Razorfish Q4 Loss $19.8 Million; Year-end Revenues Up 57%

Silicon Alley interactive services firm Razorfish, Inc., announced a pro forma net loss of $19.8 million, or $0.20 per share, for the fourth quarter ended Dec. 31 of 2000.

It’s the first quarter that the once high-flying interactive shop failed to post a cashflow-positive quarter before one-time charges. During the fourth quarter of 1999, Razorfish declared a profit of $5.8 million, or $0.06 per share.

Revenues for fourth quarter 2000 were $50.1 million, a 5 percent drop from the company’s revenues of $52.7 million during the fourth quarter of 1999.

But for 2000 overall, the firm’s total sales were up by 57 percent, to $267.9 million, compared to $170.2 million for 1999. For the full year 2000, Razorfish’s pro forma net loss was $5.2 million, or $0.06 per share, compared to 1999’s profit of $19 million, or $0.23 per share.

During a conference call, company chief executive officer Jeffrey Dachis cited changes in the marketplace, lengthening sales cycles for technology consulting services and more selected spending on projects by corporate customers as some of the reasons behind the results.

Despite an outlook of slowing revenues for the first half of 2001, the company said it expects positive revenue growth of about 25 percent for the full year.

The negative market sentiment regarding so-called “dot-com bombs” is starting to turn, company officials noted. With fewer well-funded dot-com startups to contend with, corporate customers are now moving from “fear-based spending to strategy-based spending,” resulting in more complex and longer projects.

“The market will come back but it will be more different,” Dachis said. “Projects will be more relationship-oriented. We’re in it for the long haul.”

But for now, the order of the day is to weather the period of slowing revenue. The company gave no guidance beyond an expectation of $45-50 million in the first quarter of 2001.

With Razorfish feeling the effects of a slowing economy, along with pricing pressure from larger, more established competition among the Big Five consulting firms, cost-cutting measures were the theme of the announcement.

On Monday, Razorfish announced it would layoff 400 employees, or about 20 percent of its employees. During the conference call, John Roberts, Razorfish’s chief financial officer, said more staff reductions were expected through attrition during the quarter.

Because of the company’s high head count relative to the slowdown on projects that hit the industry last year, utilization rates on employees were just above 30 percent, Roberts said. Given the staff layoffs and its investments in business development, the company said it is targeting an employee utilization rate on projects of 65 to 70 percent for the year.

Impairment of goodwill on past acquisitions cost the company $126 million, due to the change in the market value of companies and assets Razorfish acquired in the past year.

In addition, its days of outstanding receivables were estimated at around 83 days, which officials said they expect to reduce to about 73 days during the coming year, helping to improve cash flow by about $5 million.

“Even without a capital infusion, we’re driving aggressively toward being cash flow positive at the end of the second quarter,” Roberts said.

As of the end of the quarter, the company had $51 million in cash and was expecting to burn through about $20 million during the first quarter of this year, almost half of that burn driven by severance packages for laid off employees.

In after-hours trading on the REDIBook ECN, shares of RAZF were down by about a quarter, to $1.63.

Erin Joyce is managing editor at atNewYork, an internet.com publication.

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