Schaut Out at Engage

In an announcement after the market close Wednesday, online advertising company Engage said revenues for the quarter ended October 31 will be significantly lower than expected — and $26 million under what it brought in the previous quarter — while simultaneously announcing the departure of its chief executive officer.

Paul Schaut, who had been with the company since 1997, is leaving “to pursue other interests,” effective November 20. He’ll be replaced by Anthony Nuzzo, formerly of Marsh & McLennan’s startup Internet bank and Fidelity Investments, who will hold the president and CEO positions, and occupy a seat on Engage’s board.

Schaut had reportedly predicted that the company would turn a profit in April of 2001, three quarters earlier than originally expected. But the new revenue numbers mean that the elusive profitable quarter now isn’t expected until the end of next year.

The bad news, while surprising, isn’t a total shock, as the CMGI-owned operating company has been struggling for months. Back in September, when it announced results for its fiscal fourth quarter, Engage cut 175 jobs and merged its five operating divisions into two. Then, in October, chief financial officer Steve Royal was nudged out of the job and into a position in Engage Software, while Robert Bartlett took over as CFO and executive vice president. Now, a new CEO will take the helm of the foundering ship.

Engage, while partly a victim of bloating due to too many acquisitions in a brief period, is also suffering under the malaise plaguing the Internet advertising industry as a whole.

Executives attributed the lowered expectations for the quarter ended October 31 to both of these factors. Internally, integrating the sales forces of its various acquisitions has taken longer than it originally thought, and the sales cycle for its software products was longer than expected. Externally, the company has faced the overabundance of supply in the media market, the weakened demand from dot-coms, and the sluggish movement of traditional advertisers to the Internet.

In a refrain familiar to industry watchers and dot-com investors, officials at Engage lauded the latest change in leadership while thanking the outgoing CEO.

“With line and staff experience in consumer-direct and business-to-business environments, team building and problem solving skills, Tony has the necessary skill set required to lead Engage,” said David Wetherell, Engage chairman and CEO of Engage parent CMGI. “His track record of identifying and creating business opportunities in a broad array of industries is highly desirable and we look forward to his contributions to the company.”

“Paul Schaut played a critical role in the growth and development of Engage as the company transitioned into a full-service Internet marketing solutions provider. We appreciate all that he has done for Engage and wish him the best of luck in his future endeavors,” Wetherell said.

Most recently, Nuzzo worked at Fidelity Investments, having spent five years as president and CEO of Fidelity Trust Company. He took the chairman job at that company while serving as president and CEO of Fidelity’s Temporary Services Unit. He’s a veteran of Chemical Banking Corp., and has held management and marketing positions at American Express, Johnson & Johnson and Procter and Gamble.

What is Nuzzo expected to do? Well, according to Wetherell he’ll head up a cost reduction drive, which will involve the re-allocation of resources to more profitable areas. In addition, sales efforts will be redoubled, with a focus toward software and technology products — which typically have higher margins than the media products. Like other players in the industry — notably DoubleClick — Engage is emphasizing its technology products, at a time when the media business is in the toilet.

“We had hoped for improved industry trends, but based on continued softness in the media industry and the seasonal weakness traditionally associated with the first part of our financial quarter, we anticipate revenues will fall below original expectations,” said CFO Bartlett.

“We believe many of these conditions could persist into the next three quarters. We believe we can achieve modest quarter over quarter growth throughout fiscal 2001, with total revenues anticipated to be in excess of $200 million.”

In fiscal 2000, the company saw revenues of $176.8 million, which was a 559 percent increase over the 1999 fiscal year. If Bartlett is right, the company will see only a 13 percent increase in revenues from 2000 to 2001. It’s quite a dramatic drop.

The good news? The company had more than $100 million in the bank at the end of October, and it believes that’s enough to see it through its expected cash earnings break-even point at the end of 2001.