Digitas, Agency.com Upbeat Despite Growing Losses

Interactive shops Digitas and Agency.com continue to brave the current harsh conditions, both posting losses roughly in line with earlier estimates — and reporting more of the same to come.

For Boston-based Digitas, the second quarter’s performance met earlier warnings of a slowdown in marketing and technology spending by financial services clients — one of Digitas’ prime areas of focus.

The firm met the Street’s estimates, posting a loss of $5.8 million, or $0.08 per share, on revenue of $60.5 million. That’s greater than last quarter, when the firm saw a loss of $0.03 per share on $77 million in revenue.

Digitas also reported a restructuring charge of $16.9 million, in conjunction with efforts at bringing costs into line with revenues.

The news of growing losses had been expected: in June, the company warned that it wouldn’t make earlier estimates of a breakeven to $0.04 profit during the quarter.

That performance came despite an impressive track record for bringing in new business, which saw the firm winning more new clients so far this year than it did in all of 2000. In spite of winning work for Barnes & Noble, Best Buy and General Motors’ GMC commercial truck division, Digitas has seen quarterly revenues slip $10 million from last year at this time.

Nevertheless, chairman and chief executive David Kenny put a good face on the news.

“Digitas is emerging from the shakeout in our sector as a clear leader,” Kenny said, adding that restructuring efforts will provide “a secure foundation for profitable growth when the economy improves.”

But that evidently won’t be anytime soon. As a result of the continued market weakness, executives said they expect third quarter revenues to be nearly flat, give or take a 5 percent variation depending on the timelines for new client work. As a result, Digitas’ third quarter pro forma performance is expected to be breakeven to a loss of $5 million.

Agency.com, meanwhile, beat Wall Street estimates by a penny, posting a $0.20 per share loss on $25.8 million in revenue.

Despite the better-than-expected performance, Agency.com’s revenue came in below chairman and CEO Chan Suh’s earlier guidance of $28 million to $32 million. The figure also dropped sharply from the $41.1 million it took in last quarter, when it posted a posted a $0.12 per share loss, or $4.7 million.

Like Digitas, Agency took a hefty restructuring charge, posting $28.3 million in connection with continuing restructuring that has trimmed about 320 employees, or 22 percent of the firm’s workforce.

Also like its rival in the space, Agency.com executives blamed clients’ increased hesitancy to jump into interactive projects.

“While we continue to focus our efforts on generating new business and delivering great work for our clients, the near-term demand environment remains extremely challenging for interactive services consultants,” Suh said. “We continue to encounter longer sales cycles, project delays and smaller overall project sizes, which translate into limited visibility.”

That limited visibility translates into predictions of an equal or slightly greater pro forma loss, of $0.20 to $0.24 per share, on $20 million to $24 million in revenue.

The firm did have some good news for investors, however. The company’s pending merger with Seneca Investments — a holding company set up by Agency.com investor Omnicom and a venture fund — appears to be on track. Executives said the Securities and Exchange Commission is reviewing Agency.com’s preliminary proxy materials, and they still expect to complete the merger by the end of October.

That’s good news in that — at press time — Seneca’s offer for Agency.com is at a $0.10 per share premium over the current trading price of $3.25.

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