24/7 Real Media (NASDAQ:TFSM)
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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