Engage to Lose CMGI Backing

Online ad network and technology player Engage warned investors Wednesday that its parent,

Internet holding company CMGI, is not renewing its $50 million loan.

The news means that the cash-strapped Andover, Mass.-based firm is forced to undertake more

cost-cutting, and is “aggressively considering a range of strategic alternatives,” said Engage

president and chief executive Tony Nuzzo.

Spokespeople declined to comment on what the alternatives might be, but typically such language

indicates a search for a major investor, or a buyer — or seeking protection from creditors

through bankruptcy filings.

At the end of its current quarter, the company said it has about $31 million in cash and

marketable securities — enough, executives once thought, to carry the firm through to

profitability.

Evidently, that’s no longer the case. The announcement came amid other discouraging

reports from the company, which said Wednesday evening that it would likely see

lower-than-expected revenue for the quarter.

Fourth quarter revenue — Engage operates on a August-June fiscal calendar — is now expected

to be between $15 million and $16 million, down from $20 million to $22 million. Last quarter the

company brought in about $25.4 million in revenue.

As a result, pro forma losses will likely come in between $0.09 and $0.12
per share, about a penny greater than expected, but roughly in line with
last quarter’s $0.12 per share loss, or $23.4 million. Wall Street had
expected a loss of $0.11 per share for this quarter.

Based on the revised guidance, full fiscal year revenue is expected to be $109.5 million to

$110.5 million — about 4 percent lower than previous expectations.

As a result, the company said it would no longer reach breakeven before exiting its first

fiscal quarter, ending in October.

“The ongoing softness in the online advertising market continues to adversely affect our media

business, however we are encouraged by our software pipeline,” Nuzzo said. “While implementing

additional cost cutting initiatives … we are as well as evaluating our business composition

between software and media.”

There is some cause for optimism, however. Engage spokespeople said that CMGI’s majority stake in the company — it owns about 77 percent — “underscores its substantial interest in Engage’s success.” Accordingly, Engage said CMGI has indicated a “readiness” to discuss some level of funding. CMGI spokespeople did not return calls for comment by press time.

Additionally, Engage also took the wraps off a new version of its ad serving technology, during

the Jupiter Media Metrix Online Advertising Forum Wednesday.

The technology, which Engage plans to roll into its outsourced AdManager product and its

AdBureau standalone server in October, features several advancements over previous versions.

For one, AdManager 5.5 will support a variant of adXML — an XML specification developed during

the past several years by an industry colloquium led by MediaPlex — which should allow for closer

integration with billing and reporting systems.

Also, Engage’s new software will support closed-loop reporting, integrating post-click and

post-impression tracking. That’s become a sought-after feature in ad serving services, as

publishers seek to woo advertisers by offering greater branding accountability for their media

spends.

AdManager 5.5 will also offer geographic targeting, and a Wide Area Network module that manages

reporting from sites cached at the edge of the Internet (through the services of an Akamai, for

instance) — tracking databases occasionally report erroneous information from publishers’

dispersed server sites.

Shares of ENGA closed at 0.38 on Wednesday. In the last year, the issue has ranged from 0.31 to 15.

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