Digital Impact Hits Marks, Makes Profit

Online direct marketer Digital Impact met expectations and nailed its second profitable quarter, scoring a $0.01 per-share profit for its fiscal third quarter compared to a net loss of $0.01 per share for last year’s third quarter.

In a stagnant email marketing environment slowed by concerns over spam, Digital Impact had an approximately 20 percent growth in the number of emails sent for customers in the third quarter, an analyst said, and the company also signed ten new clients.

“They are looking at 20 to 30 percent increase in the number of emails being sent,” said Mark May, an analyst with Kaufman Brothers. Additionally, the company increased its cash balance by more than $3 million compared to the prior quarter, ending with $28.3 million in cash, cash equivalents, short-term investments and restricted cash.

Traditionally, the fiscal third quarter is the strongest for Digital Impact, and the company does not expect to hold the line in the next quarter.

Looking forward, David Oppenheimer, the company’s CFO, expects fiscal fourth quarter revenues “in the range of $10.5 to $11 million,” with earnings ranging from break-even to a one-cent loss per share. In the fiscal fourth quarter of last year, the company had revenues of $10.9 million and a net loss of $1.3 million, or four cents per share.

“We see more mailings in the holiday quarter, the December quarter. That’s not unusual for direct marketing revenues to peak in general because they’re trying to drive customers to online and offline stores,” Oppenheimer noted.

“Our spending does not go down as our volume drops, so our net income will go down proportionately with revenue,” Oppenheimer said. “We do not plan to cut our costs in the short term.”

The company’s revenues for the third quarter were flat at $11.5 million, the same as the third quarter of the previous year. Net income for the quarter was $489,000, or a penny per share, compared to a net loss of $297,000, or one cent per share, for the same quarter last year.

The company’s president, William Park, commented last year during an earnings report that spam legislation plus the national Do Not Call list could be a catalyst for future growth, and Oppenheimer concurred.

“As there is less spam we are more likely to grow our business,” Oppenheimer said. However, cost-cutting and value delivery are what helped Digital Impact become profitable, he said.

Total operating expenses for the third quarter were $6.2 million, down 15 percent from the same quarter last year, and cash flows from operating activities were $3.7 million, up 213 percent from the year-ago quarter. The cost-cutting was a major element in the company’s achieving profitability, Oppenheimer said.

“Managing our costs aggressively and continuing to drive value on behalf of our customers is how we achieved profitability,” Oppenheimer said.

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