PFSweb Breaks Through to Profitability in 2004 - Record Revenue and Net Income of $1.1 Million Highlight Fourth Quarter

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PFSweb, Inc. (NASDAQ: PFSW), which IPO'd in December 1999, reports its first profitable year and sustainable profitability, with record revenue and net income for the Fourth Quarter. The share price, $3.28 at the market close, zoomed up in after-hours trading: After Hours (RT-ECN): 3.80 0.52 (15.85%). The global business process outsourcer (BPO), is known for e-commerce fulfillment and supply chain management, as well as its many blue chip clients, such as IBM, Xerox, Hewlett-Packard, a Fortune 500 company and the U.S. Government. It projects earnings per share in 2005 of 0 cents to 3 cents.

PFSweb, Inc. (NASDAQ: PFSW), a global provider of integrated business process outsourcing (BPO) solutions, today reported its results for the quarter and fiscal year ended December 31, 2004.

PFSweb’s consolidated results were as follows (In millions, except per share data):

        Quarter Ended    Year Ended

        Dec. 31, 2004    Dec. 31, 2004

    Product Revenue    $72.0    $267.5

    Service Fee Revenue, excluding affiliate    $12.3    $42.1

    Net income before interest, taxes,

        depreciation and amortization    $2.8    $7.1

    Net income    $1.1    $0.2

    Net income per share    $0.05    $0.01

The consolidated balance sheet as of December 31, 2004, reflects $130.3 million in total assets, including $17.0 million in cash, of which $3.4 million is restricted, and shareholders’ equity of $29.9 million, or $1.39 per share.

“We are extremely pleased with the December quarter and year-end results,” said Mark C. Layton, Senior Partner and Chief Executive Officer of PFSweb. “Our team continues to achieve significant milestones for our company, including:

• Full year profitability – 2004 is the first fiscal year we have reported net income since our IPO and represents a $4.0 million improvement from our 2003 results.

• Consecutive profitable quarters – The December quarter results represent record net income from ongoing operations and the third consecutive quarter that we have reported profitable results.

•Record revenues – Our consolidated revenue for the December quarter was $87.1 million, the highest level in our history.

• Strong new business activity – We were very successful during 2004 with new contract signings. In addition, our lead and proposal pipeline remains robust, including currently pending proposals for more than $30 million in annual service fees.”

“Our service fee revenues, excluding affiliate, for the December quarter were $12.3 million, a record quarterly level for our service fee business segment,” stated Tom Madden, Senior Partner and Chief Financial Officer of PFSweb. “These results included the benefit from several incremental projects. During the quarter, we also generated increased service fee revenue from some of the new contracts signed during 2004.”

“We had our best year ever for gaining new client relationships,” Layton said. “During 2004, PFSweb was successful in winning new contracts with an estimated value exceeding $20 million in annual service fees based on current client projections. These new relationships include Raytheon Aircraft Company, FLAVIA® Beverage Systems, René Furterer USA, CHiA’SSO and other unnamed clients including a Fortune 500 consumer products firm, a major nutraceutical company, a prepaid wireless provider and a healthcare payment provider. Due to contractual agreements, we are often prohibited from mentioning new clients by name. Service fee revenues invoiced from these new contracts in 2004 were approximately $5.0 million, including $2.9 million during the December quarter. We currently expect to invoice more than 80% of the annual run-rate of these new contracts in 2005.

“We continue to expand our operations and technology infrastructure to meet existing and new client growth requirements. As we announced in November 2004, we leased an additional facility in Southaven, Miss., just a short distance from our distribution hub in Memphis, Tenn. This new facility became operational in January 2005. Also during the December 2004 quarter, we expanded this facility to accommodate a new service parts facility for one of our large, existing clients. We continue to evaluate our facilities to ensure our infrastructure and available space meet the needs of our current and prospective clients.”

“To support our new client relationships, we incurred additional capital expenditures during the December quarter, primarily to support the incremental business in our new Southaven distribution center,” added Madden. “Upon completion, which is expected to occur during the first and second quarters of 2005, we expect the total capital expenditures to support this facility will total approximately $6 million. We financed a significant portion of these expenditures via the issuance of $5 million of Mississippi taxable revenue bonds. We have classified $1.3 million of the bond proceeds as restricted cash at December 31, 2004, as the proceeds are restricted specifically for payment on capital additions or as repayment on the outstanding bonds. The bond financing provides us the flexibility to use our cash for operations and other growth opportunities.

“We also amended and extended our financing agreement with Comerica Bank. This agreement provides for up to $5 million of available financing under a revolving working capital line of credit through 2007 and a $1 million equipment line of credit through June 2008. Our existing credit facilities provide us with a solid financial foundation to support our current business level. As we continue to grow, further expansion efforts may require us to seek additional financing sources, such as bank, equity or lease financing, to maintain our existing cash levels.”

“We are very pleased with our 2004 financial results and the progress we continue to make,” Layton said. “As we look ahead, in 2005 our goal is to capitalize on our growth momentum and client diversity by targeting a much broader group of Fortune 500 and Global 1000 companies. We believe our experience and technology offering allow us to market our services to many other industry segments, including aerospace, healthcare, automotive and large equipment manufacturers. Additionally, in 2005 we will focus our efforts to increase the number of large value contracts that we pursue. We believe this strategic avenue provides us the greatest ability to leverage our team of experts. We are targeting to win new business in 2005 with annual, run-rate service fees of $25 million, only a portion of which would result in invoiced activity during 2005. We currently estimate that the new contracts won in 2004 and in 2005 will yield gross margins ranging from 25% to 35% once fully operational. Certain of these contracts may require incremental implementation costs.

“Our service fee business growth rate target is 25% to 35% for 2005, and we expect single-digit growth from our product revenue business. While we expect this incremental service fee revenue to yield increased gross profit, we expect this profit will be offset somewhat by incremental investments to implement new contracts, investments in infrastructure and sales and marketing to support our targeted growth and professional fees related to the Sarbanes-Oxley Act. We also expect interest costs to increase in 2005 due to higher interest rates. For fiscal 2005, we are currently targeting earnings per share between $0.00 and $0.03, excluding the impact of any non-cash compensation-related charges.

“We reiterate that the March quarter has been and is expected to continue to be our weakest quarter due to seasonal fluctuations of certain clients. However, we do not expect this seasonality factor to be as significant in 2005 due to product release schedule changes from certain of our clients. We continue to target a significantly improved result for the March 2005 quarter as compared to the March 2004 results.

“Our many strengths continue to put us in front of prospective clients with an advantage over our competition,” Layton emphasized. “Everything we offer is ‘world class,’ which has allowed us to develop a reputation as a high quality service provider. Our business solutions are custom tailored to meet each client’s specific needs. Our systems can easily converse with virtually any IT platform. Most importantly, our people are experts in their fields of discipline. From technology to logistics to customer contact, we offer our clients the world’s leading solutions design talent.”

The Company has modified its financial statement presentation of certain liabilities such that it now classifies amounts outstanding under inventory financing arrangements with IBM Credit as a component of vendor accounts payable. Historically, the Company has reported these amounts as short-term debt.

The Company’s billings for reimbursement of out-of-pocket expenses, including travel, and certain third-party vendor expenses such as shipping and handling costs and telecommunication charges, are included in pass-through revenue. Historically, the related reimbursable costs were reflected as pass-through charges and reduced total gross service fee revenue in computing net service fee revenue. The Company has modified its financial statement presentation and now classifies the related reimbursable costs as a component of cost of pass-through revenue. The impact of this reclassification is to increase total revenues and total costs of revenues, but the gross profit earned on service fee revenues remains unchanged.

Conference Call Info:

PFSweb will hold a conference call Friday, March 4, 2005 at 10:00 a.m. Central Time. To ensure attendance on the call, plan to dial in by 9:50 a.m. to (973) 582-2703. Ask to be placed on the PFSweb Earnings Release Conference Call. The call also can be heard “live” by accessing the Company’s website, http://www.pfsweb.com, at the time of the call. Two hours after the conference, a recorded playback can be heard for 14 days at (877) 519-4471, using the confirmation number 5776543. Check http://www.pfsweb.com and our March 1, 2005 investor conference call press release for more details on the call.

About PFSweb, Inc.

When the world’s brand names need proven, fast and secure business infrastructure to enable traditional and e-commerce strategies, they choose PFSweb for comprehensive outsourcing solutions. The PFSweb team of experts designs diverse solutions for clients around a flexible core business infrastructure. PFSweb provides solutions that include: professional consulting services, order management, web-enabled customer contact centers, customer relationship management, international distribution services, kitting and assembly services, managed web hosting and site design, billing and collection services and ERP information interfacing utilizing the Entente Suite (SM).

Our services are provided to a multitude of industries and company types, including such clients as Adaptec (NASDAQ: ADPT), FLAVIA® Beverage Systems, Hewlett-Packard (NYSE: HPQ), iGo/Mobility Electronics (NASDAQ: MOBE), International Business Machines (NYSE: IBM), Nokia (NYSE: NOK), Pfizer, Inc. (NYSE: PFE), Raytheon Aircraft Company, René Furterer USA, Roots, Inc., Smithsonian Institution and Xerox (NYSE: XRX).

The matters discussed in this news release (except for historical information) and, in particular, information regarding estimates, future revenue, earnings and business plans and goals, consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and are subject to and involve risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties include, but are not limited to, our ability to retain and expand relationships with existing clients and attract new clients; our dependence upon our agreements with IBM; 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 client mix and the seasonality of their business; our ability to finalize pending contracts; the impact of new accounting standards and rules regarding revenue recognition, stock options, and other matters; changes in accounting rules or current interpretation of those rules; the impact of strategic alliances and acquisitions; trends in the market for our services; trends in e-commerce; whether we can continue and manage growth; changes in the trend toward outsourcing; increased competition; our ability to generate more revenue and achieve sustainable profitability; effects of changes in profit margins; the customer concentration of our business; the unknown effects of possible system failures and rapid changes in technology; trends in government regulation both foreign and domestic; foreign currency risks and other risks of operating in foreign countries; potential litigation involving our e-commerce intellectual property rights; our dependency on key personnel; our ability to raise additional capital or obtain additional financing; our relationship with and our guarantees of the working capital indebtedness of our subsidiary, Supplies Distributors; and our ability or the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; and whether outstanding warrants issued in a prior private placement will be exercised in the future. A description of these factors, as well as other factors, which could affect the Company’s business, is set forth in the Company’s Form 10-K for the year ended December 31, 2003.

In addition, some forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. We undertake 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.

To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit our Web site at http://www.pfsweb.com. The PFSweb web site is not part of this release. PFSweb and GlobalMerchant CommerceWareTM are registered trademarks of PFSweb, Inc. IBM is a registered trademark of International Business Machines Corp. All rights reserved.

Contacts:

Mark C. Layton, Senior Partner and Chief Executive Officer, or Thomas J. Madden, Senior Partner and Chief Financial Officer,

(972) 881-2900

Or

Preston F. Kirk, APR, Investor/Public Relations,

Kirk Public Relations, Austin TX,

(830) 693-4447

# # #

For Financial tables and statements in full, please go to:

http://www.integratir.com/newsrelease.asp?news=2130833409&ticker=PFSW&lang=EN

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Preston F. Kirk, APR
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