KING OF PRUSSIA, Pa.--(BUSINESS WIRE)--February 10, 2010--GSI Commerce Inc. (Nasdaq: GSIC) today announced its financial results for its fiscal 2009 year and fourth quarter ended Jan. 2, 2010.

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.

“Our strong fourth quarter capped a remarkable year’s performance for the company as we grew our 2009 non-GAAP income from operations 30 percent to $106.4 million and we achieved free cash flow of $97.2 million, meaningfully exceeding the average analyst expectation of $54.6 million,” said Michael G. Rubin, chairman, president and CEO of GSI. “Our results reflect the secular growth of e-commerce and interactive marketing, the continued success of our proven business model and our excellent execution. I am confident in the overall strength of our business, the industry and the opportunities for continued growth in 2010 and beyond, supported by solid quarter to date trends.”

The following forward-looking statements reflect GSI’s expectations as of Feb. 10, 2010. 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.

GSI has scheduled a conference call for 4:45 p.m. EST today to discuss the company’s 2009 fiscal year and fourth 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 the following expenses relating to acquisitions: transaction expenses, due diligence expenses, integration expenses, non-cash inventory valuation adjustments, and the cash portion of any deferred acquisition payments recorded as compensation expense. Beginning with this release, we are also excluding changes in fair value of deferred acquisition payments. 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 ASC 718 / 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 the following acquisition-related 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: transaction expenses, due diligence expenses, integration expenses, non-cash inventory valuation adjustments, the cash portion of any acquisition earn-out payments recorded as compensation expense, and changes in fair value of deferred acquisition payments.

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^® 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 solutions through an e-commerce platform, which is comprised of technology, fulfillment and customer care and is available on a modular basis or as part of an integrated, end-to-end solution. We offer a full suite of interactive marketing services through two divisions, TrueAction^TM and e-Dialog. Additionally, we provide brands and retailers a platform for online private sales through RueLaLa.com, and an online, off-price marketplace, SmartBargains.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 clients 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 clients, 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 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,			January 2,
			2009			2010

ASSETS
Current assets:
	Cash and cash equivalents		$	130,315		$	228,430
	Accounts receivable, less allowance for doubtful accounts of $2,747 and $4,648			78,544			70,582
	Inventory			42,856			55,678
	Deferred tax assets			18,125			12,347
	Prepaid expenses and other current assets			11,229			13,187
		Total current assets		281,069			380,224

Property and equipment, net				164,833			163,329
Goodwill				194,996			373,003
Intangible assets, net of accumulated amortization of $18,340 and $29,172				46,663			132,875
Long-term deferred tax assets				11,296			-
Other assets, net of accumulated amortization of $16,384 and $17,264				17,168			12,417
		Total assets	$	716,025		$	1,061,848

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	98,100		$	126,914
	Accrued expenses			116,747			150,173
	Deferred revenue			20,397			20,645
	Convertible notes			-			55,443
	Current portion - long-term debt			4,887			5,260
		Total current liabilities		240,131			358,435

Convertible notes				161,951			116,948
Long-term debt				32,609			28,142
Deferred acquisition payments				-			63,763
Deferred tax liabilities				-			8,534
Deferred revenue and other long-term liabilities				6,838			9,686
		Total liabilities		441,529			585,508

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 January 2, 2010		-			-
	Common stock, $0.01 par value, 90,000,000 shares authorized; 47,630,824
		and 60,033,393 shares issued as of January 3, 2009 and January 2, 2010,
		respectively; 47,630,621 and 60,033,190 shares outstanding as of
		January 3, 2009 and January 2, 2010, respectively		476			600
	Additional paid in capital			430,933			642,852
	Accumulated other comprehensive loss			(2,327	)		(1,498	)
	Accumulated deficit			(154,586	)		(165,614	)
		Total stockholders' equity		274,496			476,340

		Total liabilities and stockholders’ equity	$	716,025		$	1,061,848


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


			Three Months Ended						Twelve Months Ended
			January 3,			January 2,			January 3,			January 2,
			2009 (1)(2)			2010			2009			2010

Revenues:
	Net revenues from product sales		$	244,759		$	254,099		$	577,073		$	542,249
	Service fee revenues			146,621			176,149			389,853			461,966

		Net revenues		391,380			430,248			966,926			1,004,215

Costs and expenses:
	Cost of revenues from product sales			168,304			181,259			405,254			398,604
	Marketing			30,141			27,829			70,282			54,831
	Account management and operations, inclusive of $3,301
		$2,344, $7,505 and $9,028 of stock-based compensation		84,599			96,101			260,325			273,070
	Product development, inclusive of $2,115, $1,897, $4,118
		and $5,740 of stock-based compensation		30,637			35,305			104,208			120,176
	General and administrative, inclusive of $440, $1,799,
		$7,780 and $9,994 of stock-based compensation		16,527			24,753			68,964			82,922
	Depreciation and amortization			18,650			17,060			68,153			63,395
	Changes in fair value of deferred acquisition payments			-			951			-			951

		Total costs and expenses		348,858			383,258			977,186			993,949

Income (loss) from operations				42,522			46,990			(10,260	)		10,266

Other (income) expense:
	Interest expense			5,023			4,978			18,841			19,430
	Interest income			(375	)		(174	)		(1,772	)		(478	)
	Other (income) expense			729			195			1,562			(2	)
	Impairment of equity investments			1,665			-			1,665			-

		Total other expense		7,042			4,999			20,296			18,950

Income (loss) before income taxes				35,480			41,991			(30,556	)		(8,684	)
Provision (benefit) for income taxes				12,411			18,390			(7,585	)		2,344

Net income (loss)			$	23,069		$	23,601		$	(22,971	)	$	(11,028	)

Basic earnings (loss) per share			$	0.48		$	0.41		$	(0.49	)	$	(0.21	)

Diluted earnings (loss) per share			$	0.45		$	0.38		$	(0.49	)	$	(0.21	)

Weighted average shares outstanding - basic				47,595			57,310			47,347			51,457

Weighted average shares outstanding - diluted				56,729			68,595			47,347			51,457

⁽¹⁾ On January 4, 2009 the Company adopted Financial Accounting Standards Board's accounting standards on "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.


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


			Twelve Months Ended
			January 3,			January 2,
			2009			2010

Cash Flows from Operating Activities:
	Net loss		$	(22,971	)	$	(11,028	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation		54,557			52,633
		Amortization		13,596			10,762
		Amortization of discount on convertible notes		9,462			10,440
		Changes in fair value of deferred acquisition payments		-			951
		Stock-based compensation		19,403			24,762
		Foreign currency transaction losses		1,571			14
		Impairment of equity investments		1,665			-
		Gain on disposal of equipment		(354	)		(10	)
		Deferred income taxes		(7,722	)		202
	Changes in operating assets and liabilities:
		Accounts receivable, net		(8,130	)		10,010
		Inventory		4,437			7,677
		Prepaid expenses and other current assets		2,142			(544	)
		Other assets, net		1,724			2,159
		Accounts payable and accrued expenses		23,513			33,967
		Deferred revenue		3,076			(1,771	)

		Net cash provided by operating activities		95,969			140,224

Cash Flows from Investing Activities:
	Payments for acquisitions of businesses, net of cash acquired			(145,001	)		(88,892	)
	Cash paid for property and equipment, including internal use software			(57,180	)		(43,007	)
	Proceeds from disposition of assets			1,500			-
	Release of restricted cash escrow funds			-			1,052

		Net cash used in investing activities		(200,681	)		(130,847	)

Cash Flows from Financing Activities:
	Borrowings on revolving credit loan			70,000			-
	Repayments on revolving credit loan			(70,000	)		-
	Proceeds from sale of common stock			-			92,596
	Equity issuance costs paid			-			(4,728	)
	Proceeds from lease financing obligations			7,901			-
	Debt issuance costs paid			(561	)		-
	Repayments of capital lease obligations			(3,032	)		(4,503	)
	Repayments of mortgage note			(195	)		(184	)
	Excess tax benefit in connection with exercise of stock options and awards			14			92
	Proceeds from exercise of common stock options			1,385			5,320

		Net cash provided by financing activities		5,512			88,593

Effect of exchange rate changes on cash and cash equivalents				(1,996	)		145

Net increase (decrease) in cash and cash equivalents				(101,196	)		98,115
Cash and cash equivalents, beginning of period				231,511			130,315

Cash and cash equivalents, end of period			$	130,315		$	228,430


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


		Three Months Ended				Twelve Months Ended
		January 3,		January 2,		January 3,			January 2,
		2009		2010		2009			2010
Reconciliation of GAAP income (loss) from operations to
non-GAAP income from operations:
	GAAP income (loss) from operations	$	42,522	$	46,990	$	(10,260	)	$	10,266

	Acquisition related integration, transaction, due diligence
	expenses and inventory valuation adjustments		1,697		4,660		4,636			7,007
	Stock-based compensation		5,856		6,040		19,403			24,762
	Depreciation and amortization ⁽¹⁾		18,650		17,060		68,153			63,395
	Changes in fair value of deferred acquisition payments		-		951		-			951

	Non-GAAP income from operations	$	68,725	$	75,701	$	81,932		$	106,381


⁽¹⁾Includes amortization expense of acquisition related intangibles of $3,178 and $10,722 for the three- and twelve-months ended January 2, 2010 and $3,923 and $13,551 for the three- and twelve-months ended January 3, 2009.

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


		Three Months Ended January 3, 2009
		E-Commerce Services		Interactive Marketing Services		Consumer Engagement			Intersegment Eliminations			Consolidated

Net revenues		$	368,408	$	27,762	$	-		$	(4,790	)	$	391,380

Costs and expenses before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense		308,815		20,327		-			(4,790	)		324,352

Operating income before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense	$	59,593	$	7,435	$	-		$	-		$	67,028

		Three Months Ended January 2, 2010
		E-Commerce Services		Interactive Marketing Services		Consumer Engagement			Intersegment Eliminations			Consolidated

Net revenues		$	370,654	$	42,934	$	26,347		$	(9,687	)	$	430,248

Costs and expenses before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense		310,347		29,102		29,445			(9,687	)		359,207

Operating income (loss) before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense	$	60,307	$	13,832	$	(3,098	)	$	-		$	71,041

		Twelve Months Ended January 3, 2009
		E-Commerce Services		Interactive Marketing Services		Consumer Engagement			Intersegment Eliminations			Consolidated

Net revenues		$	900,040	$	84,508	$	-		$	(17,622	)	$	966,926

Costs and expenses before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense		837,648		69,604		-			(17,622	)		889,630

Operating income before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense	$	62,392	$	14,904	$	-		$	-		$	77,296

		Twelve Months Ended January 2, 2010
		E-Commerce Services		Interactive Marketing Services		Consumer Engagement			Intersegment Eliminations			Consolidated

Net revenues		$	879,575	$	127,580	$	26,347		$	(29,287	)	$	1,004,215

Costs and expenses before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense		808,232		96,451		29,445			(29,287	)		904,841

Operating income (loss) before depreciation, amortization,
	changes in fair value of deferred acquisition
	payments and stock-based compensation expense	$	71,343	$	31,129	$	(3,098	)	$	-		$	99,374

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


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


		Three Months Ended						Twelve Months Ended
		January 3,			January 2,			January 3,			January 2,
		2009			2010			2009			2010
Reconciliation of GAAP net revenues to non-GAAP
net revenues:
	GAAP net revenues	$	391,380		$	430,248		$	966,926		$	1,004,215

	Cost of revenues from product sales		(168,304	)		(181,259	)		(405,254	)		(398,604	)
	Marketing expenses		(30,141	)		(27,829	)		(70,282	)		(54,831	)

	Non-GAAP net revenues	$	192,935		$	221,160		$	491,390		$	550,780


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


		Twelve Months Ended
		January 3,			January 2,
		2009			2010
Reconciliation of GAAP operating cash flow to free cash flow:
	GAAP cash flow from operating activities	$	95,969		$	140,224

	Cash paid for property and equipment, including internal use software		(57,180	)		(43,007	)

	Free cash flow	$	38,789		$	97,217