The News

WebSideStory Announces Agreement to Acquire Atomz and Launch of Active Marketing Suite

08/02/2005

SAN DIEGO, CA (Feb. 8, 2005) – WebSideStory, Inc. (NASDAQ: WSSI), a leading provider of on-demand web analytics, today simultaneously announced an agreement to acquire Avivo Corporation, a California corporation doing business as “Atomz,” and the launch of a new suite of integrated services for online marketing professionals. Based in San Francisco, Ca., Atomz (http://www.atomz.com/) is a leading provider of on-demand digital marketing applications, including site search and web content management.
Active Marketing Suite

Upon completion of the merger, WebSideStory will combine Atomz’s hosted site search and web content management applications with WebSideStory’s HBX web analytics service to create the industry’s first suite of integrated, on-demand digital marketing applications. WebSideStory’s Active Marketing Suite will also include a keyword bid management product, scheduled for release this summer. The Active Marketing Suite will offer a single, shared environment in which businesses can more easily optimize their online performance across multiple marketing channels, while greatly reducing their vendor management costs. The Active Marketing Suite will include:

· HBX Analytics – An award winning, on-demand web analytics service that helps enterprises measure their online marketing initiatives – from search engine marketing to banner campaigns – and improve overall web site return on investment
· Bid – An on-demand keyword bid management product that will enable marketers to both manage and measure their pay-per-click keyword campaigns
· Search – An on-demand web site search application that empowers marketers to guide and influence site visitors and customers in finding the information and products they need
· Content Manager – An on-demand web content management solution that puts the power of creating and updating web content in the hands of marketers

The Active Marketing Suite will have an open architecture accessible through WebSideStory’s STREAM APIs (application programming interfaces), which will enable further integration of products, services and data from strategic partners and end users.

"WebSideStory's acquisition of Atomz makes very good sense in light of this new product suite," said Robert Blumstein, Research Director of CRM Analytics for IDC Research, the premier global market intelligence and advisory firm in the information technology and telecommunications industries. "WebSideStory is taking advantage of its scalable, hosted platform and evolving its solution to a new level in a single stroke. This will present marketers with a broader and more attractive set of choices."

“We have been a longstanding customer of both companies and are very excited by this news,” said Jarid Lukin, e-commerce manager for LEGO Shop at Home, one of the world’s best-known toy brands. “We have already received great value from the existing integration between WebSideStory’s analytics and Atomz’ site search capabilities, and look forward to taking advantage of a larger suite of services to help us with our broader digital marketing needs.”

“As the importance and complexity of digital marketing have soared in recent years, our customers have asked us with increasing frequency for an integrated suite of management applications,” said Jeff Lunsford, Chairman and CEO of WebSideStory. “They have told us the neutrality and real-time nature of our services makes us the ideal launching point for creating a centralized suite of products to manage all of their online marketing initiatives. We are proud to welcome the Atomz team to help us deliver on this unique proposition.”

“The combination of WebSideStory and Atomz is a strategic step in our mission to serve customers with innovative products and superior service, all delivered through the on-demand model,” Atomz chairman and CEO Steven R. Kusmer said.

Merger Agreement
Under the terms of the agreement, WebSideStory will issue approximately 3.1 million shares of common stock and options to purchase common stock and will pay approximately .3 million in cash, in exchange for the outstanding capital stock and options of Atomz. Approximately nineteen percent of the common stock and cash will be held in escrow for a fifteen-month period (with a portion extended to up to twenty-four months) following closing to satisfy possible indemnification claims. Atomz shareholders also have the right to receive an earn-out payment based on achievement of certain revenues by Atomz in the fifteen-month period following the closing. Upon completion of the transaction, Atomz will merge with and into a subsidiary of WebSideStory.

The transaction has been unanimously approved by the boards of directors of both companies and is subject to customary closing conditions, including receipt of a determination by the Commissioner of the California Department of Corporations as to the fairness of the transaction and approval of the transaction by the requisite vote of the shareholders of Atomz. Certain shareholders of Atomz have entered into agreements to vote all of their shares in favor of approval and adoption of the merger agreement, and against any competing transaction. No vote of WebSideStory stockholders will be required in connection with the transaction.

WebSideStory expects that the transaction will be accretive in 2005 both to revenue and to pro forma earnings per share, but will reduce GAAP earnings per share.

Assuming consummation of the merger on April 1, 2005, WebSideStory expects Atomz to add approximately .8 million to its revenue for the last three quarters of the year. WebSideStory also expects pro forma earnings (earnings before stock-based compensation and amortization of intangibles) to increase approximately 3 cents per share, over that same period. If the closing occurs later than April 1st, the positive impact would be lower. Due to two non-cash expenses created by the merger, the company expects the transaction to reduce GAAP earnings per share by approximately 4 cents per share, over the same period. These expected non-cash charges are from estimated stock-based compensation charges of approximately 3 cents per share in 2005 related to the assumption of Atomz stock options and from the estimated amortization of intangibles of approximately 4 cents per share in 2005.

WebSideStory provides this guidance in terms of earnings per share before stock-based compensation and amortization of intangibles, because it believes investors find this presentation useful in that the information concerns the expected operations of the company and not non-cash charges relating to restricted stock and stock options granted prior to the merger at exercise prices below fair market value determined as of the effective date of the merger or amortization of intangibles resulting from the merger. In addition, earnings per share before certain non-cash items such as stock-based compensation and amortization of intangibles is among the indicia that management uses as a basis for measuring past performance and planning and forecasting future periods.

Conference Call and Webcast Information
WebSideStory will host a conference call and simultaneous webcast to discuss the Atomz acquisition, tomorrow, Wednesday, February 9, 2005, at 5:30 a.m. Pacific Standard Time. To participate in the call, investors should dial (800) 901-5247 (domestic) or (617) 786-4501 (international) 10 minutes prior to the scheduled call. The pass code is 54333598. Additionally, a live audio-only webcast of the call may be accessed via the Internet at http://www.websidestory.com/. An archived version of the webcast will also be available for at least twelve months, beginning two hours after completion of the call, at the same location.

About Atomz
Atomz is a leading provider of on-demand digital marketing applications. Its hosted services include site search and web content management. More than 300 enterprises currently use Atomz’s services to manage and improve their web sites. Atomz is a trademark of Avivo Corporation.

Forward-Looking Statements
Statements in this press release that are not a description of historical facts are forward-looking statements. For example, statements about the anticipated synergies of WebSideStory’s and Atomz’s business, the projected future financial performance of Atomz’s and WebSideStory’s business, and plans and objectives of management are all forward-looking statements. You should not regard any forward-looking statement as a representation by WebSideStory that any of its plans will be achieved. Actual results may differ materially from those set forth in this release due to the risks and uncertainties inherent in WebSideStory’s business. Such risks include, without limitation, WebSideStory’s limited experience in an emerging market with unproven business and technology models, the risk of incurring higher than expected costs associated with integrating the operations of Atomz with those of WebSideStory, WebSideStory’s reliance on its web analytics services for the majority of its revenue, the risk that the acquisition of Atomz may not occur or that sales of Atomz’s services will not be as high as anticipated, WebSideStory’s recent achievement of profitability and the risk that it may not maintain its profitability, the highly competitive markets in which WebSideStory operates that may make it difficult for the company to retain customers, the risk that WebSideStory’s customers fail to renew their agreements or that Atomz’s customers fail to renew their agreements following the acquisition, the risk that WebSideStory’s services may become obsolete in a market with rapidly changing technology and industry standards, and the risk that WebSideStory may incur unanticipated or unknown losses or liabilities if we complete the acquisition of Atomz, as well as the other risks described in WebSideStory’s filings with the Securities and Exchange Commission, including WebSideStory’s prospectus dated September 27, 2004 and its form 10-Q for the quarter ended September 30, 2004. Do not place undue reliance on these forward-looking statements, which speak only as of the date of this news release. All forward-looking statements are qualified in their entirety by this cautionary statement and WebSideStory undertakes no obligation to revise or update this news release to reflect events or circumstances after the date of this news release.
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