Razorfish Reports Small Profit

Razorfish Tuesday reported a slight profit for its second quarter of 2002, despite a significant drop off in sales.

For its second quarter ended June 30, the e-services company based here reported net income of $340,000, or 7 cents per share, on sales of $10.9 million. That compares with a net loss of $137 million, or $41.90 per share, on sales of $29.5 million for the same period last year.

First Call/Thomson Financial reported no analyst coverage for the second quarter in a row.

The second-quarter earnings results reflect a one-for-30 reverse stock split of Razorfish's common stock. Shares of Razorfish were trading up 22 percent Tuesday afternoon, at $4.20, on light volume trading, from a Monday close price of $3.42 per share.

"IT services companies continue to face major headwinds," said Jean-Philippe Maheu, CEO of Razorfish, during an earnings conference call. "It remains very difficult to achieve revenue stability and profitability on a consistent basis."

Maheu noted some trends and signs of stability in the face of the tough market and uncertain economy. For instance, consolidation, such as IBM's pending acquisition of PwC Consulting and SBi's pending acquisition of Lante and Scient, has again slashed the number of competitors, Maheu said.

He said he remains confident the strength of Razorfish's brand, client relationships and employees will continue to keep it afloat until the market picks up again.

"We all remain 100 percent committed to the success of the company," Maheu said. "We continue to work hard at making Razorfish a successful turnaround story."

The company, which had 2001 revenue of $104 million, has been working hard to leverage its existing technology investments into specialty enterprise portal development. To survive the market collapse that found Razorfish trading at about 14 cents per share, compared with a February 2000 high of $56.94, the company closed offices and downsized to 250 employees from about 2,000 at the beginning of 2001.

Maheu emphasized new clients acquired during the quarter including J.D. Edwards and the Los Angeles Department of Water and Power. In addition, Maheu also said gross margins, before reimbursements for direct costs, remain at about 45 percent, consistent with the first quarter 2002.

In addition, enterprises at the moment are most willing to buy services aimed at strengthening and maintaining relationships with customers and distribution partners, small projects aimed at fixing and/or extending the life of existing applications, and IT maintenance, Maheu said.

"All in all, clients continue to be very price-conscious," Maheu said. "They also continue to be attracted by offshore resources for large-scale application development."

Looking forward, Razorfish said it anticipates revenue, before reimbursements for direct costs, to be flat to moderately down for the third quarter.

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