KING OF PRUSSIA, Pa.--(BUSINESS WIRE)--July 29, 2009--GSI Commerce Inc. (Nasdaq: GSIC) today announced its financial results for its fiscal 2009 second quarter ended July 4.

The definitions of non-GAAP net revenues, non-GAAP income from operations, free cash flow, and a discussion of the importance of these non-GAAP financial metrics to GSI’s business, can be found under “Non-GAAP Financial Measures” provided later in this news release.

“We produced excellent results in the second quarter and have delivered a strong first half of 2009,” said Michael G. Rubin, chairman, president and CEO of GSI. “Net revenues and non-GAAP net revenues topped our expectations in the second quarter with revenues in both our e-commerce services and marketing services segments exceeding our plans. Loss from operations and non-GAAP income from operations for the second quarter also exceeded our expectations and operating and non-GAAP operating margins both expanded meaningfully from last year. As we continue to focus on driving improved return on capital, we are particularly pleased with our strong year-over-year growth in trailing 12 month cash flow from operations and free cash flow. Between business already signed and our current strong pipeline we believe we are on track to have a great year for new business and we are confident in our prospects for the balance of 2009 and beyond.”

The following forward-looking statements reflect GSI’s expectations as of July 29, 2009. Given the potential changes in general economic conditions and consumer spending, the growth rate of e-commerce and various other risk factors discussed in our forward-looking statements disclosure and in our public reports, actual results may differ materially.

The following is a reconciliation of GAAP loss from operations to non-GAAP income from operations: add to projected GAAP loss from operations estimated depreciation and amortization of $16.1 million (inclusive of amortization from acquisition-related intangibles of $2.6 million), estimated stock-based compensation of $5.4 million and estimated acquisition-related integration, transaction and due diligence expenses of $0.0 million.

GSI has scheduled a conference call for 4:45 p.m. EDT today to discuss the company’s 2009 fiscal second quarter operating results and its expectations for future performance.

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 non-GAAP net revenues, 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. 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. These measures may be different from non-GAAP measures used by other companies.

Non-GAAP net revenues. We define non-GAAP net revenues as net revenues minus cost of revenues from product sales and marketing expenses. Marketing expenses principally include client revenue share expenses, net advertising and promotional expenses, subsidized shipping and handling expenses, and catalog expenses. We consider non-GAAP net revenues to be a useful metric for management and investors because (1) it provides a metric for our investors to understand and analyze our company and (2) it provides investors with one of the primary metrics used by the company for evaluation and decision making purposes. We and many of our investors view us as a technology and business services company. Since most technology and business service companies generate their revenues from service fees and do not have product sales, we believe that by subtracting cost of revenues from product sales and marketing expenses from our net revenues from product sales, the company and investors will be better able to assess our revenues on a basis that more closely approximates the net revenues of other technology and business services companies. Further, management uses this metric for evaluating the performance of our business, making operating decisions and for budgeting purposes.

Non-GAAP income from operations. We define non-GAAP income from operations as income from operations excluding stock-based compensation, depreciation and amortization expenses and transaction, due diligence and integration expenses relating to acquisitions. 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 our business and operate in an emerging and 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, transaction and due diligence expense 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 internal use software. 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.

GSI Commerce^® (www.gsicommerce.com) 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 interactive^sm and e-Dialog (www.e-Dialog.com).

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 “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “guidance,” “potential,” “opportunity,” “continue,” “project,” “forecast,” “confident,” “prospects,” “schedule” 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 its 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, and the ability of GSI Commerce to successfully integrate its acquisitions of other businesses and the performance of acquired businesses. 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.


GSI COMMERCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)


		January 3,			July 4,
		2009 (1)(2)			2009

ASSETS
Current assets:
	Cash and cash equivalents	$	130,315		$	59,833
	Accounts receivable, less allowance for doubtful accounts of $2,747 and $2,622		78,544			51,247
	Inventory		42,856			37,135
	Deferred tax assets		18,125			18,697
	Prepaid expenses and other current assets		11,229			12,341
	Total current assets		281,069			179,253

Property and equipment, net			164,833			158,159
Goodwill			194,996			197,854
Intangible assets, net of accumulated amortization of $18,340 and $23,302			46,663			43,586
Long-term deferred tax assets			11,296			21,579
Other assets, net of accumulated amortization of $16,384 and $17,569			17,168			13,520
	Total assets	$	716,025		$	613,951

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	98,100		$	49,248
	Accrued expenses		116,747			69,359
	Deferred revenue		20,397			20,853
	Convertible notes		-			53,118
	Current portion - long-term debt		4,887			4,938
	Total current liabilities		240,131			197,516

Convertible notes			161,951			113,924
Long-term debt			32,609			30,114
Deferred revenue and other long-term liabilities			6,838			9,297
	Total liabilities		441,529			350,851

Commitments and contingencies

Stockholders’ equity:
	Preferred stock, $0.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding as of January 3, 2009 and July 4, 2009		-			-
	Common stock, $0.01 par value, 90,000,000 shares authorized; 47,630,824 and 49,037,690 shares issued as of January 3, 2009 and July 4, 2009, respectively; 47,630,621 and 49,037,487 shares outstanding as of January 3, 2009 and July 4, 2009, respectively		476			490
	Additional paid in capital		430,933			443,964
	Accumulated other comprehensive loss		(2,327	)		(1,545	)
	Accumulated deficit		(154,586	)		(179,809	)
	Total stockholders' equity		274,496			263,100

	Total liabilities and stockholders’ equity	$	716,025		$	613,951

⁽¹⁾ On January 4, 2009 the Company adopted Financial Accounting Standards Board Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)." The impact of this adoption has been retrospectively applied to prior period results.

⁽²⁾ In the second quarter of fiscal 2009, the Company discovered an immaterial misstatement in its stock-based compensation expense that impacted fiscal 2006, 2007, 2008, and the first fiscal quarter of fiscal 2009. The Company has corrected its prior period results as if its stock-based compensation expense had been properly recorded in each prior period. The corrections to prior periods will be presented in the Company's future filings.

GSI COMMERCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)


		Three Months Ended						Six Months Ended
		June 28,			July 4,			June 28,			July 4,
		2008 (1)(2)			2009			2008 (1)(2)			2009

Revenues:
	Net revenues from product sales	$	107,055		$	91,192		$	230,175		$	197,383
	Service fee revenues		86,154			95,989			158,577			186,273

	Net revenues		193,209			187,181			388,752			383,656

Costs and expenses:
	Cost of revenues from product sales		78,444			70,442			163,861			149,797
	Marketing		11,853			7,054			28,729			17,915
	Account management and operations, inclusive of $1,364, $2,394, $2,831 and $4,650 of stock-based compensation		57,550			59,055			116,993			116,796
	Product development, inclusive of $687, $1,185, $1,297 and $2,636 of stock-based compensation		25,214			28,101			47,835			56,475
	General and administrative, inclusive of $2,273, $2,513, $4,864 and $5,760 of stock-based compensation		18,694			19,527			34,948			38,804
	Depreciation and amortization		18,826			15,279			32,635			30,680

	Total costs and expenses		210,581			199,458			425,001			410,467

Loss from operations			(17,372	)		(12,277	)		(36,249	)		(26,811	)

Other (income) expense:
	Interest expense		4,539			4,759			8,909			9,555
	Interest income		(168	)		(54	)		(1,207	)		(205	)
	Other (income) expense		208			(394	)		353			(165	)

	Total other expense		4,579			4,311			8,055			9,185

Loss before income taxes			(21,951	)		(16,588	)		(44,304	)		(35,996	)
Benefit for income taxes			(1,604	)		(3,475	)		(12,459	)		(10,773	)

Net loss		$	(20,347	)	$	(13,113	)	$	(31,845	)	$	(25,223	)

Basic and diluted loss per share		$	(0.43	)	$	(0.27	)	$	(0.68	)	$	(0.52	)

Weighted average shares outstanding - basic and diluted			47,364			48,681			47,144			48,304

GSI COMMERCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


		Six Months Ended
		June 28,			July 4,
		2008 (1)(2)			2009

Cash Flows from Operating Activities:
	Net loss	$	(31,845	)	$	(25,223	)
	Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation		26,827			25,821
	Amortization		5,808			4,859
	Amortization of discount on convertible notes		4,617			5,092
	Stock-based compensation		8,992			13,046
	Foreign currency transaction gains		-			(153	)
	Gain on disposal of equipment		(282	)		-
	Deferred income taxes		(10,834	)		(10,737	)
	Changes in operating assets and liabilities:
	Accounts receivable, net		15,248			28,156
	Inventory		6,336			5,721
	Prepaid expenses and other current assets		(2,081	)		(923	)
	Other assets, net		683			1,824
	Accounts payable and accrued expenses		(68,115	)		(97,290	)
	Deferred revenue		7,181			155

	Net cash used in operating activities		(37,465	)		(49,652	)

Cash Flows from Investing Activities:
	Payments for acquisitions of businesses, net of cash acquired		(145,001	)		(2,273	)
	Cash paid for property and equipment, including internal use software		(29,866	)		(17,929	)
	Proceeds from disposition of assets		1,500			-
	Release of restricted cash escrow funds		-			1,052

	Net cash used in investing activities		(173,367	)		(19,150	)

Cash Flows from Financing Activities:
	Borrowings on revolving credit loan		30,000			-
	Debt issuance costs paid		(550	)		(42	)
	Repayments of capital lease obligations		(1,004	)		(2,353	)
	Repayments of mortgage note		(110	)		(91	)
	Proceeds from exercise of common stock options		572			522

	Net cash provided by (used in) financing activities		28,908			(1,964	)

Effect of exchange rate changes on cash and cash equivalents			(29	)		284

Net decrease in cash and cash equivalents			(181,953	)		(70,482	)
Cash and cash equivalents, beginning of period			231,511			130,315

Cash and cash equivalents, end of period		$	49,558		$	59,833


GSI COMMERCE, INC. AND SUBSIDIARIES
NON-GAAP INCOME FROM OPERATIONS AND RECONCILIATION TO GAAP RESULTS
(In thousands)
(Unaudited)


	Three Months Ended						Six Months Ended
	June 28,			July 4,			June 28,			July 4,
		2008			2009			2008			2009
Reconciliation of GAAP loss from operations to non-GAAP income from operations:
GAAP loss from operations	$	(17,372	)	$	(12,277	)	$	(36,249	)	$	(26,811	)

Acquisition related integration, transaction and due diligence expenses		957			165			2,072			1,624
Stock-based compensation		4,324			6,092			8,992			13,046
Depreciation and amortization⁽¹⁾		18,826			15,279			32,635			30,680

Non-GAAP income from operations	$	6,735		$	9,259		$	7,450		$	18,539


GSI COMMERCE, INC. AND SUBSIDIARIES
NON-GAAP NET REVENUES AND RECONCILIATION TO GAAP RESULTS
(In thousands)
(Unaudited)


	Three Months Ended						Six Months Ended
	June 28,			July 4,			June 28,			July 4,
		2008			2009			2008			2009
Reconciliation of GAAP net revenues to non-GAAP net revenues:
GAAP net revenues	$	193,209		$	187,181		$	388,752		$	383,656

Cost of revenues from product sales		(78,444	)		(70,442	)		(163,861	)		(149,797	)
Marketing expenses		(11,853	)		(7,054	)		(28,729	)		(17,915	)

Non-GAAP net revenues	$	102,912		$	109,685		$	196,162		$	215,944


GSI COMMERCE, INC. AND SUBSIDIARIES
RESULTS BY SEGMENT
(In thousands)
(Unaudited)


	Three Months Ended June 28, 2008
	E-Commerce		Interactive		Intersegment
	Services		Marketing Services		Eliminations			Consolidated

Net revenues	$	175,936	$	21,529	$	(4,256	)	$	193,209

Costs and expenses before depreciation, amortization and stock-based compensation expense		173,860		17,827		(4,256	)		187,431

Operating income before depreciation, amortization and stock-based compensation expense	$	2,076	$	3,702	$	-		$	5,778

	Three Months Ended July 4, 2009
	E-Commerce		Interactive		Intersegment
	Services		Marketing Services		Eliminations			Consolidated

Net revenues	$	163,770	$	28,486	$	(5,075	)	$	187,181

Costs and expenses before depreciation, amortization and stock-based compensation expense		161,336		21,826		(5,075	)		178,087

Operating income before depreciation, amortization and stock-based compensation expense	$	2,434	$	6,660	$	-		$	9,094

	Six Months Ended June 28, 2008
	E-Commerce		Interactive		Intersegment
	Services		Marketing Services		Eliminations			Consolidated

Net revenues	$	363,535	$	33,614	$	(8,397	)	$	388,752

Costs and expenses before depreciation, amortization and stock-based compensation expense		362,752		29,019		(8,397	)		383,374

Operating income before depreciation, amortization and stock-based compensation expense	$	783	$	4,595	$	-		$	5,378

	Six Months Ended July 4, 2009
	E-Commerce		Interactive		Intersegment
	Services		Marketing Services		Eliminations			Consolidated

Net revenues	$	342,280	$	53,608	$	(12,232	)	$	383,656

Costs and expenses before depreciation, amortization and stock-based compensation expense		336,177		42,796		(12,232	)		366,741

Operating income before depreciation, amortization and stock-based compensation expense	$	6,103	$	10,812	$	-		$	16,915

CONTACT:
GSI Commerce, Inc.
Greg Ryan
Dir. Corporate Communication
phone: 610-491-7294
e-mail: ryang@gsicommerce.com


GSI COMMERCE, INC. AND SUBSIDIARIES
FREE CASH FLOW AND RECONCILIATION TO GAAP RESULTS
(In thousands)
(Unaudited)


	Twelve Months Ended
	June 28,			July 4,
		2008			2009
Reconciliation of GAAP operating cash flow to free cash flow:
GAAP cash flow from operating activities	$	58,661		$	83,782

Cash paid for property and equipment, including internal use software		(61,346	)		(45,243	)

Free cash flow	$	(2,685	)	$	38,539