- The Washington Times - Monday, March 26, 2001

Internet consulting firm Proxicom Inc. is firing one-fifth of its work force as it faces a slowdown in the demand for information services in the United States and Europe and weaker-than-expected first-quarter financial results.

The Reston company made the announcement last week, letting go of 227 workers primarily from its headquarters office, New York and San Francisco. A quarter of the cuts will come from London and Munich, the company says.

Proxicom expects a 12 to 13 cents loss on revenue of $39 to $41 million for its first quarter, which ends this week. Analysts had expected the company to earn 2 cents, according to a survey by First Call/ Thompson Financial.

The company expects to save about $35 million by reducing its staff and renegotiating lease agreements for previously planned office expansion.

"I can't say that this was unexpected," says Christopher Penny, an analyst with Friedman, Billings, Ramsey in Arlington. "If you look at the market in general, the [deal] rates across the board are down."

Despite current market uncertainty, Mr. Penny recommends buying the stock. John Schneller with CIBC World Markets in New York, agrees, saying the company is strong in the long run.

"They have a certain level of visibility with respect to the business that they see on the horizon, and it's quite clear that they see softness continuing through the second and third quarters," Mr. Schneller says. "But we think this is a good company with a good management team and an excellent track record."

He adds that cutting the staff "doesn't reflect badly on the company it's just a good company making difficult decisions in a difficult environment."

Shares of Proxicom have been slipping steadily since the economy stopped growing last year, causing a slowdown in the consulting business. The stock closed at $3.19 Friday on Nasdaq, well off its 52-week high of $57.25 in July.

This is the second staff cut for Proxicom this year; it handed out 50 pink slips to roughly 5 percent of its workers in January.

Founded in 1991, the company went public in April of 1999, and began a global expansion with subsidiaries in Germany and Britain, and joint ventures in Italy and Spain.

Proxicom serves the telecommunications, energy, financial, manufacturing, retail, and services industries. Among its big clients are General Electric, American International Group, Merrill Lynch, Owens Corning, and others.

The class of customers is one of the reasons Mr. Penny believes Proxicom will survive the economic turbulence. "There is no question that they are going to be there," he says. "The cash they have on their books, their customers … and they have a management routine that has been able to operate through these cycles."

For its fourth quarter 2000 the company reported net sales rose 95 percent to $57.9 million from $29.62 million the year before. However, for its last quarter Proxicom also reported a net loss of $3.42 million (6 cents per diluted share) compared to a net gain of $1.89 million a year before.

Diluted shares reflect the value of options, warrants and other securities convertible into common stock.

"Right now it's just a difficult time, and for us forecasting these companies is more of an art than a science," Mr. Penny says.


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