Be Free Continues Efforts to Shore Up Business

In a bid to reach profitability, affiliate marketing firm Be Free said it’s undertaking large-scale restructuring that will see the departure of its co-founder.

Thomas Gerace, who serves as chief marketing officer at the Marlborough, Mass.-company, will vacate his post immediately, although he will continue in an advisory capacity on strategic initiatives, the firm said.

“Since the founding of Be Free, Tom has been an integral part of its success,” said Be Free chairman and chief executive Gordon Hoffstein. “Just as Tom helped to shape the original vision for Be Free four years ago, he has continued to be essential in forming the company’s future direction. I would like to personally thank Tom for his tireless commitment to Be Free and selfless evaluation of the best structure for the company going forward.”

In addition to Gerace’s departure, the company said it would cut about 25 percent of its workforce, slimming down to about 175 employees.

The effort is intended to help the firm make its third- and fourth-quarter numbers. Last quarter, the company gave guidance of an optimistic seven to 12 percent growth in revenue next quarter, and 20 to 30 percent in fourth quarter — when it should begin to see cost savings from the cuts, to the tune of $3.5 million. (At current expense levels, the revenue predictions would translate to a $0.07 per share loss in third quarter. Wall Street anticipates a $0.06 per share pro forma loss, according to Thomson Financial/First Call estimates)

In second quarter, the firm posted $5.5 million in revenue, two percent better the previous quarter. Pro forma loss for second quarter was $5.4 million, or $0.08 per share, versus $6.6 million, or $0.10 per share, previously.

“We believe that our market is continuing to evolve in the direction that we discussed in our second-quarter investor conference call,” Hoffstein said. “We are bringing on larger ‘brick to click’ customers and anticipate continued losses of dot-com customers. With a smaller number of larger customers, our business model has become more efficient. These changes keep us on our path to profitability without compromising our market position and ability to provide excellent customer service.”

Hoffstein added that the firm still believes it can hit profitability by second quarter of next year.

It’s the latest effort at restructuring from the firm. Citing continued losses of dot-com customers and a longer-than-anticipated sales cycle, the company cut approximately 20 percent of its workforce earlier this year, and said that it was working to aggressively manage its discretionary expenses and overall cost structure.

In April, the company also announced that it had suspended development of a new product that would have integrated its affiliate marketing system with personalization technology purchased in February 2000, during Be Free’s acquisition of TriVidia Corp.

Last week, Be Free followed competitor Commission Junction’s lead in rolling out a system to identify top-paying marketers — which would likely reduce Be Free’s and CJ’s ad serving and administrative costs as affiliates congregate around only the highest-paying advertisers, who are also the most profitable for the two affiliate marketers.