GSI Commerce Reports Fiscal 2011 First Quarter Operating Results

GSI Commerce Inc. (Nasdaq: GSIC) today announced its financial results for its fiscal first quarter ended April 2, 2011.

Fiscal 2011 First Quarter Compared to Fiscal 2010 First Quarter

• Net revenues were $323.5 million compared to $272.6 million.
• Loss from operations was $27.9 million compared to $12.9 million and includes $7.3 million of expenses related to the pending acquisition of GSI by eBay, $3.5 million of expenses related to the acquisition of Fanatics, Inc. and $3.3 million of earn-out expenses related to the acquisition of Fetchback, Inc.
• Non-GAAP income from operations (NGIO) was $14.8 million compared to $17.4 million.
• Core NGIO was $19.3 million compared to $18.5 million.*
• Emerging NGIO loss was $4.6 million compared to $1.2 million.**
• Net loss was $13.6 million or $0.20 per share compared to net loss of $8.1 million or $0.13 per share.
• Trailing 12 month loss from operations was $32.2 million compared to income from operations of $11.9 million.
• Trailing 12 month NGIO was $132.1 million compared to $114.5 million.
• Trailing 12 month Core NGIO was $144.6 million compared to $114.3 million.
• Trailing 12 month Emerging NGIO loss was $12.6 million compared to NGIO profit of $0.2 million.
• Trailing 12 month cash flow from operating activities was $132.8 million compared to $127.7 million.
• Trailing 12 month free cash flow was $59.3 million compared to $76.2 million.

*Core includes Global e-Commerce Services, Global Marketing Services and corporate overhead.

**Emerging includes Rue La La and ShopRunner without allocation of corporate overhead.

The definitions of non-GAAP income from operations, free cash flow, and a discussion of the importance of these non-GAAP financial metrics to GSI’s business can be found under “Non-GAAP Financial Measures” provided later in this news release.

Non-GAAP Financial Measures

GSI’s consolidated financial statements are prepared and presented in accordance with GAAP. To supplement our consolidated financial statements in this release, we use the non-GAAP financial measures of non-GAAP income from operations and free cash flow. We also discuss certain ratios that use those measures. The non-GAAP measures and ratios presented are not intended to be considered in isolation of, as a substitute for, or superior to our GAAP financial information. We have included reconciliations later in this release of the non-GAAP measures to the nearest GAAP measure.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate our performance. In our opinion, these non-GAAP measures provide meaningful supplemental information regarding our performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by institutional investors and the analyst community to help them analyze the health of our business. These measures may be different from non-GAAP measures used by other companies.

Non-GAAP income from operations. We define non-GAAP income from operations as income from operations excluding stock-based compensation, depreciation and amortization expenses, and the following expenses relating to acquisitions: transaction expenses, due diligence expenses, integration expenses, non-cash inventory valuation adjustments, the cash portion of any deferred acquisition payments recorded as compensation expense, changes in fair value of deferred acquisition payments, and goodwill and intangible asset impairment charges. We consider non-GAAP income from operations to be a useful metric for management and investors because it excludes certain non-cash and non-operating items. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when valuing equity awards under ASC 718 / SFAS 123R, we believe that viewing income from operations excluding stock-based compensation expense allows investors to make meaningful comparisons between our operating performance and those of other businesses. Because we are growing our business and operate in an emerging and changing industry, we believe that our level of capital expenditures and consequently the level of depreciation and amortization expense relative to our revenues could be meaningfully greater today than it will be over time. As a result, we believe it is useful supplemental information to view income from operations excluding depreciation and amortization expense as it provides a potential indicator of the future operating margin potential of the business. We believe the exclusion of the following acquisition-related expenses permits evaluation and a comparison of results for on-going business operations, and it is on this basis that management internally assesses the company's performance: transaction expenses, due diligence expenses, integration expenses, non-cash inventory valuation adjustments, the cash portion of any acquisition earn-out payments recorded as compensation expense, changes in fair value of deferred acquisition payments, and goodwill and intangible asset impairment charges.

Free cash flow. We define free cash flow as net cash provided by operating activities minus cash paid for fixed assets, including internal use software. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology infrastructure, can be used for strategic opportunities, including investing in the business, making strategic acquisitions and strengthening the balance sheet. Analysis of free cash flow also facilitates management’s comparisons of our operating results to the operating results of comparable companies. A limitation of using free cash flow as a means for evaluating our performance is that free cash flow reflects changes in working capital which is impacted by short-term changes in cash flow and the seasonality of our business which may not be indicative of long-term performance. Another limitation of free cash flow is that it excludes fixed assets purchased and placed in service, but not paid for during the applicable period. Our management compensates for this limitation by providing supplemental information about capital expenditures accrued, but not paid for during the applicable periods on the face of the cash flow statement in our Forms 10-K and 10-Q.

About GSI Commerce

GSI Commerce® enables e-commerce, multichannel retailing and digital marketing for global enterprises in the U.S. and internationally. GSI’s e-commerce services which include technology, order management, payment processing, fulfillment and customer care, are available on a modular basis or as part of an integrated solution. GSI’s Global Marketing Services division provides innovative digital marketing products and services comprised of database management and segmentation, marketing distribution channels, a global digital agency to drive strategic and creative direction and an advanced advertising analytics and attribution management platform. Additionally, GSI provides brands and retailers platforms to engage directly with consumers through RueLaLa.com, an online private sale shopping destination, and ShopRunner.com, a members-only shopping service that offers unlimited free two-day shipping and free shipping on returns for a $79 annual subscription.

(1) Includes amortization expense of acquisition related intangibles of $5,123 and $21,116 for the three- and twelve-months ended April 2, 2011 and $4,105 and $12,379 for the three- and twelve-months ended April 3, 2010.

(2) Core results include the Global e-Commerce Services segment and the Global Marketing Services segment. Emerging results include the Consumer Engagement Segment.

(1) Segment costs and expenses are GAAP costs and expenses excluding stock-based compensation expenses, depreciation and amortization expenses, and the following expenses related to acquisitions: transaction expenses, due diligence expenses, integration expenses, non-cash inventory valuation adjustments, the cash portion of any deferred acquisition payments recorded as compensation expense, changes in fair value of deferred acquisitions payments, and goodwill and intangible asset impairment charges.