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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report: April 25, 2007
(Date of earliest event reported)
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GSI COMMERCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-16611 04-2958132
(State or other (Commission File No.) (IRS Employer
jurisdiction of incorporation) Identification No.)
935 First Avenue, King of Prussia, PA 19406
(Address of principal executive offices and zip code)
(610) 265-3229
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On April 25, 2007, GSI Commerce, Inc. ("we" or the "Registrant") issued a
press release announcing our results for our 2007 fiscal first quarter ended
March 31, 2007 and certain other information. A copy of the press release is
furnished as part of this report and incorporated herein by reference.
The press release (included as Exhibit 99.1) contains the non-GAAP
financial measures of merchandise sales, adjusted EBITDA, non-GAAP net income
and free cash flow. We also discuss certain ratios that use these measures.
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 as well as comparisons to our competitors'
operating results. 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.
Merchandise sales. We define merchandise sales as the retail value of all
sales transactions, inclusive of freight charges and net of allowances for
returns and discounts, which flow through our platform, whether or not we are
the seller of the merchandise or record the full amount of such sales on our
financial statements. We consider merchandise sales to be a useful metric for
management and investors because a significant portion of our sales and
marketing expenses, including 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 our platform, whether or not we record the revenue from such
sales. As a result, we use this metric as part of our revenue and expense
forecasting process and for capacity planning purposes. We monitor this metric
on a daily basis and consider it to be a critical measure of the health of our
business.
Adjusted EBITDA. We define adjusted EBITDA as income from operations
excluding stock-based compensation and depreciation and amortization expenses.
We consider adjusted EBITDA to be a useful metric for management and investors
because it excludes certain non-cash items. Because of varying available
valuation methodologies, subjective assumptions and the variety of award types
that companies can use when valuing equity awards under 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 rapidly and
operate in an emerging and rapidly 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.
Non-GAAP net income. Beginning with this release, we are defining non-GAAP
net income as net income plus stock-based compensation expense and amortization
of acquisition-related intangibles minus cumulative effect of change in
accounting principle related to the adoption of SFAS 123R and plus/minus the
provision/benefit for income taxes. This figure is then taxed at our current
annual effective tax rate to arrive at non-GAAP net income. We believe it is
useful to exclude stock-based compensation expense from non-GAAP net income for
the same reason we exclude it from adjusted EBITDA. We believe it is useful to
exclude amortization of acquisition-related intangibles because in our opinion
the benefits of these assets could exceed the amortization period and this
supplemental view enables management and investors to measure the business
without this potential effect. The gain we recorded from the cumulative effect
of change in accounting principle related to the adoption of SFAS 123R is an
item we view as non-recurring in nature. We believe it is useful to view net
income without the benefit of this non-recurring item. We exclude the GAAP
income tax provision in order to compute the non-GAAP pre-tax income. The
non-GAAP pre-tax income is then taxed at our current annual effective tax rate
to arrive at non-GAAP net income.
Free cash flow. We define free cash flow as net cash provided by operating
activities minus capital expenditures, including capitalized software
development. 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
competitors' operating results. 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 information
about capital expenditures on the face of the cash flow statement and in
supplemental disclosures in our Forms 10-K and 10-Q.
These financial measures are not intended to be considered in isolation
of, as a substitute for or superior to our GAAP financial information. The
non-GAAP financial measures included in the press release and to be included the
conference call have been reconciled to the nearest GAAP measure as is required
under Securities and Exchange Commission rules.
As used herein, "GAAP" refers to accounting principles generally accepted
in the United States.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Press Release, dated April 25, 2007
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GSI COMMERCE, INC.
By: /s/ Michael G. Rubin
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Michael G. Rubin
Chairman and Chief Executive Officer
Dated: April 25, 2007
Exhibit Index
Exhibit No. Description
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99.1 Press Release, dated April 25, 2007