily non-cash items related to the e-Dialog acquisition: the amount of amortization from acquisition related intangibles (non cash), the amount of acquisition-related integration expenses (cash), the amount of stock-based compensation related to e-Dialog employees (non cash), and the amount of incremental depreciation that may result from the step-up of the value of fixed assets (non cash). Because these items have not been estimated at this time, they have been excluded from our guidance on income from operations. As a result, the company’s actual income from operations could decrease materially.
(b) The following is a reconciliation of GAAP income from operations to non-GAAP income from operations: add to projected GAAP income from operations estimated depreciation and amortization of $13.0 million (inclusive of amortization from acquisition-related intangibles of $2.0 million), estimated stock-based compensation of $3.0 million, and acquisition-related integration costs of approximately $2.0 million.
Conference Call Today
GSI has scheduled a conference call for 4:45 p.m. EST today to discuss the company’s 2007 fiscal year and fourth quarter operating results and its 2008 fiscal year and first quarter guidance.
Live Conference Access:
• Phone – Dial 1-800-901-5217, passcode 57502778 by 4:30 p.m. EST on Feb. 13
• Web – Go to http://www.gsicommerce.com, and click on the Webcast tab provided on the home page, or go to http://www.streetevents.com, where the conference call will be broadcast live. Please allow at least 15 minutes to register, download and install any necessary audio software.
Conference Replays:
• Web – Go to http://www.gsicommerce.com, and click on the Webcast tab provided on the home page. Access will remain available through March 14.
Non-GAAP Financial Measures
GSI’s consolidated financial statements are prepared and presented in accordance with GAAP. To supplement our consolidated financial statements, in this release and on the conference call, we use the non-GAAP financial measures of merchandise sales, non-GAAP income from operations and free cash flow. We also discuss certain ratios that use those measures. The non-GAAP measures and ratios presented are not intended to be considered in isolation of, as a substitute for, or superior to our GAAP financial information. We have included reconciliations later in this release of the non-GAAP measures to the nearest GAAP measure.
We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate our performance. In our opinion, these non-GAAP measures provide meaningful supplemental information regarding our performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as to the operating results of comparable companies. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by institutional investors and the analyst community to help them analyze the health of our business.
Merchandise sales. We define merchandise sales as the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through our platform, whether we record the full amount of such transaction as a product sale or a percentage of such transaction as a service fee on our financial statements. Merchandise sales exclude the retail value of all sales transactions from partners acquired through the acquisition of Accretive Commerce as such sales do not flow through our platform. Merchandise sales do, however, include the value of freight services sold by Accretive Commerce to its partners. Because companies recently acquired by GSI do not have a comparable metric in their businesses, we believe that merchandise sales is a less meaningful metric for management and investors to understand growth in the company’s overall business. As a result, after this news release, we will no longer report on the metric merchandise sales.
Non-GAAP income from operations. We define non-GAAP income from operations, formerly referred to as adjusted EBITDA, as income from operations excluding stock-based compensation, depreciation and amortization expenses and acquisition-related integration expenses. We consider non-GAAP income from operations to be a useful metric for management and investors because it excludes certain non-cash and non-operating items. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when valuing equity awards under SFAS 123R, we believe that viewing income from operations excluding stock-based compensation expense allows investors to make meaningful comparisons between our operating performance and those of other businesses. Because we are growing rapidly and operate in an emerging and rapidly changing industry, we believe that our level of capital expenditures and consequently the level of depreciation and amortization expense relative to our revenues could be meaningfully greater today than it will be over time. As a result, we believe it is useful supplemental information to view income from operations excluding depreciation and amortization expense as it provides a potential indicator of the future operating margin potential of the business. We believe the exclusion of acquisition-related integration expenses permits evaluation and a comparison of results for on-going business operations, and it is on this basis that management internally assesses the company’s performance.
Free cash flow. We define free cash flow as net cash provided by operating activities minus cash paid for fixed assets, including capitalized software development. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology infrastructure, can be used for strategic opportunities, including investing in the business, making strategic acquisitions and strengthening the balance sheet. Analysis of free cash flow also facilitates management’s comparisons of our operating results to the operating results of comparable companies. A limitation of using free cash flow as a means for evaluating our performance is that free cash flow reflects changes in working capital which is impacted by short-term changes in cash flow and the seasonality of our business which may not be indicative of long-term performance. Another limitation of free cash flow is that it excludes fixed assets purchased and placed in service, but not paid for during the applicable period. Our management compensates for this limitation by providing supplemental information about capital expenditures accrued, but not paid for during the applicable periods on the face of the cash flow statement in our Forms 10-K and 10-Q.
About GSI Commerce
GSI Commerce® is a leading provider of services that enable e-commerce, multichannel retailing and interactive marketing for large, business-to-consumer (b2c) enterprises in the U.S. and internationally. We deliver customized e-commerce solutions through an e-commerce platform, which is comprised of technology, fulfillment and customer care. We offer each of the platform’s components on a modular basis, or as part of an integrated, end-to-end solution. We also offer a full suite of interactive marketing services through two divisions, gsi interactivesm and e-Dialog.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made in this release, other than statements of historical fact, are forward-looking statements. The words “look forward to,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “could,” “guidance,” “potential,” “opportunity,” “continue,” “project,” “forecast,” “confident,” “prospects,” “schedule,” “designed,” “future” “discussions,” “if” and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about the business of GSI Commerce. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Factors which may affect GSI Commerce’s business, financial condition and operating results include the effects of changes in the economy, consumer spending, the financial markets and the industries in which GSI Commerce and its partners operate, changes affecting the Internet and e-commerce, the ability of GSI Commerce to develop and maintain relationships with strategic partners and suppliers and the timing of the establishment, extension or termination of its relationships with strategic partners, the ability of GSI Commerce to timely and successfully develop, maintain and protect its technology, confidential and proprietary information and product and service offerings and execute operationally, the ability of GSI Commerce to attract and retain qualified personnel, the ability of GSI Commerce to successfully integrate its acquisitions of other businesses, the performance of acquired businesses, and the results of discussions related to the settlement of a legal matter and the amount of any charge to earnings related to the matter. More information about potential factors that could affect GSI Commerce can be found in its most recent Form 10-K, Form 10-Q and other reports and statements filed by GSI Commerce with the SEC. GSI Commerce expressly disclaims any intent or obligation to update these forward-looking statements.
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GSI Commerce, Inc.
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