Aptimus Meets Lowered Guidance, Says Cuts Will Help 2001 Profitability

Online marketer Aptimus met lowered earnings guidance with its fourth-quarter and full-year 2000 report, promising that the future will pick up, and adding that the quarter could have very easily been worse.

Seattle-based Aptimus posted pro forma operating losses for the fourth quarter of $6.0 million, or $0.39 per share, on $2.4 million in revenue. In third quarter, the company posted a loss of $3.4 million, or $0.22 per share.

For the year, pro forma operating losses were $19.1 million, or $1.22 per share, on $16.9 million in 2000 revenue.

Those losses exclude equity-based compensation, amortization of acquisition costs and write-off of offering costs. But they do include costs attributable to the acquisition of XMarkstheSpot, Inc., and others incurred in the development and introduction of the company’s new branding and online direct marketing network.

“Several factors contributed to our sequential decrease in revenue during the fourth quarter 2000,” said Aptimus president and chief executive Tim Choate. “Specifically, continued general slowdown in the Internet economy along with growing collectibility issues with our larger Internet-based clients caused our financial results to deteriorate.”

The company said its stock buyback program, begun in third quarter, has cleared 670,000 shares of APTM from the market, for a total cost of $1.6 million. In addition, the company spent $2 million in cash for the November 2000 purchase of XMarkstheSpot. This leaves Aptimus with about $25 million in cash and marketable securities to carry it through 2001 — which executives said should be enough.

Choate also took the time to defend the company’s move last month to abandon its consumer Web properties to focus on its seven-month-old network model — in which it delivers targeted offers on publishers sites, much like ad networks deliver targeted banners, but on a cost-per-action model.

“We made the difficult decision to exit our consumer Web site business and focus all of our energy and resources on being a direct marketing infrastructure company,” Choate said. “We feel that the network strategy offers us a much greater growth opportunity than our site-centric approach, and with a highly profitable business model.”

Choate said Aptimus had seen its network business take off from its debut in August, to the point that it was routinely more than tripling daily orders through its Web properties. But that growth caused problems that ultimately cut into revenue, and dampened the company’s quarterly earnings.

“We clearly had a hit, but that hit resulted in some major challenges to our business,” Choate said. “Most significantly, our technology systems were built for a site-centric approach, and were not prepared for the extraordinary volume growth from the network model.”

To rejigger the operation — which had changed its name from FreeShop.com to Aptimus in October — the company said it chose to slow down so that it could reconfigure its operations. Part of that reconfiguration was through the purchase of XMarkstheSpot, which helped to speed the company’s recovery.

An internal restructuring also followed, reducing the company’s employees to 60, down from 215 at the end of December.

The company’s bottom line also saw the impact of re-evaluated accounting procedures, in which the company said it decided to not recognize as revenue some of what it had been promised from failing dot-com clients, and what it said it was unlikely to receive. In addition to reducing fourth quarter revenues, the company said that the new accounting practice trimmed $2.1 million from its earlier, third-quarter revenue.

For this year, Aptimus executives said they anticipate gross revenue for the year to be between $15 million and $20 million. About 50 percent of that gross revenue is expected to go toward paying off publishers’ commissions.

Going forward, the company’s reduced e

xpenditures will total about $3.5 million in quarterly operating costs, which Aptimus said should increase, as would revenue during the year, although it shied away from giving specifics.

First quarter gross revenue are expected to be between $1 million to $1.5 million, resulting in an operating loss of $5 million to $6 million, or $0.32 to $0.39 per share. Those losses include costs related to staffing and the company’s consumer Web sites, which were incurred prior to its restructuring, it said.

An additional $2.8 million in one-time restructuring charges will be heaped on that total, causing total losses to be between $8 million and $9 million. Future quarterly losses should be significantly less, the company said, about
$2 million to $2.5 million in second quarter, and $1 million to $1.5 million in third quarter.

Aptimus said the firm should achieve pro forma operating profitability during the fourth quarter, when it is expected to post a pro forma net loss of $6 million to $10 million for the year.

“The fourth quarter of 2000 proved to be a very challenging one for Aptimus, although it also showed us the opportunity that will guide our future direction,” Choate said.

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