EX-99.1 2 gc6537ex991.txt EXHIBIT 99.1 Exhibit 99.1 GSI COMMERCE REPORTS FISCAL 2006 SECOND QUARTER OPERATING RESULTS KING OF PRUSSIA, Pa., July 26 /PRNewswire-FirstCall/ -- GSI Commerce Inc. (Nasdaq: GSIC) today announced that for its fiscal second quarter ended July 1, 2006, the company reported net revenues of $119.6 million and a net loss of $3.6 million, or $0.08 per share, compared to net revenues of $91.9 million and a net loss of $2.9 million, or $0.07 per share, for 2005's fiscal second quarter. Included in net loss and net loss per share for the fiscal second quarter of 2006 is a non-cash charge of approximately $0.4 million, or $0.01 per share, to reduce the carrying value of the shares owned by the company in Odimo Incorporated from $1.3 million to approximately $0.9 million, which represents the market value of the shares as of July 1, 2006. These shares represent a portion of the consideration received when the company sold certain assets of Ashford.com to Odimo in fiscal 2002. GSI Commerce did not include this non-cash charge when it issued guidance for the second quarter and full year on April 26. Other Financial Highlights -- Merchandise sales were $208.0 million in the fiscal second quarter of 2006, a 52 percent increase compared to $136.8 million in the same period in fiscal 2005. A definition of merchandise sales appears later in this news release under "Non-GAAP Financial Measures." -- Adjusted EBITDA was $2.8 million in the fiscal second quarter of 2006, compared to adjusted EBITDA of $2.3 million in the same period in 2005, an increase of 19 percent. A definition of adjusted EBITDA appears later in this news release under "Non-GAAP Financial Measures." -- Gross profit was $46.6 million in the fiscal second quarter of 2006, an increase of 35 percent compared to $34.4 million in the same period in 2005. -- Gross margin was 38.9 percent in the fiscal second quarter of 2006, an increase of 140 basis points from 37.5 percent in the same period in 2005. -- The company's cash, cash equivalents and marketable securities at the end of the fiscal second quarter of 2006 was $128.6 million compared to $156.7 million at the end of fiscal year 2005, and compared to $117.5 million at the end of 2005's fiscal second quarter. Management Commentary "We had a successful second quarter marked by strong revenue growth, better than planned adjusted EBITDA and the signing and launch of our deal with Toys "R" Us," said Michael G. Rubin, chairman and chief executive officer of GSI Commerce. "We are pleased with the momentum in our business and continue to focus on driving strong growth, improving profitability and investing in our platform." Fiscal Third Quarter 2006 and Annual Financial Guidance The following forward-looking statements reflect GSI Commerce's expectations as of July 26, 2006. Given the risks relating to our business discussed below and in our public reports, actual results may differ materially. The company provides the following guidance for the fiscal 2006 third quarter: -- Net revenues are expected to be in the range of $105 million to $110 million, or increase between 24 percent and 30 percent. -- Merchandise sales are expected to be in the range of $205 million to $212 million, or increase between 62 percent and 67 percent. -- Product sales are expected to be in the range of $75 million to $79 million, or increase between 10 percent and 15 percent. -- Service fees are expected to be in the range of $29 million to $31 million, or increase between 77 percent and 89 percent. -- Net loss is expected to be in the range of $6.7 million to $7.7 million. -- Adjusted EBITDA loss is expected to be in the range of $0.25 million to $1.25 million. -- Depreciation and amortization is expected to be approximately $5.5 million to $6.0 million, compared to $3.7 million in the fiscal third quarter of 2005. -- Stock-based compensation expense is expected to be approximately $1.5 million to $2.0 million, compared to $1.1 million in fiscal 2005's third quarter, and includes the impact of SFAS 123(R), which the company adopted in the first quarter of fiscal 2006. -- Net interest income is expected to be approximately $0.4 million to $0.5 million, compared to $0.2 million in fiscal 2005's third quarter. -- Consistent with fiscal third quarter of 2005, the company does not intend to record a provision for income taxes in the fiscal third quarter of 2006. The company provides the following updated guidance for fiscal year 2006: -- Net revenues are expected to be in the range of $567 million to $587 million, or an increase of between 29 percent and 33 percent. -- Merchandise sales are expected to be in the range of $1.1 billion to $1.15 billion, or an increase of between 61 percent and 69 percent. -- Product sales are expected to be the range of $440 million to $449 million, or an increase of between 24 percent and 26 percent. -- Service fees are expected to be the range of $130 million to $137 million, or an increase of between 53 percent and 61 percent. -- Net income is expected to be in the range of $5.0 million to $6.5 million, or an increase of between 85 percent and 141 percent. Net income guidance includes $2.0 million of impairment charges taken in the first two fiscal quarters of 2006 related to the company's investment in Odimo Incorporated. -- Adjusted EBITDA is expected to be in the range of $33 million to $35 million, or an increase of between 60 percent and 69 percent. -- Depreciation and amortization is expected to be approximately $21 million. -- Stock-based compensation is expected to be approximately $7.0 million and includes the impact of the adoption of SFAS 123(R). -- Net interest income is expected to be approximately $2.5 million. -- A provision for income tax is expected to be in a range of 5 percent to 10 percent of pre-tax income. -- Capital expenditures are expected to be in the range of $40 million to $45 million, including expectation to purchase rather than lease the company's new call center and additional capacity to support incremental volume. Key Events Since April 26, 2006 -- The company signed a long-term agreement to provide Toys "R" Us(R) with technology and customer service for its toysrus.com and babiesrus.com businesses. The Web stores launched on July 1. -- The company was subsequently selected to provide marketing services to Toys "R" Us. The marketing services that GSI Commerce will provide to Toys "R" Us include online media buying, email creation and delivery, web site design and digital photography. -- The company launched Dockers(R) during the second quarter, which is the second Levi Strauss & Co. brand to go live on the GSI Commerce e- commerce platform. The company is providing Dockers online store with technology, fulfillment and customer care operations. Dockers was one of the two unannounced apparel partners referenced by GSI Commerce in its fiscal first quarter 2006 operating results news release. -- In July, the company signed a multiyear agreement to provide a full- service e-commerce solution for the global fashion company BCBG Max Azria Group for its BCBG Max Azria and BCBGirls brands. With an expected launch in the first quarter of 2007, GSI Commerce is providing the Web stores with online technology, fulfillment and customer care operations. Revenues from the partner will be recorded as service fees. -- Also in July, the company signed a multiyear agreement with an unnamed partner in the health and beauty category. The partner is expected to launch its e-commerce operations in the fourth quarter of this year. Revenues from the partner will be recorded as service fees. The agreement includes technology, fulfillment and customer care. -- In June, the company elected two new members to its board of directors, Andrea M. Weiss and Michael J. Donahue. Weiss has 25 years experience in executive and senior management retail positions and is president and chief executive officer of Retail Consulting Inc., an international retail consulting company. Donahue, one of the founders of KPMG Consulting, has more than 20 years experience as an executive with BearingPoint Inc. and KPMG LLP. Non-GAAP Financial Measures This news release contains, and our scheduled conference call will present, the non-GAAP measures merchandise sales, adjusted EBITDA and certain ratios that use those measures. Merchandise sales represent 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 the company is the seller of the merchandise or records the full amount of such sales on its financial statements. GSI Commerce uses 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 organizational costs such as business management 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 historical expenses and expense trends if they have visibility to GAAP net revenue as well as the non-GAAP financial measure merchandise sales and the percentages that such expenses bear to net revenues and merchandise sales. GSI Commerce also uses adjusted EBITDA, which represents earnings (or losses) before interest income/expense, impairment on investment, income taxes, depreciation and amortization, cumulative effect of change in accounting principle related to the adoption of SFAS 123(R) and stock-based compensation. GSI Commerce uses adjusted EBITDA as a means to evaluate its performance period to period without taking into account certain expenses, particularly stock-based compensation expense, which historically has been materially impacted by fluctuations in the price of GSI Commerce's common stock both on a quarterly and annual basis, and is now materially impacted by the adoption of SFAS 123(R), and does not consistently reflect GSI Commerce's results from its core business activities. These 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. The non-GAAP financial measures included in this press release have been reconciled to the nearest GAAP measures as required under Securities and Exchange Commission rules and are contained elsewhere in this release. Change in Income Statement Presentation Beginning with the fiscal second quarter 2006, the sales and marketing, product development, and general and administrative expense lines are reported inclusive of stock based compensation and the amount of stock based compensation included in each of the lines is noted parenthetically. Previously, the company reported these expense lines exclusive of stock based compensation and included stock based compensation as a separate standalone expense line item. The company still reports the aggregate stock based compensation amount in the adjusted EBITDA reconciliation schedule and its statement of cash flow. Fiscal Second Quarter 2006 Conference Call GSI Commerce has scheduled a conference call for today at 4:45 p.m. EDT to review its fiscal 2006 second quarter operating results and to discuss the company's expectations for future performance. For access to the conference call, please call the toll-free conference number, 1-866-578-5801, by 4:30 p.m. EDT, on July 26. The conference passcode is "13489876." Alternatively, to listen to the call live on the Web, go to the GSI Commerce Web site, http://www.gsicommerce.com, and click on the link provided on the home page. Please do this at least 15 minutes prior to the call (4:30 p.m. EDT) to register, download and install any necessary audio software. The conference call also will be broadcast live on the Web through CCBN StreetEvents (http://www.streetevents.com). For those who cannot listen to the live Webcast, a telephone replay of the conference call will be available one hour after the completion of the call and remain available through Aug. 28. Access to a recording of the conference call can be made by calling toll-free, 1-888- 286-8010. The telephone replay passcode is "69860368." In addition, access to an audio replay of the conference call's Webcast can be found on the home page of the GSI Commerce Web site. Access to the audio replay of the Webcast also will remain available through Aug. 28. About GSI Commerce GSI Commerce is a leading provider of e-commerce solutions that enable retailers, branded manufacturers, entertainment companies and professional sports organizations to operate e-commerce businesses. We provide solutions for our partners through our integrated e-commerce platform, which is comprised of three components: technology, logistics and customer care and marketing services. We provide e-commerce solutions for more than 50 partners. Forward-Looking Statements All statements made in this release and to be made in GSI Commerce's fiscal 2006 second quarter conference call, including those in the tape recording, Webcast replay, live audio and live Webcast 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," "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, the ability of GSI Commerce to successfully integrate its acquisitions of other businesses, if any, the performance of acquired businesses and the impact of SFAS 123(R). 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 CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) December 31, July 1, 2005 2006 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 48,361 $ 20,339 Marketable securities 108,298 108,242 Accounts receivable, net of allowance of $727 and $547 24,288 22,564 Inventory 34,601 33,311 Prepaid expenses and other current assets 3,135 6,822 Total current assets 218,683 191,278 Property and equipment, net 87,851 91,327 Goodwill 13,932 17,786 Equity investments and other 1,210 3,393 Other assets, net of accumulated amortization of $7,885 and $10,157 10,970 11,755 Total assets $ 332,646 $ 315,539 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 58,720 $ 47,024 Accrued expenses and other 42,949 31,301 Deferred revenue 6,573 11,481 Current portion - long-term debt and other 637 669 Total current liabilities 108,879 90,475 Convertible notes 57,500 57,500 Long-term debt and other 13,094 12,729 Total liabilities 179,473 160,704 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, 4,990,000 shares authorized; 0 shares issued and outstanding as of December 31, 2005 and July 1, 2006. - - Common stock, $0.01 par value, 90,000,000 shares authorized; 44,469,969 and 45,316,404 shares issued as of December 31, 2005 and July 1, 2006, respectively; 44,469,766 and 45,316,201 shares outstanding as of December 31, 2005 and July 1, 2006, respectively 445 453 Additional paid in capital 329,103 336,814 Accumulated other comprehensive loss (2,344) (449) Accumulated deficit (174,031) (181,983) Total stockholders' equity 153,173 154,835 Total liabilities and stockholders' equity $ 332,646 $ 315,539 GSI COMMERCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended ---------------------------- --------------------------- July 2, July 1, July 2, July 1, 2005 2006 2005 2006 ------------ ------------ ------------ ------------ Revenues: Net revenues from product sales $ 75,158 $ 94,526 $ 151,810 $ 186,183 Service fee revenues 16,716 25,102 31,422 47,688 Net revenues 91,874 119,628 183,232 233,871 Cost of revenues from product sales 57,439 73,036 115,026 140,102 Gross profit 34,435 46,592 68,206 93,769 Operating expenses: Sales and marketing, inclusive of $927,$1,070, $1,110, and $2,378, respectively, of stock-based compensation 22,157 28,863 43,199 59,575 Product development, inclusive of $253, $228, $223, and $420 respectively, of stock-based compensation 6,689 8,763 13,248 17,166 General and administrative, inclusive of $553, $550, $155, and $973, respectively, of stock-based compensation 5,072 7,884 9,899 15,281 Depreciation and amortization 3,617 4,861 6,739 9,377 Total operating expenses 37,535 50,371 73,085 101,399 Other (income) expense: Interest expense 413 777 646 1,555 Interest income (475) (1,494) (818) (2,984) Other (income) expense (93) 140 (208) (10) Impairment on investment - 379 - 2,027 Total other (income) expense (155) (198) (380) 588 Loss before income taxes and cumulative effect of change in accounting principle (2,945) (3,581) (4,499) (8,218) Provision for income taxes - - - 2 Net loss before cumulative effect of change in accounting principle (2,945) (3,581) (4,499) (8,220) Cumulative effect of change in accounting principle - - - 268 Net loss $ (2,945) $ (3,581) $ (4,499) $ (7,952) Basic and diluted loss per share: Prior to cumulative effect of change in accounting principle $ (0.07) $ (0.08) $ (0.11) $ (0.19) Cumulative effect of change in accounting principle $ - $ - $ - $ 0.01 Net loss $ (0.07) $ (0.08) $ (0.11) $ (0.18) Weighted average shares outstanding - basic and diluted 42,551 44,993 42,106 44,836
Prior period Sales and marketing expenses, Product development expenses, and the General and administrative expenses have been reclassified to be inclusive of stock based compensation. The purpose of the reclassification is to conform the prior period amounts to the classifications used in the current period. GSI COMMERCE, INC. AND SUBSIDIARIES ADJUSTED EBITDA AND RECONCILIATION TO GAAP RESULTS (In thousands) (Unaudited)
Three Months Ended Six Months Ended ---------------------------- --------------------------- July 2, July 1, July 2, July 1, 2005 2006 2005 2006 ------------ ------------ ------------ ------------ Adjusted EBITDA: Net gain (loss) excluding interest income and expense, income taxes, impairment and charges for stock-based compensation and depreciation and amortization $ 2,343 $ 2,790 $ 3,556 $ 5,528 Reconciliation of Adjusted EBITDA to GAAP results: Adjusted EBITDA $ 2,343 $ 2,790 $ 3,556 $ 5,528 Interest expense 413 777 646 1,555 Interest income (475) (1,494) (818) (2,984) Impairment on investment - 379 - 2,027 Income taxes - - - 2 Stock-based compensation 1,733 1,848 1,488 3,771 Depreciation and amortization 3,617 4,861 6,739 9,377 Cumulative effect of change in accounting principle - - - (268) Net loss $ (2,945) $ (3,581) $ (4,499) $ (7,952)
GSI COMMERCE, INC. AND SUBSIDIARIES MERCHANDISE SALES (1) AND RECONCILIATION TO GAAP RESULTS (Dollars in thousands) (Unaudited)
Three Months Ended ---------------------------- Variance July 2, July 1, --------------------------- 2005 2006 Amount % ------------ ------------ ------------ ------------ Merchandise sales (1) - (a non-GAAP financial measure): Category: Sporting goods $ 51,392 $ 70,100 $ 18,708 36% Other 85,367 137,872 52,505 62% Total merchandise sales (1) - (a non-GAAP financial measure) $ 136,759 $ 207,972 $ 71,213 52% Net revenues - (GAAP basis): Net revenues from product sales: Category: Sporting goods $ 41,899 $ 54,716 $ 12,817 31% Other 33,259 39,810 6,551 20% Total net revenues from product sales 75,158 94,526 19,368 26% Service fee revenues 16,716 25,102 8,386 50% Total net revenues - (GAAP basis) $ 91,874 $ 119,628 $ 27,754 30% Reconciliation of merchandise sales (1) to net revenues: Merchandise sales (1) - (a non-GAAP financial measure): Category: Sporting goods $ 51,392 $ 70,100 $ 18,708 36% Other 85,367 137,872 52,505 62% Total merchandise sales (1) - (a non-GAAP financial measure) 136,759 207,972 71,213 52% Less: Sales by partners (2): Category: Sporting goods (9,493) (15,384) (5,891) 62% Other (52,108) (98,062) (45,954) 88% Total sales by partners (2) (61,601) (113,446) (51,845) 84% Add: Service fee revenues 16,716 25,102 8,386 50% Net revenues - (GAAP basis) $ 91,874 $ 119,628 $ 27,754 30%
(1) 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 MERCHANDISE SALES (1) AND RECONCILIATION TO GAAP RESULTS (Dollars in thousands) (Unaudited)
Six Months Ended ---------------------------- Variance July 2, July 1, --------------------------- 2005 2006 Amount % ------------ ------------ ------------ ------------ Merchandise sales (1) - (a non-GAAP financial measure): Category: Sporting goods $ 98,889 $ 137,548 $ 38,659 39% Other 174,112 261,375 $ 87,263 50% Total merchandise sales (1) - (a non-GAAP financial measure) $ 273,001 $ 398,923 $ 125,922 46% Net revenues - (GAAP basis): Net revenues from product sales: Category: Sporting goods $ 81,686 $ 110,552 $ 28,866 35% Other 70,124 75,631 5,507 8% Total net revenues from product sales 151,810 186,183 34,373 23% Service fee revenues 31,422 47,688 16,266 52% Total net revenues - (GAAP basis) $ 183,232 $ 233,871 $ 50,639 28% Reconciliation of merchandise sales (1) to net revenues: Merchandise sales (1) - (a non-GAAP financial measure): Category: Sporting goods $ 98,889 $ 137,548 $ 38,659 39% Other 174,112 261,375 87,263 50% Total merchandise sales (1) - (a non-GAAP financial measure) 273,001 398,923 125,922 46% Less: Sales by partners (2): Category: Sporting goods (17,203) (26,996) (9,793) 57% Other (103,988) (185,744) (81,756) 79% Total sales by partners (2) (121,191) (212,740) (91,549) 76% Add: Service fee revenues 31,422 47,688 16,266 52% Net revenues - (GAAP basis) $ 183,232 $ 233,871 $ 50,639 28%
(1) 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 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share data) (Unaudited) Three Months Ended ---------------------------- July 2, July 1, 2005 2006 ------------ ------------ Cash Flows from Operating Activities: Net loss $ (4,499) $ (7,952) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,739 9,377 Stock-based compensation 1,488 3,771 Investment impairment - 2,027 Loss on disposal of equipment - 79 Cumulative effect of change in accounting principle - (268) Changes in operating assets and liabilities: Accounts receivable, net 3,591 1,777 Inventory 4,665 1,293 Prepaid expenses and other current assets (759) (3,687) Other assets, net 99 (2,794) Accounts payable and accrued expenses and other (37,281) (24,922) Deferred revenue (1,923) 5,012 Net cash used in operating activities (27,880) (16,287) Cash Flows from Investing Activities: Acquisition of a controlling interest of a business, net of cash acquired - (2,629) Cash paid for property and equipment (12,508) (14,314) Proceeds from government grant related to corporate headquarters - 2,925 Other deferred cost (572) 95 Cash paid for equity investments (136) (2,435) Purchases of marketable securities (81,728) (128,692) Sales of marketable securities 43,000 128,775 Net cash used in investing activities (51,944) (16,275) Cash Flows from Financing Activities: Proceeds from convertible notes 57,500 - Debt issuances costs paid (2,563) - Repayments of loan (339) - Repayments of capital lease obligations (268) (269) Repayments of mortgage note (71) (98) Common stock repurchases - (203) Proceeds from sales of common stock 28,204 - Equity issuance costs paid (1,825) - Proceeds from exercise of common stock options and warrants 2,605 5,084 Net cash provided by financing activities 83,243 4,514 Effect of exchange rate changes on cash and cash equivalents - 26 Net increase/(decrease) in cash and cash equivalents 3,419 (28,022) Cash and cash equivalents, beginning of period 20,064 48,361 Cash and cash equivalents, end of period $ 23,483 $ 20,339 Contacts: Michael Conn Greg Ryan Chief Financial Officer Director, Corp. Communications tel: 610-491-7002 tel: 610-491-7294 e-mail: connm@gsicommerce.com e-mail: ryang@gsicommerce.com SOURCE GSI Commerce Inc. -0- 07/26/2006 /CONTACT: Michael Conn, Chief Financial Officer, +1-610-491-7002, connm@gsicommerce.com, or Greg Ryan, Director, Corp. Communications, +1-610-491-7294, ryang@gsicommerce.com, both of GSI Commerce Inc./ /Web site: http://www.gsicommerce.com / (GSIC)