Modem Media Won’t See Profit in Q4

I-shop Modem Media said that it wouldn’t repeat last quarter’s profitable performance, announcing Friday that it will most likely break even in its fourth quarter.

Wall Street expected the Norwalk, Conn.-based agency to reprise its third-quarter per-share earnings of $0.01 or $1.5 million. However, the company said that revenues fell to $36 million, down from $37.8 million last quarter.

In an effort to reduce overhead, the company said that it has cut 36 employees, or about 4 percent of the workforce. Severance will result in a fourth-quarter, pre-tax charge of $3 million to $4 million. The agency also said it plans to reduce office space under lease in San Francisco and Tokyo.

“Our challenge will continue to be prudent expense management on a domestic and international basis,” said Modem Media’s president and chief operating officer, Bob Allen. “We have set in motion actions to limit our exposure in the major expense areas; the losses from our CentrPort subsidiary, our Japanese overhead costs and lower-than-acceptable utilization levels.”

Despite the downturn in ad revenue, Allen said that he is “satisfied with what we anticipate will be very solid performance in a fourth quarter of considerable industry uncertainty.”

Allen added that despite the company’s seeing some “moderation” in spending by its Fortune 500 clients, Modem Media has a “solid pipeline” of business for 2001 that will generate an earnings margin of at least 8 percent.

The agency, which is owned by True North Communications, also announced that it has closed a series of deals adding some cash to its coffers but ceding its controlling interest in a subsidiary, CentrPort.

Modem Media said it has sold a portion of its interest in CentrPort, which makes profiling and analysis technology that enable companies to target and optimize email, Web, and wireless messaging campaigns, to a group of venture firms led by Thomas Weisel Capital Partners. In return for the equity, the investors will pay Modem Media $5 million in cash, which it likely won’t receive until 2001.

Modem Media will remain a strategic partner and minority equity owner in CentrPort, which will be Modem Media’s preferred vendor. Modem Media is also obligated to resell a certain amount of CentrPort products and services during 2001, according to the terms of the deal.

Modem Media’s remaining investment in CentrPort is now reflected at cost in the company’s financial statements.

“This transaction will not only help to ensure that Modem Media and our clients continue to benefit from CentrPort’s outstanding services but will also provide Modem Media with cash for our core business,” said Modem Media chairman and chief executive Gerald O’Connell.

“Additionally, this arrangement should ensure that the CentrPort business is adequately funded to add the sales, marketing and technology infrastructure necessary to actively grow this business to its full potential,” O’Connell said.

At press time, shares of MMPT were trading at $4.13, well off its 52-week high of $56.93.

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