PFSweb Inc (PFSW) 2007 Q4 法說會逐字稿

Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the PFSweb fourth-quarter, year-end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

Thank you. It is now my pleasure to turn the floor over to your host, Todd Fromer, managing partner of KCSA. Sir, you may begin your conference.

Thank you. Good morning and welcome to PFSweb's fourth-quarter and year-end 2007 conference call. Before we begin, I must state that the matters discussed on this conference call consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties which could cause actual results to differ materially from the forward-looking information.

PFSweb's annual report on Form 10-K for the year ended December 31, 2006 and Form 10-Q for the three and nine months ended September 30, 2007, identify certain factors that could cause actual results to differ materially from those projected in any forward-looking statements made and investors are advised to review the annual report and Form 10-Q and the risk factors described therein.

These factors include our ability to retain and expand relationships with existing clients and attract and implement new clients; our reliance on the fees generated by the transaction volume or product sales of our clients; our reliance on our clients' projections or transaction volume or product sales; our dependence upon our agreements with IBM; our dependence upon our agreements with our major clients, our client mix, their business volumes, and the seasonality of their business; our ability to finalize pending contracts; the impact of strategic alliances and acquisitions; trends in the e-commerce, outsourcing, government regulation -- both foreign and domestic -- and the market for our services; whether we can continue and manage growth; increased competition; our ability to generate more revenue and achieve sustainable profitability; effects of changes in profit margins; the customer and supplier concentration of our business; the unknown effects of possible system failures and rapid changes in technology; foreign currency risk and other risks of operating in foreign countries; potential litigation; potential delisting; our dependency on key personnel; the impact of new accounting standards and changes in existing accounting rules or interpretations of those rules; our ability to raise additional capital or obtain additional financing; our ability and the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; relationship with and our guarantees of certain of the liabilities and indebtedness of our subsidiaries; our ability to successfully implement the anticipated benefits of the merger; eCOST's potential indemnification obligations to its former parent; eCOST's ability to maintain existing and build new relationships with manufacturers and vendors and the success of its advertising and marketing efforts; eCOST's ability to increase its sales revenue and sales margin and improve operating efficiencies; and eCOST's ability to generate a profit and cash flows sufficient to cover the value of its intangible assets.

PFSweb undertakes no obligation to update publicly any forward-looking statement for any reason even if new information becomes available or other events occur in the future. There may be additional risks that we do not currently view as material or that are not presently known.

At this time, I would now like to turn the call over to Mr. Mark Layton, Chairman and Chief Executive Officer of PFSweb. Mark, the floor is yours.

Wow. Thanks, Todd. Now the lawyers have been paid, we can move on to business. Again, I would like to add my welcome to everyone and today we will review our 2007 fourth-quarter results as well as our year-end results.

Here with me today in Dallas are Tom Madden, our Chief Financial Officer, and Mike Willoughby, President of our Services group. Following our prepared remarks this morning, Tom, Mike and I will be available to answer your questions. We are happy to do that, so please have them ready to go.

In short, this morning I am happy to bring you a very positive report on our results for 2007 and our outlook for the future. Our results for 2007 show a strong performance across most all of our key metrics. What I am most happy about is that we have now achieved a consolidated net profit for the third consecutive quarter.

Before I turned the mic over to Mike, let me summarize a few key factors which I believe are critical indicators that are driving our improving results and also indicative that each of our divisions are healthy and that we're headed in the right direction to grow our operations and increase profitability.

First, we are increasing profitability on a consolidated basis. This is directly attributable to our overall growth and to the significant operational and then financial improvements we have achieved over the past year in our eCOST operating entity.

Second, growth is accelerating, which is a key factor in our optimism about our future results. During 2007, eCOST's revenue grew approximately 18% to $104 million over the prior year. We also did this while improving gross margins to a little over 8.6% on an annual basis and at 9% on a run rate basis as we exited the fourth quarter.

Further in accelerating growth is our PFSweb Service Fee revenue increased 11% over last year and its growth opportunities remain strong as we look to 2008, with approximately $35 million in our new business pipeline based on current client projections and once fully implemented.

The third key point is that under Mike's leadership over the last six months, we have reengineered, expanded and repositioned our Service business offering and marketing efforts to provide our clients and potential clients with a wider array of end-to-end e-commerce capabilities. Mike will describe this in detail in his prepared comments, but that we believe this is an area that is very fertile for future growth.

As a result of this emphasis, we believe we have experienced accelerating new business wins, a much stronger competitive position in the market, and a higher quality of potential new business in our pipeline. In particular, we believe that the hottest segment for potential new business continues to be in the direct-to-consumer segment, working with major brands and manufacturers to expand their Web commerce capabilities.

Fourth, our results clearly show a business model that can drive greater leverage and scale through our technology and operational infrastructure. We have said for some time that critical to improving bottom-line performance was that we needed greater scale. Greater scale and leverage means critical improvement in our financial performance, and as you have seen on the last three quarters, as we grow, bottom-line performance improves.

This past year, adjusted EBITDA was above our guidance for 2007 and, as Tom will discuss in more detail, is up significantly compared to 2006. Further, we have seen growth in our client business as well in what we call merchandise sales, as defined in our published documents, where merchandise sales grew to over $2.9 billion in 2007.

So with these summary points as a broad backdrop, let me turn the call over to Mike, who will give you some information on our Services business. Then I will be back to give you some overview on the eCOST business. Michael?

Thank you, Mark, and good morning, everyone. Before beginning my comments, I would like to remind you that when we refer to Services business segment, we are including both our Supplies Distributor business and the PFS Service Fee business. Both of these businesses have essentially the same operating characteristics, but slightly different financial models.

As Mark indicated, we are very encouraged with the results for the Service Fee business in 2007. We are excited about our outlook for the future performance of the business in 2008. In the fourth quarter of 2007, our results reflect an improvement over 2006 as our Service Fee revenues increased 11% to $21.5 million, and that is compared to the same period in the prior year, 2006.

The increase in revenue is primarily due to several new contracts that were added in 2007 and late 2006, including LEGO brand retail and Riverbed Technologies. In addition, we experienced an increase in the amount of project work that we have in 2007 versus 2006.

In the fourth quarter of 2007, we completed the integration of a customer service solution agreement that we signed in September of 2007. This was with an undisclosed Fortune 100 big box retailer. This agreement supports this retailer's direct-to-consumer business. The program quickly ramped up in the fourth quarter and due to our performance and the client's positive feedback, we believe there is the potential to expand the program in 2008.

As previously announced, we have launched a new custom solution to support Tractor Supply Company's web commerce initiatives. These include customer contact services, warehouse management, and order fulfillment services.

Now I would like to share some details around several additional Service Fee agreements we signed since the last quarterly conference call as well as a couple of contract extensions. We are pleased to announce the recent multiyear contract extensions of two of our larger contracts.

While signing new contracts is very important for the growth of our business, it is equally if not more important that we execute our services for our existing customers as we work to earn their business every day. It is important that they value the strategic importance of our relationship as they continue to partner with us.

From a new business perspective, we signed an agreement with Urban Brands to support the online stores for two women's clothiers, Ashley Stewart and Marianne. Ashley Stewart is one of the leading women's specialty retailers in urban America, which operates over 215 stores throughout the United States and the US Virgin Islands.

Marianne is a leading women's specialty retailer targeting Latino women which operates over 70 stores located throughout urban areas in Miami, Los Angeles, as well as Texas, Puerto Rico, and the US Virgin Islands.

Through our partnership with these two brands, we will provide high-touch customer care and order fulfillment solutions with a focus on extending a growing brick-and-mortar presence to reach online shoppers. As part of the agreement, we will also provide custom-tailored fashion and apparel customer care services for these two brands from our Plano-based customer contact center. We currently expect this client to be implemented and begin contributing to revenue in the second quarter of 2008.

Thirdly, we recently won and implemented a new agreement to launch a European e-commerce site for a major outdoor lifestyle brand. Under this agreement, we will provide a complete end-to-end e-commerce solution including ongoing site management, customer care services, fulfillment services, and online payment processing.

Lastly, as you might have seen yesterday, we announced a new agreement with Discovery Channel Store, Inc. to support discoverystore.com and The Discovery Channel Store catalog. We are supporting this initiative with technology, with customer care, and fulfillment. The solution will also include technology and services support for front-end product planning and product procurement.

Discovery offers an exciting line of products that tie into its television programming, including Planet Earth and Dirty Jobs. Like Discovery's programming, its merchandise attracts a broad range of customers. They draw approximately 13 million unique visitors annually to their website and nearly 10 million customers receive the catalog every year.

The strengthening of our portfolio through these agreements has increased our presence in the online retail space and this is our primary focus for growing our Service Fee business. We believe our global infrastructure and our experience positions us to effectively compete for and win business in this hot direct-to-consumer arena.

As Mark mentioned before, our prospective new business pipeline is currently valued at about $35 million based on client projected volumes once those contracts would be fully implemented. As I indicated last conference call, several of our current prospects are US retailers and brand-name companies looking to expand globally.

They are looking for end-to-end web commerce solutions to support their expanding online initiatives, and we believe this positive trend in the size and quality of our new business pipeline, along with the ongoing presence in this pipeline of qualified end-to-end global web commerce opportunities helps confirm our objective to continue to focus on providing end-to-end global solutions for online retailers and major brands.

To best meet the needs of existing and potential clients, as Mark said earlier, we announced a next-generation e-commerce solution in February that positions us to be among the leaders of end-to-end e-commerce providers. As part of the solution, we strategically aligned our services with Demandware, which is a leading e-commerce platform provider. We leverage our combined experience to bring to market a revolutionary new product that redefines end-to-end commerce.

From a competitive position, we believe that this combination provides one of the most compelling single sources of e-commerce outsourcing that is available in the industry today. This strategically important partnership empowers retailers and brands with total control over their entire shopping experience and provides them with the continuous competitive advantage as our completely on-demand solution and flex system meets their changing business requirements.

We believe the solution will enable retailers and brand consumer goods manufacturers with the ability to employ a total outsourcing solution customized to their particular web commerce strategy. They can do this without losing any of the brand control associated with earlier end-to-end outsourcing solutions that were available before.

Now, for some highlights from our growing eCOST business, I would like to turn it back over to Mark. Mark?

Thanks, Mike. I would just like to add my comments about the excitement on the end-to-end deal. We really seem to have found a fertile area, rampant for growth. We are kind of seeing this whole web commerce 2, if you will, initiative as companies look to move to the next generation of their web commerce activity, driving a lot of growth potential for our Services business.

So my congratulations to Mike and his team for kind of finding this nugget and for reengineering that business. It's been an exciting last six months and our outlook for the year is very good.

Now, turning over to the eCOST business, obviously, to state the obvious, I believe you can see in the results that eCOST turned a major corner this past year and saw significant financial improvement both on the top line as well as the bottom line when you compare it to 2006 and 2005.

Revenue for the fourth quarter and holiday season was up on a total basis about 35% when you compare it to 2006, as well as gross margins being up to about 9% for the fourth quarter, compared to 6.9% for the fourth quarter of 2006. So significant financial metrics improvements. We still have things we've got to improve on and a way to go, but definitely solid trends.

I don't have the exact numbers here in front of me, but the business to consumer segments in the fourth quarter was up higher than the 35%. The B2B area, as is seasonally normal, would have been a little bit slower or a little bit less than the 35% growth, but also growing as well in the fourth quarter. So very good fourth-quarter results, and the trends are looking quite good for us at eCOST.

Clearly at year end we are still intensely focused on getting the business to achieve breakeven and eventually profitability. We continue to believe that the breakeven point for the eCOST business right now is at a run rate of approximately $10 million in revenue per month, at about 10% gross profit margins. We are operating just below that at this point.

We believe these goals can be achieved in the near-term. We continue to make improvements to the shopping experience for consumers. The site is evolving almost at a weekly basis at this point, with a lot of activity going on out there both in the look and feel and in the range of our product offering. Our big move right now is to work to offer a wider selection of merchandise with higher margin product lines.

So with that as a backdrop on the eCOST side, let me give you some recap of the customer service insight improvements that we've made over the last quarter and also some additional operating data for the business as we've done -- as I have provided to you in prior quarters.

In the past several months, we have been finalizing the addition of the number of new Virtual Warehouses, bringing the total number of SKUs listed on the eCOST.com site now to over 170,000 products. That is up from 110,000 SKUs just in the last quarter, so we're up about 60,000 products. Virtual Warehousing agreements offer us several benefits. They don't require a large sum of capital for inventory and at the same time, they do -- they don't include the normal costs of warehousing and so on, because we rely on our partners to inventory and ship products for us.

As of today, we've got 15 Virtual Warehouse agreements that are fully functional. Over the last quarter, we added basically what we call one Super VW relationship. That helped us enter into an expanded offering in the home and sports and leisure categories, and you will see a lot on this particular category expansion in the months to come.

On the marketing front, we've made tremendous changes over the past year. We have put a much greater emphasis on email and viral marketing activities through the advertising of our limited time, limited quantity deals. The focus on finding great deals has become a cornerstone of what we believe the eCOST.com shopper seeks and why they return and, even better, why they tell their friends about eCOST.

With the new site enhancements in place, we are capitalizing on selling incremental products with the original order as well. Average order sizes have increased because of the activities that we've taken and the enhancements to the site, we believe. We have now had a much better picture of the life value of our customers, our customer acquisition costs, and how to acquire customers profitably than we have had in the past.

We believe our customer acquisition marketing, while very challenging, is now armed with better information, is making greater strides, and driving increased visitor and site traffic, and is allowing us to improve customer retention overall. Collectively, we believe that these actions will result in a customer acquisition and retention model that makes long-term financial sense for us.

The holiday season of 2007 was a great success for eCOST. Revenue, as I mentioned, was up 35% over the prior year. Quality levels remained high throughout the season, and that resulted in many happy faces on Christmas morning. Notebook computers, portable GPS devices, and high-definition LCD TVs were among the hottest-selling deals in our bargain countdown section during November and December.

Our product management team, what we call our deal seekers, did a fabulous job in prospecting great deals and in managing overall inventory levels to ensure we exited the season in a financially healthy inventory position.

For 2008 at eCOST, our focus remains on continuing growth top-line, with the consumer electronics and technology products central to the growth. But to achieve even greater growth and to drive a substantive bottom-line financial performance improvement, we must expand our gross margins on product sales.

So to address this, in the coming weeks -- as I just mentioned -- we will expect to launch two new stores on the eCOST.com site, one for home products and one for a selection of sports and leisure products. We believe that these stores will provide us a range of products with higher gross margin potential and an additional avenue for growth. Our strategy going forward is to become known as the web store for deals across a broad range of product categories, much broader than we have historically been known for in the past.

As we achieve success in these new categories, we see an opportunity to accelerate growth further through expanded advertising avenues. Simply stated, there are just more situations available to us to spend ad dollars, whether they are online or offline, that make sense for us financially to attract customers when the resulting product sales come from higher-margin product categories.

Finally, I would like to just give you some overview on operating metrics for eCOST for the quarter. This is for the quarter ended December 31, 2007. We had approximately 1.8 million total customers on our list at the end of the fourth quarter. That compared to 1.6 million at the end of 2006.

New customers for the fourth quarter of 2007 totaled 32,438. That compares to 29,915 new customers in the same quarter a year ago. For the three months ended December 31, 2007, eCOST reported a total of 83,700 orders shipped, with an average order value of $339. That compared to 74,700 orders shipped in the same quarter in 2006, when we had an average order value of about $272.

Ad expenses for the fourth quarter were about $220,000. That compared to about $409,000 for the fourth quarter of 2006. The estimated cost to acquire a new customer for the fourth quarter of '07 was $6.78. This excludes our catalog costs, which are targeted towards existing customers. That compared to $13.65 for the fourth quarter of 2006.

Those metrics are quite important for us in terms of being critical factors in how we are improving the financial model. Our cost to acquire has to continue to come down or the gross margin dollars have to go up, or a combination thereof, in order to make it a profitable acquisition activity.

Now let me turn the floor over to Tom. He will give you some information on the financials for the fourth quarter, and then we will be available for questions after Tom.

Thank you, Mark. Let me first start by providing a brief overview of our consolidated operating results for the quarter and year ended December 31, 2007. Then I will provide select operating highlights for certain business segments, as well as an overview of key balance sheet items.

As reported in our press release, our consolidated revenues for PFSweb for the quarter ended December 31, 2007 were $122 million, a 12% increase compared to $109 million reported for the fourth quarter of 2006. Gross profit for the fourth quarter 2007 was $13 million, or 11.8% of net revenues excluding pass-through revenues, as compared to $9.8 million, or 9.7% of net revenues excluding pass-through revenues in the fourth quarter 2006. The increased consolidated gross profit margin is primarily attributable to the improved performance at eCOST.com.

As we have previously discussed, we utilized adjusted EBITDA as a key metric in evaluating our operational performance. In the fourth quarter, our consolidated adjusted EBITDA was $3.5 million. This compares to $860,000 in the prior year period. For the fourth quarter, net income was $661,000 or $0.01 per share on a basic and diluted share basis, as compared to a net loss of $6.5 million or $0.14 per basic and diluted share for the same period last year.

Another key metric we are using to -- in evaluating our operational and financial performance is what we defined in today's release as non-GAAP net income. To calculate this, we exclude from net income calculated in accordance with GAAP the impact of stock-based compensation expense and amortization of identifiable intangible assets.

For the fourth quarter of December 2007, non-GAAP net income was $1.1 million or $0.02 per basic and diluted share, as compared to a non-GAAP net income loss of $2.5 million or $0.05 per basic and diluted share for the same period last year. Obviously, as Mark alluded to earlier, we are quite pleased with the results for this quarter, especially with it being our third consecutive quarter of consolidated net income. We believe this clearly illustrates the progress that we are making throughout our businesses.

Now turning to the results for the full year, our consolidated revenue for calendar year 2007 was $446.8 million, compared to $423.3 million in 2006. Revenues in 2007 were negatively affected in our Supplies Distributors business by reduced vendor promotional activity and the impact of foreign currency fluctuations. However, these issues were more than overcome by further growth in our Service Fee and eCOST business activities.

Gross profit for 2007 was $46.8 million, or 11.3% of net revenues excluding pass-through revenues, compared to $39.7 million or 9.9% of net revenues excluding pass-through revenues in 2006. Gross profit for the year in our Service Fee unit was 32.2% of Service Fee revenues, which was a slight improvement as compared to the gross margin of 31.4% earned in 2006.

Adjusted EBITDA for calendar year 2007 was $10.9 million as compared to $2.5 million in the prior year. GAAP net loss for the year was $1.4 million or $0.03 per basic and diluted share, compared to a GAAP net loss of $14.5 million or $0.34 per share for the prior year. Non-GAAP net income for 2007 for the entire calendar year was a positive $0.2 million, which equates to about $0.00 per basic and diluted share, as compared to a non-GAAP net loss of $9.4 million or $0.22 per basic and diluted share for the prior year.

Again, as these results indicate, we are extremely pleased by the performance and our results in both our Service Fee and eCOST.com businesses this year.

Turning now to the performance of select business segments for the year ended December 31, 2007, first, Service Fee revenue increased 11% to $21.5 million from $19.4 million in the prior year quarter. This increase is primarily due to incremental revenue attributable to the implementation of custom solutions for new clients such as LEGO and Riverbed and others within the pass year, as well as increased project revenues from certain clients.

Gross margins excluding pass-through activity was 32% for the quarter, which is at the high end of our targeted gross margin range of 25% to 30%, primarily due to the positive impact of controlling our operating costs as well as the impact of higher margin project activity. SG&A for the Service Fee segment was consistent with the same period of the prior year.

The adjusted EBITDA for the Service Fee business was $2.2 million, compared to $1.2 million of adjusted EBITDA in the prior-year period.

For our Supplies Distributors business segment, revenue was $60.6 million in the fourth quarter, which was relatively constant as compared to $59.8 million in the prior-year period. However, while revenue was constant, we did have improvements from a profitability standpoint as gross margins for the business improved slightly on a year-over-year basis to 6.8% this year as compared to 6.2% in the prior-year fourth quarter. Also, we had reductions in both interest expense and income taxes on a year-over-year basis.

Now let's turn it over to eCOST.com. In the fourth quarter of 2007, eCOST.com revenue was $28.5 million, compared to $21.1 million last year, a 35% increase. On a sequential basis, eCOST.com's quarterly revenue of $28.5 million improved compared to $27 million in the third quarter of 2007, $27.1 million in the second quarter, and improved significantly compared to the $21.6 million in the first quarter of 2007. The gross margin for the fourth quarter was approximately 9%, compared to 6.9% last year.

As Mark mentioned earlier, we hope to continue to drive higher margins as we expand the selection of products available on eCOST.com and achieve our target breakeven gross margin of approximately 10% in the near future. Also, we are continually looking to increase the number of Virtual Warehouse agreements, as they generally can operate with higher margins.

We continue to be very focused on controlling SG&A costs within the eCOST business. We have maintained a consistent cost level this quarter as compared to the September 2007 quarter. In addition, as noted previously, our costs are down significantly from the levels experienced in the prior year. The net results of the increased revenue along with the improved gross margin and cost focus is a significant improvement in eCOST.com's bottom-line performance.

eCOST's adjusted EBITDA reflects a loss of $0.3 million for the December quarter, a continued improvement over the last three sequential quarters and a dramatic improvement over the prior-year loss of $1.6 million per.

Now, let's discuss some balance sheet highlights. Our consolidated cash position remains solid, with cash, cash equivalents, and restricted cash balances exceeding $6.3 million as of December 31, 2007. Our accounts receivable and inventory levels continue to reflect solid turnover results during this period as well. As we look to 2008, we currently expect that our capital expenditures will be approximately $5 million to $8 million. This is dependent on our continued success in winning new Service Fee clients and the infrastructure needed to support these clients.

From a banking perspective, our banking relationships remain strong. Within the next few days, we expect to renew, extend, or amend certain of our asset-based financing facilities for our Service Fee and Supplies Distributors business segments. These new agreements have terms that are either at or somewhat improved from the prior-year levels, resulting in increased working capital financing availability.

The facilities that we have in place are primarily asset-based facilities which are secured and collateralized by the underlying assets of the business, primarily accounts receivable and inventory. While there are macroeconomic issues facing the banking industry today, we believe our asset-based facility structure is advantageous for us within this environment.

Now I would like to turn the call back over to Mark for our closing remarks.

Thanks, Tom. Just to clarify one point, Tom, on the cash balance amount there, I just want to recover that in there because we had a bit of a typo here. Our consolidated cash position as of December 31 with cash, cash equivalents, and restricted cash was $16.3 million, $16.3 million as of December 31, 2007.

Okay, let me just -- obviously the 2007 results, we're real happy with where we are. A dramatic improvement in our bottom-line performance and in each of the operating entities, and now it is onward and upward. We want to look forward to 2008.

Let me give you a little overview of our guidance for '08. We're currently targeting consolidated revenue excluding pass-through revenue for 2008 to be in the range of $445 million to $475 million. As Tom stated earlier, we believe that adjusted EBITDA is a key measure to gauge the profitability of our business, so we will provide our guidance on an adjusted EBITDA basis. For 2008, we're targeting consolidated adjusted EBITDA of $10 million to $12 million.

Our adjusted EBITDA guidance reflects the impact of restructuring one client contract. With this restructuring, that will result in lower Service Fee revenue under the contract and reduced capital asset charges on the related equipment. So it has a little bit of an impact on the EBITDA side, but less of an impact on the bottom-line aspect of things in there. So this year, we have chosen to also provide you an estimate of our non-GAAP net income for '08, which we believe will be in the range of $1 million to $3 million.

So in recap, that is $445 million to $475 million on the top line; EBITDA of $10 million to $12 million; and an adjusted or non-GAAP net income guidance of $1 million to $3 million positive on the bottom line.

Just a quick comment with respect to our current market valuation. We are clearly disappointed with where the shares have traded. We feel that there is a clear misperception between our current stock price and the performance of our business has a whole. In an effort to try to rectify this situation, we're turning our efforts to initiate an active IR campaign to achieve greater visibility. We need to attract additional sell-side analysts or attract sell-side analysts, period, and focus these efforts on enhancing shareholder value.

That concludes our prepared remarks for today. Tom, Mike, and I will now be available for questions that you may have. Operator?

John Fitzgerald, Bishop Rosen & Co.

Gentlemen, once again you really did ahead here. We do appreciate it as shareholders. We couldn't agree more regarding the share price. I mean, I think you've got to call the Fed up here, Mark, okay, and get a bail-out like Bear Stearns, which is selling at $11. Okay?

That said, listen, one of the concerns I guess as we go through '08 here, our banking relationships, loan covenants, etc., I think you guys are in pretty good shape. Would you kind of comment on where you stand, the shape that you're in there, relationships, and basically the condition of some of your lenders?

Okay, this is Tom. As I indicated in my comments, we are in the process right now of finalizing over the next couple of days some renewals and extensions of a couple of our working capital facilities that we have in place for our -- both our Service Fee business and Supplies Distributors business units.

We have in place today, across both -- all three, Service Fee, Supplies Distributors, and eCOST business, primarily operate on asset-based facility agreements, which are properly secured by the accounts receivable and the inventory and collateralized through those instruments. The banking relationships have been quite strong with us. They like the improved performance of the business units.

They have been able to work with us to address some of the growing working capital needs of the business over the last year. So that has all been favorable. The relationships that we have in place are with large financial institutions, including Wachovia, Comerica, and IBM Global Finance, all three very sound financial organizations. Again, it has been a continuing improving relationship that we have in place with them. You know, it --

Tom, if I may interrupt you, you indicated over the next few days. Do you have every reason to believe that this will go according to plan?

Yes.

Okay, okay. I have no further questions. Once again, good, good report and let's see if we can get through the period, Okay? Appreciate it. Thank you.

Jon Hickman, MDB Capital Group.

Hi, could I ask -- I've got a couple of questions. Okay, you said something about your Supplies Distributor was affected by foreign exchange, and also by lack of promotion or advertising there. Is that which you said? Did I catch that right?

Yes, this would have been a comment primarily applicable to earlier quarters in the year, which we had previously discussed and disclosed. A good, high portion of our Supplies Distributors business is driven through our activity with IBM, or now InfoPrint.

In 2006 and the early part of 2006, IBM had been doing an additional amount of vendor promotional activity in order to drive some increased volumes of its products, and so it generated some additional sales volumes in early 2006, which created more difficult comparisons year-over-year as some of the promotional activity, while it didn't occur at the same levels as what it had been doing previously.

So that was one component of it and then secondly, we had -- there was -- because of movements from a foreign currency standpoint, there were opportunities available to certain customers in the US to buy some of that product internationally. From other channels that were cheaper than buying the product directly through our master distributor relationship. It took a couple of months for the vendors to work through that pricing situation and get that taken care of. So there was some loss of revenue early part of this year of postponing that situation.

Early part of '07.

Okay, then, could you remind -- I'm sorry, I don't have this and maybe you don't have it either, but when you started 2007, a year ago when you did this call, can you remember what the guidance was for the year as far as revenues and EBITDA?

Yes, our revenue guidance was $420 million to $435 million, and our adjusted EBITDA guidance was $8 million to $10 million. The $420 million to $435 million excluded pass-through revenues, so from a total result standpoint, our adjusted EBITDA performance was in excess of the range. We ended up at $10.9 million as compared to that $8 million to $10 million level, so quite pleased with that.

Okay, and then could you give us any kind of guidance about what you expect for the pass-through revenues going forward? I mean, it seems like it is kind of creeping up slowly but surely each year. Do you see any changes there or --?

You know, it is kind of hard to predict. It depends on the individual client relationship that we will have in place and the types of things that we are performing on their behalf. The majority of this activity relates to freight charges that are passed through to our clients, so it depends on whether the new relationships that we bring on have the freight activity run through our business account with the freight carrier or whether they have a direct relationship.

Okay, and then if I could just ask you -- you went through a whole kind of -- I mean, you spent quite a bit of time on eCOST here, and you indicated that the two keys are gross margins, new products with higher gross margins, or just kind of a ramp in revenues here. So, you know, if you could just focus on one thing there, the key to you is --? What is your overriding concern there or overriding focus?

Well, we have got to expand the gross margins. It's a critical factor in our ability to be able to do a number of things, and the technology and consumer goods category is a great category in terms of -- the selection is a hot web category. People are comfortable buying those products over the web. It is fast-moving, lots of new products out there and so on, so there are great characteristics about the technology and consumer electronics area.

Unfortunately, the pricing of those products is probably the most competitive area that there is, and as a result, the available gross margins are relatively low. We can't effectively use many of the available online advertising methods to acquire customers with products with low gross margins because ultimately the financial model that you find in that just doesn't work.

So, we have got to expand our category of products to drive a number of things. First is as we expand the category, we get into categories that have higher gross margin potential to them. That makes it easier for us to pay to acquire customers, because there's more gross margin dollars in the order than there is in just the technology order. The second part of it is that it drives to the retention rate of customers higher, we believe, because we have a broader range of products for customers to be able to choose from and thus their repeat purchasing patterns typically increase versus a narrower product selection category where purchases are not made as frequently.

So back to the one thing, we need to expand into products that have higher gross margin potentials, because we see that as, if you will, the kingpin of a number of the things that we went to drive improvements in the business with.

Okay, and then is there --? You know, if you had to pick or name your major competitor in the hot deal section, how you are becoming known as this hot deal, is there one or two other places that this consumer would go to?

You know, TigerDirect and Newegg are probably our two biggest competitors indeed in the consumer and technology product area, consumer electronics and technology product area. You know, we do have some competition with the big box retailers, but our pricing is significantly better generally then what you see there.

As we expand into other product categories, it brings in the likes of Amazon and Overstock in those categories there, but we believe we have a number of operating advantages and pricing advantages just in the way that we offer products versus those two entities that I mentioned.

Okay, thank you. That's it for me. Great quarter.

George Walsh, Gilford Securities.

I would just like to add my appreciation for the efforts on the year and certainly for the quarter. It's nicely done by the whole organization.

Thank you.

I wonder if you could -- just to follow up on that past question, as you -- in terms of the macroenvironment, how is your pricing ability for being a deal site relative to -- where even regular retailers are probably going to be doing a lot of marking down and how competitive do you see that getting going forward?

You know, we are in a different -- even major retailers -- we are in a different game. The products that we're selling in many cases are different SKUs. I mean, the manufacturers have become very sharp, if you will, in their methods in order to try to eliminate direct price comparison on a lot of technology products themselves. So it really comes down to an analysis of the technical specs of a computer, for example, and what price point you can get it at.

But no two computers -- this isn't exactly true, but in many cases no two computers are exactly the same. So it becomes a question of how you as an individual value certain technical components that are in that scenario from there. So as a result, markdown activity isn't always directly resulted out there.

I would tell you that what we're seeing right now is steady margins on the notebook side. There's just not a lot of room to move. The industry or the channel's inventory position in these products for quite some time has been generally healthy. You know, you look at the big box guys, when HP wants to move a new -- or any manufacturer wants to move new models, if the old one is still there, then the shelf space isn't available. So they have got to take the old ones back to get the new ones in.

So they come back to the manufacturer and that actually creates opportunities for us, because those products are then marked down by the manufacturer and moved into our secondary channel, where we sell them as closeout products. So the deal environment actually creates a more robust -- the markdown environment actually creates a more robust deal environment for us.

Typically you will see the big box guys just stay out of that. They have just got the buying power to be able to push that stuff back onto the manufacturers and then manufacturers are the ones that move it into the channel for us.

Okay, anything you can -- any insight as far as your deal customers in a recessionary environment that we are in, that -- are they still motivated and they are still active?

We're in a -- the first quarter is -- we're trying to understand how this quarter is going to be seasonally. When we go back to the first quarter of '07, we were in -- we were actually up Q4 '06 to Q1 '07 at eCOST in revenue. I don't expect that that will be the case in this scenario here.

I think we are going to see more of a seasonal adjustment than we would have normally expected. Last year we were driven -- being driven by a lot of micro improvement issues that were going on in the business itself and we were just kind of dramatically recovering at that point. We have less of that tailwind, if you will, this year than we had last.

But I would say that, based on looking at the eCOST business's activity when I go back and look at '05 and '04, that right now when we compare Q4 of '07 to where we are with Q1 of '08, I would say we see a relatively typical seasonal adjustment.

So with that as a backdrop, at this point, I don't see anything recessionary impacting our consumer business. Now, clearly everyday we are mindful of all of the news that is there and concerned about what then would happen, but at this point I can't report any recessionary impact on the eCOST business.

Okay, and how about on the services side? Anything special with your retailers?

I would say that it is similar to what Mark said, that we're seeing our typical first-quarter seasonal adjustment for retail clients, but there is no clear indication that any of our clients in particular are affected by any of this recessionary news.

Okay, is there anything where they might step up their online effort in a recessionary environment?

Well, I think that there are clear advantages to the online channel, I think, frankly, in any environment, but especially in the situation where you're really trying to maintain your SG&A costs. There are efficiencies in an online channel versus some of the other channels, such as brick-and-mortar, that enable a client of ours to expand that channel and even offer pricing alternatives that would incent consumers to use that channel. So I think you will see an increase in the amount of online business relative to some other channels that our clients may be using.

Okay, and just one more. It is there anything -- if you could elaborate a little bit more on that Demandware alliance and what that means for the future for you guys.

I can. I think as we indicated, we are very excited about the offering that we have in place now. A big part of that offering is the selection of Demandware as a technology partner. The addition of that technology really completes what we believe is an end-to-end offering. That includes the front-end services such as e-marketing and demand generation, search engine optimization, as well as the technology, and as well as our traditional back-office services such as call center, high-end customer care fulfillment, and financial processing.

The selection of Demandware, there were really four elements that went into that. We did an exhaustive search really involving all of the high-end e-commerce software providers. There were, I think, four different reasons that we selected Demandware. The first is that they have, in my opinion, the best on-demand software service delivery model. The model that they have gives them and us as a partner great scale and flexibility and leverage because of their on-demand model.

Maybe most importantly, they offer continuous automatic upgrades, which is a huge advantage over traditional software because with traditional software you have to go through every year to 24 months an upgrade process that is risky and time-consuming and expensive. They have great technology and they have a laser focus on the empowering their e-commerce merchandisers. Traditional software licenses kind of target IT, whereas their technology really targets the e-commerce merchandiser.

The third point is they have a service delivery model that is very much like ours, that incents them to remain engaged with us, with our clients, to innovate and improve the clients' business. Because as the client business improves and more revenues flow through, clearly we benefit from that and the Demandware relationship because of the way it's delivered also benefits. So they are incented to stay engaged, unlike some traditional software providers we looked at.

The last point was that we have just great partnership alignment with them. We have similar cultures. We have similar entrepreneurial spirit. We both as companies believe in empowering our individual employees and holding them accountable to deliver great services. We have a sharp focus on growth through new customer acquisitions. So there is just great chemistry between the two companies.

So that the end of this search, it was, in my opinion, a clear choice to do with Demandware. They plug in great to our solution to complete the end-to-end offering. We're just very excited about taking this to market. Our pipeline currently shows a lot of possibilities directly from this relationship, and while I think we are going to have an impact in '08, I'm even more excited about what we're going to see in 2009 and beyond as we really start to see the benefits of this offering.

Okay, and they offer -- your last point there, they offer --? They are helping in the new client acquisition and your pipeline?

It is very much a cooperative sales efforts. We're engaged with them as we talk to clients. As we are presenting this whole solution, they come in to talk about their technology and to help in that process. So it's very much a partnership. It is not an alliance. It is us working together to deliver the solutions for our clients.

Okay, very good. Great. Thanks.

[Jim Currin] with [New Salem Investments].

I didn't see a revenue ramp quarter-to-quarter like I guess I would have thought and I think you were indicating you were hoping -- hoped for more of a ramp. I'm looking at Circuit City, Amazon, Overstock; they've got ramps third quarter to fourth quarter of anywhere from 30% to 70% on revenue. So I am just wondering if you could comment on that. Is it somewhat planned, or general comment on that?

Okay, are you speaking specifically for eCOST?

Yes, excuse me, specifically for eCOST.

All right, yes, in the prepared comments and I kind of went through this quickly and we didn't disclose the individual pieces, but when you look at Q3 to Q4, the consumer business was up nicely, up sharply in that piece in there. But we have a business-to-business segment in there the really doesn't do a lot of activity after Thanksgiving. So it was down in contrast between Q3 and Q4. So you see a generally flat sequential quarter between Q3 and Q4, but when you peel that one layer, you'll see consumer up for the holiday significantly and the B2B segment in there down sequentially.

I'm sorry, I guess I didn't catch that yet on the release. Can you give me the consumer breakdown from quarter-to-quarter?

Yes, we didn't disclose -- we don't disclose the individual pieces.

I see. All right, thanks.

(OPERATOR INSTRUCTIONS) [Chris Kerniglia], Stifel Nicolaus.

Good quarter. I know we talk about how cheap we feel our stock is. Have we considered doing a buyback?

You know, the use of a buyback, a reverse, all of these instruments are discussed all the time by our board and our IR firm and so on. We go back and forth on a lot of things. The issue that we have on the buyback side of it is that it is -- cash remains a valuable resource for us.

We don't see in this market an ability to just go and reraise it again at an instant when we need. We need the flexibility in order to ensure that we can continue to promote growth, so I really don't want to use cash to buy back shares, because we're just going to end up in a situation where there is a chance that we need it.

Second to that is that the lending agreements that Tom described earlier all would require approval and changes and through credit committees for us in order to be able to use the cash, because clearly that is a part of the underlying securitization of these agreements that we have.

So it is just a more complex answer than just saying, well, let's buy shares back from there. So if we had a huge stockpile of cash, clearly the stock is cheap and that would be an avenue to do that. I just don't feel like we have got the type of robust flexibility that I would want to have in order to undertake an activity like that.

Okay, and now we're actually finally sitting with a level of revenues that seem pretty significant. Have we been approached by anyone to be possibly acquired?

No.

Thank you.

Thank you. There appear to be no further questions. I would like to turn the floor back over to management for any closing comments.

Okay, just thank everybody for their time and if you have any further questions, feel free to contact Tom directly. Have a great week.

Thank you. This concludes today's PFSweb fourth-quarter year-end earnings conference call. You may now disconnect.