24/7 Real Media, Inc. (Nasdaq: TFSM): Second Quarter Highlights: --
Revenue increased 42% year-over-year to $48.2 million. -- Pro forma
operating income of $0.09 per share compared with $0.05 per share
in Q2 of 2005; GAAP net income of $0.01 per share, versus a GAAP
net loss of $0.00 per share in Q2 of 2005. -- Japan joint venture
turns operating profit ahead of schedule. -- Continued solid
international growth. -- Launch of Decide DNA(TM) 6, the industry's
premier global search engine marketing platform. 24/7 Real Media,
Inc. (Nasdaq: TFSM), a leading global digital marketing company,
today announced financial results for the second quarter ended June
30, 2006. Revenue for the second quarter of 2006 was $48.2 million,
an organic increase of 42% over the $33.9 million reported for the
second quarter of 2005. Revenue contribution from international
operations grew to 60% for the quarter on strong financial growth
across Europe and the Pacific Rim region. Pro forma operating
income(1) for the second quarter of 2006 was $4.8 million, or $0.09
per share, the highest quarter ever for the Company. This compares
with pro forma operating income of $2.3 million, or $0.05 per
share, for the second quarter of 2005. Under generally accepted
accounting principles (GAAP), net income for the second quarter of
2006 was $0.5 million, or $0.01 per share. This compared to a GAAP
net loss of $0.2 million, or $0.00 per share, for the second
quarter of 2005. Due to the differing treatment of certain expenses
in 2006 under the recent adoption of Statement of Financial
Accounting Standards (SFAS) No. 123R, Stock Based Compensation,
results between these periods are not directly comparable. The
comparable GAAP figure for the second quarter of 2005, adjusted for
SFAS No. 123R, would have amounted to a net loss of $1.6 million,
or $0.04 per share. "24/7 Real Media realized outstanding
operational and financial results during the second quarter of
2006, continuing on the success and momentum the company achieved
in the first quarter and in fiscal 2005," said David J. Moore,
chairman and chief executive officer of 24/7 Real Media. "Our
leading global footprint continues to be an important market
differentiator, with both our European and Asia-Pacific operations
posting strong performances. In particular, our partnership with
Dentsu, K.K. 24-7 Search, continues perform exceptionally well and
has produced an operating profit ahead of schedule." "All our
businesses are performing very well in every geographic location.
Looking ahead, we are well positioned to continue capitalizing on
the positive trends in the market, including increased spending
online, the rapid growth of paid search and globalization." Segment
Overview Revenue in the Media Solutions segment climbed 28% to
$21.3 million in the second quarter of 2006 from $16.7 million in
the second quarter of 2005. Gross margins increased to 32.3%.
Search Solutions revenue advanced 69% to $19.7 million in the
second quarter of 2006 from $11.7 million in the second quarter of
2005. Gross margins for the segment were 25.1% in the second
quarter of 2006. Technology Solutions revenue climbed 29% to $7.1
million in the second quarter of 2006 from $5.5 million in the
second quarter of 2005. Technology gross margins, excluding stock
based compensation expenses, increased to 80.2% in the second
quarter of 2006. Financial Guidance and Business Outlook The
Company expects third quarter revenue for 2006 to be between $49
million and $50 million, the mid-point of which represents an
increase of 41% from third quarter 2005 revenue of $35.1 million.
The Company expects diluted pro forma operating income per share in
the third quarter of 2006 to be $0.09 per share. The Company
expects GAAP net income per share in the third quarter of 2006 to
be between $0.00 and $0.01 per share. The Company expects fourth
quarter revenue for 2006 to be between $55 million and $59 million,
the mid-point of which represents an increase of 37% from fourth
quarter 2005 revenue of $41.7 million. The Company expects diluted
pro forma operating income per share in the fourth quarter of 2006
to be between $0.11 and $0.12 per share. The Company expects GAAP
earnings per share in the fourth quarter of 2006 to be between
$0.01 and $0.02 per share. The Company now anticipates full year
2006 revenue to be in the range of $195 million to $200 million,
the mid-point of which represents an increase of 41% from full year
revenue of $139.8 million in 2005. The Company now anticipates
diluted pro forma operating income per share for the full year to
be between $0.36 to $0.37 per share. The Company expects GAAP net
loss per share for full year 2006 to be between $0.12 and $0.14 per
share. The Company expects full year 2007 revenue to be in the
range of $250 million to $260 million and anticipates diluted pro
forma operating income per share for the full year to be between
$0.51 to $0.55 per share. The Company is not providing GAAP net
income per share guidance for the full year 2007 at this time, as
certain items that would be included in that figure are dependent
on future events and accounting determinations.(2) Revenue guidance
includes the projected financial performance of K.K. 24-7 Search,
the partnership with Dentsu in which 24/7 Real Media holds a
majority interest and reports on a consolidated basis. Pro forma
operating income guidance is provided net of Dentsu's 49% minority
interest in the projected pro forma operating income or loss
generated by K.K. 24-7 Search. For full year 2006, the Company
expects revenue related to K.K. 24-7 Search to be in the range of
$5 million to $10 million, with gross margins currently expected to
be approximately 60%. The Company's diluted pro forma operating
income guidance for full year 2006 includes an expected $0.01 per
share to be contributed by the partnership, or GAAP earnings per
share for full year 2006 of $0.00 per share. In conjunction with
this release, a conference call will be held at 8:30 a.m. EDT on
Thursday, August 3, to discuss these results. The call will be
broadcast live over the Internet at
www.247realmedia.com/about/investor. Please allow extra time to
visit our Web site prior to the call and download the streaming
media software required to listen to the Internet broadcast. The
online replay of the broadcast should be available within two hours
following the live call and will be available for three weeks.
About 24/7 Real Media, Inc. 24/7 Real Media, Inc. is a leading
global digital marketing company, empowering advertisers and
publishers to engage their target audiences with greater precision,
transparency and ROI. Using its award winning ad serving,
targeting, tracking and analytics platform, powerful search
marketing capabilities and global network of specialized Web sites,
the company has turned the art of reaching audiences across
virtually any digital medium into a measurable science. The company
is headquartered in New York, with 20 offices in 12 countries
throughout North America, Europe and the Asia Pacific region. For
more information, please visit www.247realmedia.com. 24/7 Real
Media: The Science of Digital Marketing. 24/7 Real Media is a
member of the NAI and adheres to the NAI privacy principles that
have been applauded by the FTC. These principles are designed to
help ensure Internet user privacy. For more information about
online data collection associated with ad serving, including online
preference marketing and an opportunity to opt-out of 24/7 Real
Media cookies, go to: www.networkadvertising.org. Caution
concerning forward-looking statements: Certain statements in this
news release are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. For instance,
words such as "expects," "anticipates," "predicts," "guidance" and
similar expressions identify forward-looking statements.
Forward-looking statements also include any other passages that
relate to expected future events or trends that can only be
evaluated by events or trends that will occur in the future. Some
of the forward-looking statements in this news release include,
without limitation, statements regarding the expected financial
performance for the third and fourth quarters of 2006, for the full
year 2006 and for the full year 2007. Investors are cautioned not
to place undue reliance upon these forward-looking statements,
which speak only as of the date of this release. Except as required
by law, 24/7 Real Media undertakes no obligation to update any
forward-looking or other statements in this news release, whether
as a result of new information, future events or otherwise.
Management may reiterate these forward-looking statements
subsequent to the date hereof, but such reiterations should not be
considered an update or reaffirmation of these statements unless
expressly so stated. The forward-looking statements are based on
the subjective opinions and estimates of management at the time the
statements were made and are subject to substantial risks and
uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. These
substantial risks and uncertainties include, among others,
geopolitical, tax, exchange rate and other risks associated with
international operations, which currently comprise a significant
portion of the Company's revenue; the potential for enhanced
competition, including with competitors that have substantially
greater resources than those of the Company; potential issues that
may arise in the Company's Search segment, which is a less seasoned
business than the Company's other segments and which is in an ultra
competitive and rapidly evolving industry, in which the Company's
business is somewhat dependent on its ability to maintain good
relations with a few search engines; due to these factors, the
Company's Search business may not be able to expand as rapidly as
projected, nor maintain its existing customer base or profitability
structure; the potential loss of key employees and inability to
attract qualified new employees, especially in our Search business,
due to a very competitive and tightening job market; risks that the
Company's technology will be insufficient to meet increased
business levels; risk that the Company's technology services will
be disrupted by terrorist attack, disasters or malicious intrusion,
and that the Company's back-up facilities and disaster recovery
plans will not be adequate; customer concentration or customer loss
risks; potential deterioration or slower-than-expected growth in
the Internet advertising market; the uncertainties, costs and
business impacts of potential new legislation; accounting risks and
the risk of litigation or regulatory investigation involving the
Company. In particular, guidance on results in accordance with GAAP
do not include(i) the potential impact of any mergers, acquisitions
or other business combinations that may be completed after the date
of this release, (ii) any unanticipated non-recurring gains,
charges or write-offs, or (iii) unexpected changes in the Company's
effective tax rate, which may be caused by, among other things, the
geographical location in which operating income is generated and
the availability of tax-loss carryforwards. Actual stock-based
compensation expense impact may differ from these estimates based
on the timing and amount of options granted, the assumptions used
in option valuation and other factors. More information about
factors that could cause actual results to differ materially from
those predicted in the Company's forward-looking statements, as
well as additional information regarding the Company's business and
financial results and condition, is set out in its annual report on
Form 10-K for the year ended December 31, 2005, and will be set out
in its Quarterly Report on Form 10-Q for the three months ended
June 30, 2006, which the Company expects to file with the
Securities and Exchange Commission on or before August 9, 2006.
Investors are strongly encouraged to read the Company's Form 10-K,
Forms 10-Q and other filings with the Securities and Exchange
Commission in their entirety. (1) Pro forma operating income is a
non-GAAP financial measure. 24/7 Real Media believes pro forma
reporting provides meaningful insight into the Company's ongoing
economic performance and therefore uses pro forma reporting
internally to assist in evaluating and managing the Company's
operations. A full reconciliation of GAAP net income to pro forma
operating income for the three months ended June 30, 2006 and 2005
appears in the financial statement portion of this release. (2) Our
diluted pro forma operating income per share guidance for full year
2007 excludes the following items that are required to be included
under GAAP: depreciation expense of $5.0 million; amortization
expense of $3.0 million; and stock based compensation expense
related to equity instruments already or anticipated to be granted
of $14.0 million. Also excluded are interest income/expense, which
we do not expect to be material; income taxes, as we are still
determining the amount of our net operating loss carry forwards and
our overall effective tax rate, and the overall rate is dependent
on the amount of revenue recognized for tax purposes in each
jurisdiction in which we operate; warrant liabilities contingent on
the price of our common stock; and amounts related to stock-based
compensation that will be granted in future periods and are as yet
undetermined. -0- *T 24/7 REAL MEDIA, INC. CONSOLIDATED STATEMENTS
OF OPERATIONS (in thousands, except share and per share data) Three
months ended Six months ended -----------------------
----------------------- June 30, June 30, 2006 2005 2006 2005
----------- ----------- ----------- ----------- (unaudited)
(unaudited) Revenues: Media $ 21,334 $ 16,684 $ 39,564 $ 30,913
Search 19,745 11,710 37,578 21,332 Technology 7,097 5,492 13,975
10,711 ----------- ----------- ----------- ----------- Total
revenues 48,176 33,886 91,117 62,956 ----------- -----------
----------- ----------- Cost of revenues: Media 14,442 11,327
27,018 20,954 Search 14,794 7,747 27,886 14,379 Technology
(inclusive of $66, $8, $245 and $15 in stock-based compensation,
respectively) 1,470 1,185 3,069 2,184 ----------- -----------
----------- ----------- Total cost of revenues 30,706 20,259 57,973
37,517 ----------- ----------- ----------- ----------- Gross profit
17,470 13,627 33,144 25,439 ----------- ----------- -----------
----------- Operating expenses: Sales and marketing (inclusive of
$615, $86, $2,160 and $206 of stock-based compensation,
respectively) 7,237 5,817 15,221 11,227 General and administrative
(inclusive of $1,859, $297, $8,198 and $632 of stock-based
compensation, respectively) 7,046 5,285 18,345 10,204 Product
development (inclusive of $287, $50, $1,263 and $101 of stock-based
compensation, respectively) 2,144 1,416 4,902 2,709 Other expenses:
Amortization of intangible assets and deferred financing costs 889
1,139 1,779 2,279 Restructuring costs - - - 973 -----------
----------- ----------- ----------- Total operating expenses 17,316
13,657 40,247 27,392 ----------- ----------- -----------
----------- Operating income (loss) 154 (30) (7,103) (1,953)
Interest income (expense), net 143 (54) 208 (142) Change in fair
value of warrant liability 133 (110) (119) 40 Recovery of
investment - - - 2,100 Impairment of marketable securities - - -
(588) Gain on sale of marketable securities - 7 - 7 Other income
(expense), net 14 6 124 (40) ----------- ----------- -----------
----------- Income (loss) before income taxes and minority interest
in operations of consolidated subsidiary 444 (181) (6,890) (576)
Provision for income taxes 88 (9) (142) (20) Minority interest in
operations of consolidated subsidiary (43) - 5 -----------
----------- ----------- ----------- Net income (loss) 489 (190)
(7,027) (596) Dividends on preferred stock - (10) - (22)
----------- ----------- ----------- ----------- Net income (loss)
attributable to common stockholders $ 489 $ (200) $ (7,027) $ (618)
=========== =========== =========== =========== Basic net income
(loss) attributable to common stockholders per share $ 0.01 $ 0.00
$ (0.15) $ (0.01) =========== =========== =========== ===========
Diluted net income (loss) attributable to common stockholders per
share $ 0.01 $ 0.00 $ (0.15) $ (0.01) =========== ===========
=========== =========== Shares used in per share calculation -
basic 48,676,713 44,976,378 47,767,523 44,904,167 ===========
=========== =========== =========== Shares used in per share
calculation - diluted 53,556,036 44,976,378 47,767,523 44,904,167
=========== =========== =========== =========== Pro forma:
Operating income (a) 4,784 2,270 8,336 3,571 Diluted operating
income per share $ 0.09 $ 0.05 $ 0.15 $ 0.07 ===========
=========== =========== =========== Shares used in pro forma per
share calculation 55,270,322 49,282,941 54,326,489 49,242,008
=========== =========== =========== =========== (a) Pro forma
operating income excludes certain other expenses computed as
follows: Operating income (loss) $ 154 $ (30) $ (7,103) $ (1,953)
Excluding: Amortization of intangible assets and deferred financing
costs 889 1,139 1,779 2,279 Stock-based compensation 2,827 441
11,866 954 Restructuring costs - - - 973 Minority interest in pro
forma operations of consolidated subsidiary (43) - 5 - Depreciation
957 720 1,789 1,318 ----------- ----------- ----------- -----------
Pro forma operating income $ 4,784 $ 2,270 $ 8,336 $ 3,571
=========== =========== =========== =========== 24/7 REAL MEDIA,
INC. CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) June 30,
December 31, 2006 2005 ------------ ------------ (unaudited) Cash $
46,695 $ 40,009 Accounts receivable 46,093 38,316 Total current
assets 95,854 80,694 Total assets 156,932 142,804 Accounts payable
and accrued liabilities 43,298 43,383 Deferred revenue 3,213 3,218
Short-term debt 14,847 14,542 Total current liabilities 61,358
61,143 Total liabilities 62,992 62,529 Minority interests 1,584
1,556 Total stockholders' equity 92,356 78,719 *T
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