24/7 Real Media Reports Results for First Quarter 2007

  
    
  
  
    
      24/7 Real Media, Inc. (NASDAQ: TFSM):
    
    
      First Quarter Highlights:
    
    
      
        Revenue of $57.7 million, an increase of 34% year-over-year;
      
      
        Pro forma operating income of $4.4 million, or $0.08 per share, 
        compared with $3.5 million, or $0.07 per share, in Q1 of 2006; GAAP 
        net loss of $0.1 million, or $0.00 per share, versus GAAP net loss of 
        $7.5 million, or $0.16 per share, in Q1 of 2006;
      
      
        Global launch of new www.247realmedia.com 
        website, reflecting “The Science of Digital 
        Marketing;”
      
      
        Opened the first expanded joint venture office with Dentsu in Seoul, 
        South Korea;
      
      
        The Company confirmed that it is assessing strategic alternatives and 
        announced that it has retained Lehman Brothers as its financial 
        advisor to assist in the process.
      
    
    
      24/7 Real Media, Inc. (NASDAQ: TFSM), a leading global digital marketing 
      company, today announced financial results for the quarter ended March 
      31, 2007. Revenue for the first quarter of 2007 was $57.7 million, an 
      increase of 34% over the $42.9 million reported for the first quarter of 
      2006. Revenue contribution from international operations was 64% for the 
      quarter.
    
    
      Pro forma operating income1 for the first 
      quarter of 2007 was $4.4 million, or $0.08 per share. This compared with 
      pro forma operating income of $3.5 million, or $0.07 per share, for the 
      first quarter of 2006.
    
    
      Under generally accepted accounting principles (GAAP), net loss for the 
      first quarter of 2007 was $0.1 million, or $0.00 per share. This 
      compared to a GAAP net loss of $7.5 million, or $0.16 per share, for the 
      first quarter of 2006.
    
    
      Cash flow from operations for the first quarter 2007 totaled $8.1 
      million. The Company reported a cash balance of $62.6 million as of 
      March 31, 2007, which does not include the $5.0 million investment 
      funded to the new Pan-Asia joint venture with Dentsu during the quarter.
    
    
      During the first quarter, 24/7 Real Media’s 
      joint venture with Dentsu opened the first of five planned offices to 
      address strategic Asian markets outside of Japan. The new office, which 
      celebrated the official launch of operations on April 27, is located in 
      Seoul, South Korea.
    
    
      “With 34 percent organic revenue growth, the 
      fundamentals of our businesses remain strong, despite some seasonality,” 
      said David J. Moore, chairman and chief executive officer of 24/7 Real 
      Media. “As we look ahead, we are excited 
      about the changes we see taking place within the digital realm. We are 
      confident that 24/7 Real Media has made the right strategic decisions 
      and has a great combination of assets to take full advantage of these 
      changes.”
    
    
      “We are very excited to have opened our first 
      office in connection with the expansion of our joint venture with 
      Dentsu. Through our expanded partnership with Dentsu, we are positioning 
      24/7 Real Media to be a significant beneficiary of the strong growth 
      that is projected over the upcoming decade for many markets throughout 
      Asia and the Pacific Rim. As the most internationally-diversified 
      company in the Digital Marketing arena, 24/7 Real Media is well 
      positioned for strong, sustained growth over the upcoming years.”
    
    
      “The significant increase in corporate 
      activity in the digital marketing sector has opened new doors for us, 
      creating opportunity,” said Jonathan K. Hsu, 
      EVP, chief operating officer and chief financial officer of 24/7 Real 
      Media. “24/7 Real Media will remain 
      aggressive in leveraging its position as the largest, independent 
      publisher-focused technology offering in the sector. Technology has 
      become a strategic asset, and 24/7 Real Media has proven, scalable 
      platforms, as well as the second largest installed base of ad serving 
      technology clients globally.”
    
    
      The Company confirmed that it is assessing strategic alternatives and 
      that it has retained Lehman Brothers as its financial advisor to assist 
      in this process.
    
    
      Segment Overview
    
    
      Revenue in the Media Solutions segment grew 13% to $20.6 million 
      in the first quarter of 2007 from $18.2 million in the first quarter of 
      2006. Gross margins were 28.8% in the first quarter of 2007.
    
    
      Search Solutions revenue advanced 61% to $28.7 million in the 
      first quarter of 2007 from $17.8 million in the first quarter of 2006. 
      Gross margins for the segment were 21.3% in the first quarter of 2007.
    
    
      Technology Solutions revenue climbed 21% to $8.3 million in the 
      first quarter of 2007 from $6.9 million in the first quarter of 2006. 
      Technology gross margins, excluding stock based compensation expenses, 
      were 80.1% in the first quarter of 2007.
    
    
      Financial Guidance and Business Outlook
    
    
      In the first quarter of 2007, the Company revised its computation of 
      restricted stock in the pro forma earnings per share calculation using 
      the treasury stock method and revised prior periods to conform to the 
      current presentation. The revised pro forma fully diluted per share 
      numbers for 2006 are 52.1 million for the first quarter, 54.6 million 
      for the second quarter, 53.9 million for third quarter and 55.4 million 
      for the fourth quarter. The pro forma earnings per share numbers are 
      not affected.
    
    
      The Company expects second quarter revenue for 2007 to be between $61 
      million and $65 million, the mid-point of which represents an increase 
      of 31% from second quarter 2006 revenue of $48.2 million. The Company 
      expects diluted pro forma operating income per share in the second 
      quarter of 2007 to be between $0.09 and $0.12 per share.
    
    
      The Company now expects full year 2007 revenue to be in the range of 
      $265 million to $275 million, the mid-point of which represents an 
      increase of 35% from full year revenue of $200.2 million in 2006. The 
      Company expects diluted pro forma operating income per share for the 
      full year to be between $0.52 and $0.55 per share.
    
    
      Revenue guidance includes the projected financial performance of K.K. 
      24-7 Search, the Japanese joint venture with Dentsu that 24/7 Real Media 
      reports on a consolidated basis. Pro forma operating income guidance is 
      provided net of Dentsu's interest in the projected pro forma operating 
      income or loss generated by K.K. 24-7 Search.
    
    
      Neither revenue guidance nor pro forma operating income guidance 
      includes the projected financial performance of the expanded partnership 
      with Dentsu to address markets beyond Japan, as 24/7 Real Media will not 
      be reporting those operations on a consolidated basis.
    
    
      The Company is not providing GAAP net income per share guidance for the 
      second quarter of 2007 or 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
    
    
      In conjunction with this release, a conference call will be held at 8:30 
      a.m. EDT on Thursday, May 10, to discuss these results. The call will be 
      broadcast live over the Internet at www.247realmedia.com/EN-US/invest/investor-events. 
      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 second quarter of 
      2007 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 majority 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 two 
      major 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 
      restricted stock and 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, 2006 and the 
      amendments thereto on Form 10-K/A, and will be set out in its Quarterly 
      Report on Form 10-Q for the three months ended March 31, 2007, which the 
      Company expects to file with the Securities and Exchange Commission on 
      or before May 10, 2007. 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 March 31, 2007 and 2006 
      appears in the financial statement portion of this release.
    
    
      2 Diluted pro forma operating income per share 
      guidance for the second quarter and full year 2007 excludes the 
      following items that are required to be included under GAAP: 
      depreciation expense of $1.3 million and $5.5 million; amortization 
      expense of $0.7 million and $3.0 million; stock based compensation 
      expense related to equity instruments already granted of $3.3 million 
      and $14.0 million; and interest income of $0.5 million and $2.0 million. 
      Also excluded is income tax expense, as the Company is still determining 
      the overall effective tax rate, which is dependent on the amount of 
      revenue and income recognized for tax purposes in each jurisdiction in 
      which the Company operates, and stock based compensation expense related 
      to grants in future periods, which are as yet undetermined.
    
    
      
        
          
            24/7 REAL MEDIA, INC.
          
        
      
      
        
          
            CONSOLIDATED STATEMENTS OF OPERATIONS
          
        
      
      
        
          
            (in thousands, except share and per share data)
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
          
            Three months ended
          
        
      
      
        
        
        
        
        
        
        
          
            March 31,
          
        
      
      
        
        
        
        
        
        
        
           
        
        
          
            2007 
          
        
        
        
        
           
        
        
          2006 
        
      
      
        
        
        
        
        
        
        
          
            (unaudited)
          
        
      
      
        
          Revenues:
        
        
        
        
        
        
        
      
      
        
        
        
          Media
        
        
          $
        
        
          20,620 
        
        
        
        
          $
        
        
          18,230 
        
      
      
        
        
        
          Search
        
        
        
        
          28,701 
        
        
        
        
        
        
          17,833 
        
      
      
        
        
        
          Technology
        
        
           
        
        
          8,342 
        
        
        
        
           
        
        
          6,878 
        
      
      
        
        
        
        
        
          Total revenues
        
        
           
        
        
          57,663 
        
        
        
        
           
        
        
          42,941 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cost of revenues:
        
        
        
        
        
        
        
      
      
        
        
        
          Media
        
        
        
        
          14,674 
        
        
        
        
        
        
          12,576 
        
      
      
        
        
        
          Search
        
        
        
        
          22,599 
        
        
        
        
        
        
          13,092 
        
      
      
        
        
        
          Technology (a)
        
        
           
        
        
          1,780 
        
        
        
        
           
        
        
          1,599 
        
      
      
        
        
        
        
        
          Total cost of revenues
        
        
           
        
        
          39,053 
        
        
        
        
           
        
        
          27,267 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Gross profit
        
        
           
        
        
          18,610 
        
        
        
        
           
        
        
          15,674 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating expenses:
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          Sales and marketing (a)
        
        
        
        
          8,316 
        
        
        
        
        
        
          7,985 
        
      
      
        
        
        
          General and administrative (a)
        
        
        
        
          7,075 
        
        
        
        
        
        
          11,298 
        
      
      
        
        
        
          Product development (a)
        
        
        
        
          2,636 
        
        
        
        
        
        
          2,758 
        
      
      
        
        
        
          Other expenses:
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          Amortization of intangible assets and deferred financing costs
        
        
           
        
        
          742 
        
        
        
        
           
        
        
          890 
        
      
      
        
        
        
        
        
          Total operating expenses
        
        
           
        
        
          18,769 
        
        
        
        
           
        
        
          22,931 
        
      
      
        
        
        
        
        
          Operating loss
        
        
        
        
          (159)
        
        
        
        
        
        
          (7,257)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest income, net
        
        
        
        
          584 
        
        
        
        
        
        
          65 
        
      
      
        
          Change in fair value of warrant liability
        
        
        
        
          - 
        
        
        
        
        
        
          (252)
        
      
      
        
          Other income (expense), net
        
        
           
        
        
          (13)
        
        
        
        
           
        
        
          110 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          
            Income (loss) before income taxes and minority interest in 
            operations of consolidated subsidiary
          
        
        
        
        
          412 
        
        
        
        
        
        
          (7,334)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Provision for income taxes
        
        
        
        
          (398)
        
        
        
        
        
        
          (230)
        
      
      
        
          
            Minority interest in operations of consolidated subsidiary
          
        
        
           
        
        
          (70)
        
        
        
        
           
        
        
          48 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net loss
        
        
           
        
        
          (56)
        
        
        
        
           
        
        
          (7,516)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Basic and fully diluted net loss per share
          
        
        
          $
        
        
          (0.00)
        
        
        
        
          $
        
        
          (0.16)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Weighted average shares used in basic and fully diluted calculation
          
        
        
           
        
        
          50,645,526 
        
        
        
        
           
        
        
          46,848,231 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          (a) Stock-based compensation included in the following expense 
          categories:
        
        
        
      
      
        
        
        
        
        
          Cost of revenues
        
        
          $
        
        
          124 
        
        
        
        
          $
        
        
          179 
        
      
      
        
        
        
        
        
          
            Sales and marketing
          
        
        
        
        
          719 
        
        
        
        
        
        
          1,545 
        
      
      
        
        
        
        
        
          General and administrative
        
        
        
        
          1,732 
        
        
        
        
        
        
          6,338 
        
      
      
        
        
        
        
        
          Product development
        
        
           
        
        
          220 
        
        
        
        
           
        
        
          977 
        
      
      
        
        
        
        
        
        
        
          $
        
        
          2,795 
        
        
        
        
          $
        
        
          9,039 
        
      
      
        
           
        
      
      
        
           
        
      
      
        
          
            24/7 REAL MEDIA, INC.
          
        
      
      
        
          
            CONSOLIDATED STATEMENTS OF OPERATIONS
          
        
      
      
        
          
            (in thousands, except share and per share data)
          
        
      
      
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          
            Three months ended
          
        
      
      
        
        
        
          
            March 31,
          
        
      
      
        
        
        
          
            2007 
          
        
        
        
        
          
            2006 
          
        
      
      
        
        
        
          
            (unaudited)
          
        
      
      
        
          Pro forma:
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating income (b)
        
        
        
        
          4,380 
        
        
        
        
        
        
          3,549 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Diluted operating income per share
        
        
          $
        
        
          0.08 
        
        
        
        
          $
        
        
          0.07 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares used in pro forma calculation
        
        
           
        
        
          55,391,728 
        
        
        
        
           
        
        
          52,057,936 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          (b)
        
        
          Pro forma operating income excludes certain other expenses computed 
          as follows:
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          Operating loss
        
        
          $
        
        
          (159)
        
        
        
        
          $
        
        
          (7,257)
        
      
      
        
        
        
          Excluding:
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          Amortization of intangible assets and deferred financing costs
        
        
        
        
          742 
        
        
        
        
        
        
          890 
        
      
      
        
        
        
        
        
          Stock-based compensation
        
        
        
        
          2,795 
        
        
        
        
        
        
          9,039 
        
      
      
        
        
        
        
        
          
            Minority interest in pro forma operations of consolidated 
            subsidiary
          
        
        
        
        
          (105)
        
        
        
        
        
        
          45 
        
      
      
        
        
        
        
        
          Depreciation
        
        
           
        
        
          1,107 
        
        
        
        
           
        
        
          832 
        
      
      
        
        
        
          Pro forma operating income
        
        
          $
        
        
          4,380 
        
        
        
        
          $
        
        
          3,549 
        
      
    
    
    
    
      
        
          24/7 REAL MEDIA, INC.
        
      
      
        
          CONDENSED CONSOLIDATED BALANCE SHEET
        
      
      
        
          (in thousands)
        
      
      
        
        
        
          March 31,
        
        
        
        
          December 31,
        
      
      
        
        
        
           
        
        
          2007 
        
        
        
        
           
        
        
          2006 
        
      
      
        
        
        
          (unaudited)
        
        
        
        
        
      
      
        
        
        
        
        
        
        
           
        
      
      
        
          Cash
        
        
          $
        
        
          62,613 
        
        
        
        
          $
        
        
          59,390 
        
      
      
        
          Accounts receivable
        
        
        
        
          53,988 
        
        
        
        
        
        
          55,490 
        
      
      
        
          Total current assets
        
        
        
        
          118,528 
        
        
        
        
        
        
          117,567 
        
      
      
        
          Total assets
        
        
        
        
          182,498 
        
        
        
        
        
        
          176,658 
        
      
      
        
          Accounts payable and accrued liabilities
        
        
        
        
          54,007 
        
        
        
        
        
        
          51,942 
        
      
      
        
          Deferred revenue
        
        
        
        
          3,446 
        
        
        
        
        
        
          3,609 
        
      
      
        
          Short-term debt
        
        
        
        
          7,500 
        
        
        
        
        
        
          7,500 
        
      
      
        
          Total current liabilities
        
        
        
        
          64,953 
        
        
        
        
        
        
          63,051 
        
      
      
        
          Long-term debt
        
        
        
        
          7,500 
        
        
        
        
        
        
          7,500 
        
      
      
        
          Total liabilities
        
        
        
        
          73,079 
        
        
        
        
        
        
          71,327 
        
      
      
        
          Minority interests
        
        
        
        
          1,757 
        
        
        
        
        
        
          1,673 
        
      
      
        
          Total stockholders' equity
        
        
        
        
          
            107,662 
          
        
        
        
        
        
        
          103,658