PFSweb, Inc. Company▲			PFSW Ticker▲			Q1 2008 Earnings Call Event Type▲			May 13, 2008 Date▲

Another key metric we use in evaluating our operational performance is what we defined in today’s press release as non-GAAP net income. To calculate this, we exclude some net income calculated in accordance with generally accepted accounting principles, the impact of stock-based compensation and amortizations of identifiable intangible assets.

For the first quarter of 2008, non-GAAP net income was $0.8 million or $0.02 per basic and dilute share, a significant improvement as compared to a non-GAAP net loss of $1.9 million or $0.04 per basic and diluted share for the same period last year.

Obviously, we are quite pleased with our results for this quarter, especially with it being our fourth consecutive quarter of consolidated net income performance. We believe this clearly illustrates the progress that we are making throughout our businesses.

Turning now to the performance of select business segments for the quarter ended March 31, 2008. First, Service Fee revenue increased 23% to $20.8 million from $17.0 million in the prior year quarter. This increase is primarily due to incrementally revenue attributable to the implementation of custom solutions for new clients, such as Tractor Supply, LEGO Brand Retail, Riverbed, and others within the past 18 months.

We also benefited from growth with existing clients, which included project activity and a modified contract arrangement with one of our largest Service Fee clients. These components of our top line growth also contributed to improved gross profit margin in the Service Fee business in the March 2008 quarter.

SG&A increased in the March quarter for this business verses the prior year, primarily due to increased personnel costs in the current year.

For our Supplies Distributors Business segment, revenue was $62.3 million in the March 2008 quarter compared to $58.8 million for the prior year period.

While gross margins for this business remained relatively in line year-over-year at approximately 6.5%, gross profit dollars increased due to the revenue growth, which along with the reduction in interest expense, resulted in an improved net income result for Supplies Distributors.

As for eCOST.com, in the first quarter of 2008, eCOST.com’s revenue was $28 million compared to $21.6 million in the prior year, a 29% increase. This is also down just slightly on a sequential basis versus the seasonally high December 2007 quarter. The net results of the increased revenue, along with a continued focus on costs was a significant improvement in eCOST.com’s bottom line performance. eCOST.com’s adjusted EBITDA reflects a loss of $0.5 million for the March 2008 quarter, a dramatic improvement over the prior year loss of $0.9 million.

On the financing front, our banking relationships remain strong. During the quarter, we renewed 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 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.

Our debt balances declined this quarter from the December 2007 results primarily due to principal payments made under our term debt arrangements as well as a reduction in borrowings under our Service Fee Business asset-based lending facility.