8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report: October 29, 2003

(Date of earliest event reported)

GSI COMMERCE, INC.

(Exact name of registrant as specified in its charter)

Delaware	0-16611	04-2958132
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)

1075 First Avenue, King of Prussia, PA 19406

(Address of principal executive offices and zip code)

(610) 265-3229

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

99.1 Press Release, dated October 29, 2003

Item 12. Results of Operations and Financial Condition.

On October 29, 2003, GSI Commerce, Inc. (the “Registrant”) issued a press release announcing its results for the fiscal quarter ended September 27, 2003 and certain other information. A copy of this press release is furnished as part of this report and incorporated herein by reference.

The press release included as Exhibit 99.1 contains the non-GAAP financial measures EBITDA and net merchandise sales. The Registrant uses EBITDA as a means to evaluate its performance period to period without taking into account certain expenses, particularly stock-based compensation expense which may fluctuate materially due to fluctuations in the price of the Registrant’s common stock both on a quarterly basis and on an annual basis and does not consistently reflect the Registrant’s results from its core business activities. In addition, the Registrant uses net merchandise sales as a metric for operating its business. Variable costs such as fulfillment and customer service labor expense, order processing costs such as credit card and bank processing fees, and business management costs such as marketing department staffing levels are related to the amount of sales made through the Registrant’s platform, whether or not the Registrant records the revenue from such sales. The Registrant believes that investors will have a more thorough understanding of its expense trends if they have visibility to both GAAP revenue as well as the non-GAAP financial measure net merchandise sales. These non-GAAP financial measures should be considered in addition to, and not as a substitute, or superior to, other measures of financial performance prepared in accordance with GAAP. These non-GAAP measures included in the press release have been reconciled to the nearest GAAP measure as is now required under new SEC rules regarding the use of non-GAAP financial measures.

As used herein, “GAAP” refers to accounting principles generally accepted in the United States.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

GSI COMMERCE, INC.
By:	/s/ Michael G. Rubin
Michael G. Rubin
Chairman, President and Chief Executive Officer

Dated: October 29, 2003

Exhibit Index

Exhibit No.	Description
99.1	Press Release, dated October 29, 2003

EX-99.1

Exhibit 99.1

Contact:

Jordan M. Copland

Executive Vice President and Chief Financial Officer

GSI Commerce, Inc.

(610) 491-7000

coplandj@gsicommerce.com

FOR IMMEDIATE RELEASE

GSI COMMERCE REPORTS THIRD QUARTER FISCAL 2003 RESULTS

KING OF PRUSSIA, PENNSYLVANIA, October 29, 2003 – GSI COMMERCE, INC. (NASDAQ: GSIC), today announced financial results for its third fiscal quarter ended September 27, 2003.

Net revenue was $47.5 million in the third quarter of fiscal 2003, compared with net revenue of $32.3 million in the third quarter of fiscal 2002, an increase of 46.9%.

Net loss was $5.5 million in the third quarter of fiscal 2003, compared with net loss of $8.6 million in the third quarter of fiscal 2002. Net loss per share was $0.14 in the third quarter of fiscal 2003, compared with net loss per share of $0.22 in the third quarter of fiscal 2002.

EBITDA loss was $2.0 million in the third quarter of fiscal 2003, compared to EBITDA loss of $5.9 million in the third quarter of fiscal 2002. EBITDA represents earnings (or loss) before interest income/expense, taxes, depreciation and amortization and stock-based compensation. A reconciliation of EBITDA to GAAP net loss is contained later in this release.

“GSI Commerce continued its trend of strong performance in the third quarter of 2003, with excellent sales growth and reductions in EBITDA loss and net loss compared to the prior year period. Our year to date results demonstrate solid execution and a growing market opportunity. We are reiterating our previously issued fourth quarter guidance and continue to expect to achieve EBITDA and GAAP profitability in fiscal 2004,” said Michael Rubin, Chairman and CEO of GSI Commerce.

Highlights Since July 30, 2003

• Net merchandise sales* increased 51% over the prior year quarter, including a 49% increase in sporting goods, a 98% decrease attributable to the Ashford.com business, which GSI Commerce sold in December 2002, and a 108% increase in other categories.

• Sales and marketing, product development and general and administrative expenses, collectively, increased 1.8% over the prior year quarter, and declined, collectively, to 39.4% of net revenue from 56.9% of net revenue.

• Inventory declined to $22.4 million from $32.4 million a year ago.

• GSI completed the launch of Linens-n-Things, including an in-store associate assisted ordering system and an integrated online/offline wedding registry.

• GSI’s wholly owned subsidiary Global-QVC Solutions implemented a new business relationship with PBS Businesses, which includes providing support for its e-commerce, catalog and direct response television platforms.

*Net merchandise sales represents the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through the GSI Commerce platform, whether or not GSI Commerce is the seller of the merchandise or records the full amount of such sales on its financial statements. A reconciliation of net merchandise sales to GAAP net revenue is contained later in this release.

Financial Guidance

The following forward-looking statements reflect GSI Commerce’s expectations as of October 29, 2003. Given the potential changes in general economic conditions and consumer spending, the emerging nature of e-commerce, and various other risk factors discussed below, actual results may differ materially.

Fiscal 2003 Expectations

• Net revenue is expected to be in the range of $228-$234 million.

• Net merchandise sales is expected to be in the range of $269-$275 million.

• Net loss is expected to be in the range of $12-$14 million.

• EBITDA loss is expected to be in the range of $0-$2.0 million.

Fiscal Fourth Quarter 2003 Expectations

• Net revenue is expected to be in the range of $82-$88 million.

• Net merchandise sales is expected to be in the range of $107-$113 million.

• Net income is expected to be in the range of $1.5-$3.0 million.

• EBITDA is expected to be in the range of $4.5-$6 million.

Non-GAAP Financial Measures

This press release contains the non-GAAP financial measures EBITDA and net merchandise sales. GSI Commerce uses EBITDA as a means to evaluate its performance period to period without taking into account certain expenses, particularly stock-based compensation expense which may fluctuate materially due to fluctuations in the price of GSI Commerce’s common stock both on a quarterly basis and on an annual basis and does not consistently reflect GSI Commerce’s results from its core business activities. In addition, GSI Commerce uses net merchandise sales as a metric for operating its business. Variable costs such as fulfillment and customer service labor expense, order processing costs such as credit card and bank processing fees, and business management costs such as marketing department staffing levels are related to the amount of sales made through GSI Commerce’s platform, whether or not GSI Commerce records the revenue from such sales. GSI Commerce believes that investors will have a more thorough understanding of its expense trends if they have visibility to both GAAP revenue as well as the non-GAAP financial measure net merchandise sales. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP. These non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure as is now required under new SEC rules regarding the use of non-GAAP financial measures.

As used herein, “GAAP” refers to accounting principles generally accepted in the United States of America.

Third Quarter Conference Call

A conference call to discuss GSI Commerce’s third quarter 2003 financial results will be held at 4:45 p.m. EST on October 29, 2003. For access to the conference call, call 1-888-928-9510 by 4:30 p.m. EST. The password is “Commerce” and the leader’s name is “Michael Rubin.” A tape recording of the conference call will be available, starting one hour after completion of the call, until the end of business November 11, 2003. To access the recording, call 1-800-879-5507.

A live Webcast of the conference call will also be available at www.gsicommerce.com or www.streetevents.com. A replay of the Webcast will be available for a limited time.

About GSI Commerce, Inc.

GSI Commerce is a leading outsource solution provider for e-commerce. The company develops and operates e-commerce businesses for retailers, branded manufacturers, media companies, television networks and professional sports organizations. The GSI Commerce platform includes Web site design and development, e-commerce technology, customer service, fulfillment, merchandising, content development and management, and online and database marketing.

Forward-Looking Statements

All statements made in this release and to be made in GSI Commerce’s third quarter 2003 conference call, including those in the recordings and live audio of the call, other than statements of historical fact, are or will be forward-looking statements. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “will”, “would”, “should”, “guidance”, “potential”, “continue”, “project”, “forecast”, “confident”, “prospects”, 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 and the industry and markets in which the company operates. 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 stock market and the industries in which GSI Commerce operates, changes affecting the Internet and e-commerce, the ability of the company to develop and maintain relationships with strategic partners and suppliers, the ability of the company to timely and successfully develop, maintain and protect its technology and product and service offerings and execute operationally, the ability of the company to attract and retain qualified personnel, the ability of the company 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 Securities and Exchange Commission. GSI Commerce expressly disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated by GSI Commerce.

# # #

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	December 28, 2002			September 27, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	61,004		$	36,505
Short-term investments		2,280			—
Marketable securities		11,543			10,028
Accounts receivable, net of allowance of $1,533 and $1,293, respectively		3,974			3,634
Inventory		24,306			22,352
Prepaid expenses and other current assets		2,078			1,872
Total current assets		105,185			74,391
Property and equipment, net		48,669			45,278
Goodwill, net		13,453			13,453
Notes receivable		4,423			3,911
Other equity investments		2,159			2,159
Other assets, net of accumulated amortization of $1,250 and $2,042, respectively		13,684			12,873
Total assets	$	187,573		$	152,065
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,664		$	15,368
Accrued expenses and other		20,283			13,805
Deferred revenue		15,025			15,832
Current portion – capital lease obligations		78			—
Total current liabilities		67,050			45,005
Mandatorily redeemable preferred stock, Series A, $0.01 par value, 10,000 shares authorized; 200 and 0 shares issued as of December 28, 2002 and September 27, 2003, respectively; 0 shares outstanding as of December 28, 2002 and September 27, 2003, respectively		—			—
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 4,990,000 shares authorized; 0 shares issued and outstanding as of December 28, 2002 and September 27, 2003, respectively		—			—
Common stock, $0.01 par value, 90,000,000 shares authorized; 38,857,855 and 40,636,675 shares issued as of December 28, 2002 and September 27, 2003, respectively; 38,783,645 and 40,635,465 shares outstanding as of December 28, 2002 and September 27, 2003, respectively		389			406
Additional paid in capital		285,625			286,979
Accumulated other comprehensive income		57			27
Accumulated deficit		(165,547	)		(180,352	)
		120,524			107,060
Less: Treasury stock, at par		1			—
Total stockholders’ equity		120,523			107,060
Total liabilities and stockholders’ equity	$	187,573		$	152,065

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 28, 2002			September 27, 2003			September 28, 2002			September 27, 2003
Revenues:
Net revenues from product sales	$	27,778		$	42,521		$	85,721		$	132,416
Service fee revenues		4,545			4,962			11,596			14,294
Net revenues		32,323			47,483			97,317			146,710
Cost of revenues from product sales		20,257			30,778			61,011			95,938
Gross profit		12,066			16,705			36,306			50,772
Operating expenses:
Sales and marketing, exclusive of $154, $419, $155 and $927 reported below as stock-based compensation, respectively		11,362			11,789			30,297			35,335
Product development, exclusive of $0, $38, $(44) and $38 reported below as stock-based compensation, respectively		3,317			3,860			8,720			11,553
General and administrative, exclusive of $27, $171, $(148) and $355 reported below as stock-based compensation, respectively		3,708			3,078			10,757			9,713
Restructuring costs related to Ashford		—			19			—			19
Gain on sale of Ashford assets		(379	)		—			(379	)		—
Stock-based compensation		181			628			(37	)		1,320
Depreciation and amortization		2,585			3,119			6,692			8,551
Total operating expenses		20,774			22,493			56,050			66,491
Other (income) expense:
Interest expense		127			—			389			—
Interest income		(270	)		(243	)		(1,096	)		(914	)
Total other (income) expense		(143	)		(243	)		(707	)		(914	)
Net loss	$	(8,565	)	$	(5,545	)	$	(19,037	)	$	(14,805	)
Losses per share - basic and diluted:
Net loss	$	(0.22	)	$	(0.14	)	$	(0.49	)	$	(0.38	)
Weighted average shares outstanding:
basic and diluted		38,769			40,109			38,497			39,243

GSI COMMERCE, INC. AND SUBSIDIARIES

EBITDA AND RECONCILIATION TO GAAP RESULTS

(in thousands, expect per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 28, 2002			September 27, 2003			September 28, 2002			September 27, 2003
EBITDA:
Net loss excluding interest income and expense taxes and charges for stock-based compensation and depreciation and amortization	$	(5,942	)	$	(2,041	)	$	(13,089	)	$	(5,848	)
Net loss excluding interest income and expense taxes and charges for stock-based compensation and depreciation and amortization, per share:
basic and diluted	$	(0.15	)	$	(0.05	)	$	(0.34	)	$	(0.15	)
Reconciliation of EBITDA to GAAP results:
EBITDA	$	(5,942	)	$	(2,041	)	$	(13,089	)	$	(5,848	)
Interest expense		127			—			389			—
Interest income		(270	)		(243	)		(1,096	)		(914	)
Taxes		—			—			—			—
Stock-based compensation		181			628			(37	)		1,320
Depreciation and amortization		2,585			3,119			6,692			8,551
Net loss	$	(8,565	)	$	(5,545	)	$	(19,037	)	$	(14,805	)

GSI COMMERCE, INC. AND SUBSIDIARIES

NET MERCHANDISE SALES ⁽¹⁾ AND RECONCILIATION TO GAAP RESULTS

(dollars in thousands)

(unaudited)

	Three Months Ended						Variance
	September 28, 2002			September 27, 2003
							Amount			%
Net merchandise sales (1) – (a non-GAAP financial measure):
Category:
Sporting goods	$	16,776		$	24,991		$	8,215		49	%
Ashford		4,919			91			(4,828	)	-98	%
Other		13,331			27,679			14,348		108	%
Total net merchandise sales (1) – (a non-GAAP financial measure)	$	35,026		$	52,761		$	17,735		51	%
Net revenues – (GAAP basis):
Net revenues from product sales:
Category:
Sporting goods	$	16,776		$	24,987		$	8,211		49	%
Ashford		4,919			91			(4,828	)	-98	%
Other		6,083			17,443			11,360		187	%
Total net revenues from product sales		27,778			42,521			14,743		53	%
Service fee revenues		4,545			4,962			417		9	%
Total net revenues – (GAAP basis)	$	32,323		$	47,483		$	15,160		47	%
Reconciliation of net merchandise sales (1) to net revenues:
Net merchandise sales (1) – (a non-GAAP financial measure):
Category:
Sporting goods	$	16,776		$	24,991		$	8,215		49	%
Ashford		4,919			91			(4,828	)	-98	%
Other		13,331			27,679			14,348		108	%
Total net merchandise sales (1) – (a non-GAAP financial measure)		35,026			52,761			17,735		51	%
Less:
Sales by partners (2):
Category:
Sporting goods		—			(4	)		(4	)	—
Ashford		—			—			—		—
Other		(7,248	)		(10,236	)		(2,988	)	41	%
Total sales by partners (2)		(7,248	)		(10,240	)		(2,992	)	41	%
Add:
Service fee revenues		4,545			4,962			417		9	%
Net revenues – (GAAP basis)	$	32,323		$	47,483		$	15,160		47	%

(1) Net merchandise sales represents the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through the GSI Commerce platform, whether or not GSI Commerce is the seller of the merchandise or records the full amount of such sales on its financial statements.

(2) Represents the retail value of all product sales through the GSI Commerce platform where the inventory is owned by the partner and the partner is the seller of the merchandise. GSI Commerce records service fee revenues on these sales.

GSI COMMERCE, INC. AND SUBSIDIARIES

NET MERCHANDISE SALES ⁽¹⁾ AND RECONCILIATION TO GAAP RESULTS

(dollars in thousands)

(unaudited)

	Nine Months Ended						Variance
	September 28, 2002			September 27, 2003
							Amount			%
Net merchandise sales (1) – (a non-GAAP financial measure):
Category:
Sporting goods	$	62,742	(3)	$	76,409		$	13,667		22	%
Ashford		12,298			993			(11,305	)	-92	%
Other		21,049			84,370			63,321		301	%
Total net merchandise sales (1) – (a non-GAAP financial measure)	$	96,089		$	161,772		$	65,683		68	%
Net revenues – (GAAP basis):
Net revenues from product sales:
Category:
Sporting goods	$	62,742	(3)	$	76,405		$	13,663		22	%
Ashford		12,298			993			(11,305	)	-92	%
Other		10,681			55,018			44,337		415	%
Total net revenues from product sales		85,721			132,416			46,695		54	%
Service fee revenues		11,596			14,294			2,698		23	%
Total net revenues – (GAAP basis)	$	97,317		$	146,710		$	49,393		51	%
Reconciliation of net merchandise sales (1) to net revenues:
Net merchandise sales (1) – (a non-GAAP financial measure):
Category:
Sporting goods	$	62,742	(3)	$	76,409		$	13,667		22	%
Ashford		12,298			993			(11,305	)	-92	%
Other		21,049			84,370			63,321		301	%
Total net merchandise sales (1) – (a non-GAAP financial measure)		96,089			161,772			65,683		68	%
Less:
Sales by partners (2):
Category:
Sporting goods		—			(4	)		(4	)	—
Ashford		—			—			—		—
Other		(10,368	)		(29,352	)		(18,984	)	183	%
Total sales by partners (2)		(10,368	)		(29,356	)		(18,988	)	183	%
Add:
Service fee revenues		11,596			14,294			2,698		23	%
Net revenues – (GAAP basis)	$	97,317		$	146,710		$	49,393		51	%

(1) Net merchandise sales represents the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through the GSI Commerce platform, whether or not GSI Commerce is the seller of the merchandise or records the full amount of such sales on its financial statements.

(2) Represents the retail value of all product sales through the GSI Commerce platform where the inventory is owned by the partner and the partner is the seller of the merchandise. GSI Commerce records service fee revenues on these sales.

(3) Includes $8.3 million from sales of one of GSI Commerce’s partner’s products sold primarily through its direct response television campaigns in addition to Web site and toll-free number sales.