Engage Out of the Woods?

Online ad network Engage had some positive news for investors and industry-watchers alike Monday evening, as the company said it cut its losses from last quarter.

Before charges, the Andover, Mass.-based company posted a loss of $41.3 million, or $0.21 per share for second quarter, which ended January 31, 2001. That’s up from Engage’s first quarter, when the company saw a loss of $48.7 million, or $0.26 per share.

It’s also above Wall Street estimates, according to Thompson Financial/First Call. Analysts had expected a loss of $0.26 per share for the quarter.

Making good on an earlier promise to meet or beat earlier, lowered guidance, Engage’s revenue for the quarter topped $28.1 million, exceeding expectations but nevertheless down 31 percent from last quarter, a sore reminder of the sorry state of online ad spending.

Including charges, net loss for the second quarter of 2001 was a whopping $695.6 million, or $3.53 per share, compared to a net loss of $173.8 million, or $0.92 per share, for the first quarter of fiscal 2001.

Those charges include restructuring costs, as well as an impairment charge related to previously recorded goodwill, and other accounting losses within Engage’s Media segment. That impairment charge stemmed from the reduced value of companies that Engage bought in stock-only transactions, and totaled $521.8 million.

“Much of the progress that we made during the second quarter is not evident on our income statement and balance sheet,” said Engage president and chief executive Tony Nuzzo. “This is not unexpected. Although the recent corporate restructuring is beginning to have positive effects internally, we believe it will take a few more quarters before the results are apparent.”

Nuzzo added that Engage’s 50 percent headcount reduction would be complete by the end of April, as would its renegotiation of international Web publisher contracts. It said it has already finished restructuring its publisher contracts in the U.S.

Engage also said it’s increasing consultant utilization rates, reducing ad serving costs by combining ad serving platforms and reducing infrastructure costs, and implementing strategies for liquidating unsold advertising inventory.

During a conference call with analysts, Nuzzo said Engage would be focusing heavily on its multichannel marketing solutions and digital media-management businesses — programs that the company debuted earlier this year.

“Due to typically long software sales and implementation cycles, we expect our recently launched multi-channel promotion and ad management software solutions to take at least two quarters to gain traction in the market,” he said.

While Nuzzo called media one of Engage’s “poor legacy strengths,” Nuzzo said the media downside would be “short-lived,” and the company “nevertheless … remains committed to our media business.”

For next quarter, Engage said it expects revenue to come in between $24 million and $26 million, with the media segment contributing about 52 percent of that total. Predicted loss per share, before charges, are expected to come in between $0.12 and $0.15.

Wall Street consensus placed next quarter’s loss at $0.19 per share.

Engage said it expects ad spending to bounce back in the following quarter, the fourth quarter of its fiscal year. For that quarter, executives said they expect total revenue to be between $25 million and $28 million, with media contributing about 53 percent. Before charges, the company expects post a loss of $0.07 to $0.10 per share.

Engage also gave its long-awaited, pushed-back date of profitability. The firm said it hopes to break even in the first quarter of fiscal 2002, or the quarter ending October 31, 2001. The company said the $77 million it has in the bank and in marketable securities — plus an extra $50 million in debt and equity from corporate parent CMGI — is enough to see the embattled ad network through.

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