Revenue, income fall short at Net consultancy Breakaway

The company posts a revenue shortfall and a preliminary loss that exceeds expectations as it seeks to determine some one-time charges and the value of intangible assets.

3 min read
Breakaway Solutions, which once flew high in the Internet consulting market, continues to feel the downdraft of challenging times.

The Boston-based company late Wednesday posted fourth-quarter revenue that fell short of analysts' expectations and postponed reporting quarterly and full-year earnings to determine other one-time charges and the value of intangible assets. The company blamed its lower-than-expected revenue partly on a decline in spending from dot-com clients during its third quarter.

Breakaway reported a preliminary fourth-quarter loss of 42 cents per share, excluding certain charges. First Call analysts had been expecting it to post a loss of 26 cents.

The company, which helps clients with Web development, strategy, consulting and application-hosting services, did not disclose a date on which it would release full quarterly results.

Investors took the company to task for the news. In early trading Thursday, the stock sunk 19 cents to 81 cents.

For the quarter, Breakaway said revenue came in at $15.4 million, sharply lower than its anticipated range of $22.5 million to $24 million. Analysts polled by First Call had expected Breakaway to post revenue of $23.5 million. The company, whose fourth quarter ended Dec. 31, said revenue rose nearly 50 percent compared with the same period in 1999.

Also in the quarter, Breakaway determined that $5.8 million in revenue could not yet be recognized because of worries about collecting the money.

Like many other struggling Internet consulting companies, including Scient and Razorfish, Breakaway said the overall slowdown in spending from dot-com clients took a toll on sales. Revenue from dot-coms fell from $6.3 million in the company's third quarter to $2 million in its fourth. Spending from dot-com clients is expected to dribble down to approximately $775,000 in the first quarter of 2001.

Also siphoning off some of the company's quarterly revenue stream was a decline in money flowing from Internet Capital Group, an original investor in Breakaway. ICG's contribution to Breakaway's fourth-quarter revenue dropped to $3.1 million from the third quarter's $14.1 million, and is expected to decline to approximately $700,000 in the first quarter of 2001.

Many consulting companies that specialized in providing Net upstarts with Web-related consulting services have had it rough since the latter part of 2000, when a flood of dot-coms began losing funding and shutting down. To tighten up and shift their focus to larger Fortune 500 clients, several players in the once-booming market have cut staff, closed offices and implemented restructuring plans to get back on track and boost sagging profits.

Last October, Breakaway warned of lower third-quarter earnings and laid off 9 percent of its staff. At the time, Breakaway's shares shed 30 percent of their value and got slammed by a number of analysts' stock downgrades.

On Thursday, Modem Media, another provider of Internet strategy and consulting services, said it has cut its work force by 10 percent as it aims to reduce expenses. The company, based in Norwalk, Conn., also said it plans to close its Tokyo office. As a result, Modem Media plans to take a one-time charge of approximately $3 million in the first quarter and reduce its ongoing operating expenses by approximately $5 million in 2001. Earlier this week, the company announced it would delay the release of its fourth-quarter results because of further analysis and review of certain charges.

Breakaway, which has seen its stock drop significantly from its 52-week high of $85.50, got a slight boost last week after it secured $33 million in equity financing from strategic investors. Although the news gave the battered stock a much-needed boost of 22 cents, pulling it up more than 19 percent, shares of Breakaway continue to languish just above $1 per share and have hit a 52-week low of 62 cents.

In its fourth quarter, Breakaway said it expects to record a one-time charge of about $200 million related to restructuring expenses and the goodwill associated with last year's acquisition of Eggrock Partners.

The company, which said it landed 29 new clients during the quarter, is committed to achieving profitability in the near term and believes its cost-cutting measures will start to pay off in the second quarter of 2001. Savings from Breakaway's cost-reduction plans are expected to trim expenses by approximately $45 million annually.