Engage to Cut Half of Staff

Online ad network and technology firm Engage said Thursday that it plans to reduce its headcount by about half, or 550 — through layoffs, job eliminations and attrition — as part of a massive overhauling of its business.

Engage said that it plans to implement unspecified operational efficiencies, enabling it to eliminate “numerous” duplicate positions.

The most recent announcement follows a number of efforts by Engage to right itself amid the stormy waters of the online advertising industry. In September, the company cut 175 jobs. In November, chief executive Paul Schaut stepped down.

In conjunction with the new series of job cuts — which will take place over the next several months — the Andover, Mass. company said it is launching a new operational strategy.

Executives said a “new, streamlined Engage” would feature centralized sales, account, marketing and engineering units, with a separate sales and service unit for each of its two core businesses — software and media. However, it said it would bring oversight of the two businesses under a centralized management.

Several months ago, Engage said it had reorganized its business units — then five — under software and media divisions. Now, apparently, Engage’s goal of a “single, cohesive organization” means further contraction within the company.

“We believe this major restructuring is necessary to enable the company to position itself for future growth and to significantly reduce costs,” said Engage president and CEO Tony Nuzzo, who replaced Schaut. “We are creating a fully integrated company with internal dynamics that facilitate more effective communication and decision making.”

Once implemented, the changes are expected to generate annualized improvements in operating margins and cost reductions of approximately $120 million to $150 million.

The company said it expects to take a cash restructuring charge of about $17 to $20 million, and an additional non-cash charge totaling about $23 to $25 million.

In a statement, Engage repeated previous assertions that it intends to increase its focus on software, since that area typically produces higher gross margins than Engage’s media business — a fact realized some time ago by market leader DoubleClick, which counts technology as its largest single source of income.

Under the new corporate structure at Engage, Dean Wiltse will lead the worldwide software sales and service group. Tom Rothfels will head the worldwide media sales and service group. Engage co-founder Daniel Jaye will oversee the worldwide engineering group responsible for end-to-end product delivery and network operations. Betsy Zikakis will oversee worldwide marketing, which will consolidate product and corporate marketing and will be responsible for lead generation, sales support and product management.

Engage also said it is making each unit responsible for positively contributing to gross margin improvements, though it did not specify success criteria or incentives.

Engage said it plans to consolidate its national footprint by moving its largest media
business unit from San Francisco to corporate headquarters in Andover.

The company also reiterated earlier reports that it plans to renegotiate agreements with some of its network publishers to increase the percentage of revenue retained by Engage. Spokespeople earlier this week said the commission now paid to publishers would be 40 percent, but declined to specify what it had paid out previously.

Profitability — on a “cash earnings” or non-charge basis — remains slated for late fourth quarter. It did not give guidance for when it would break even with the sizable charges it was not including in its profitability accounting, such as the amortization of goodwill and other intangibles, stock compensation, in-process research and development, restructuring and acquisition costs.

Engage also said the $100 mi

llion it holds in cash and marketable securities would be sufficient to fund operations through profitability.

At press time, shares of ENGA were up 5.56 percent in heavy trading, at $1.18 per share.

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