Fourth Quarter Highlights:
-- Revenue of $60.0 million, an increase of 44% year-over-year;
-- Pro forma operating income of $6.5 million, or $0.12 per
share, compared with $4.0 million, or $0.08 per share, in Q4
of 2005; GAAP net loss of $0.2 million, or $0.00 per share,
versus GAAP net income of $1.4 million, or $0.03 per share, in
Q4 of 2005;
-- Robust international performance, including year-over-year
revenue growth in Korea and the United Kingdom of 72% and 42%,
respectively.
24/7 Real Media, Inc. (Nasdaq: TFSM), a leading global digital
marketing company, today announced financial results for the fourth
quarter and full year ended December 31, 2006. Revenue for the fourth
quarter of 2006 was $60.0 million, an increase of 44% over the $41.7
million reported for the fourth quarter of 2005. Revenue contribution
from international operations was 61% for the quarter, driven in part
by strong year-over-year growth in Korea and the U.K. of 72% and 42%,
respectively.
Pro forma operating income(1) for the fourth quarter of 2006 was
$6.5 million, or $0.12 per share. This compares with pro forma
operating income of $4.0 million, or $0.08 per share, for the fourth
quarter of 2005.
Under generally accepted accounting principles (GAAP), net loss
for the fourth quarter of 2006 was $0.2 million, or $0.00 per share.
This compared to a GAAP net income of $1.4 million, or $0.03 per
share, for the fourth 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. 123(R), Stock Based
Compensation, results between these periods are not directly
comparable. The comparable figure for the fourth quarter of 2005, as
disclosed under SFAS No. 123(R), is a GAAP net loss of $0.4 million,
or $0.01 per share.
For the year ended December 31, 2006, revenue was $200.2 million,
an increase of 43% from the $139.8 million reported for the year ended
December 31, 2005. Pro forma operating income for 2006 was $19.6
million, or $0.36 per share, an increase of 98% over the pro forma
operating income of $9.9 million, or $0.20 per share, in the prior
year. GAAP net loss for 2006 was $8.6 million, or $0.18 per share, as
compared with a GAAP net income of $0.0 million, or $0.00 per share,
in 2005. The figure for the full year 2005, as disclosed under SFAS
No. 123(R), that is comparable to the 2006 data, is a net loss of $6.0
million, or $0.13 per share for 2005.
Cash flow from operations for the 2006 fiscal year totaled a
record $15.1 million and the Company reported a cash balance of $59.4
million as of December 31, 2006.
During the fourth quarter 24/7 Real Media announced the expansion
of its existing search engine marketing partnership with Dentsu to
address strategic Asian markets outside of Japan. This new venture
will establish operations to service advertising markets throughout
Asia, including China, India, Korea, Thailand, and Taiwan.
"It was a strong fourth quarter across the board for the digital
marketing sector, as well as for 24/7 Real Media," said David J.
Moore, chairman and chief executive officer of 24/7 Real Media.
"Significant revenue growth, operational leverage and outstanding
execution in each of our business segments allowed the Company to
outperform expectations, and we are enjoying the healthy pace that the
sector continues to experience around the globe."
"Through our expanded partnerships with Dentsu, we are positioning
24/7 Real Media to be a significant beneficiary of the incredible
expansion 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 sustained, strong growth over
the upcoming years."
Segment Overview
Revenue in the Media Solutions segment climbed 39% to $26.2
million in the fourth quarter of 2006 from $18.9 million in the fourth
quarter of 2005. Gross margins were 32.2% in the fourth quarter of
2006.
Search Solutions revenue advanced 59% to $26.0 million in the
fourth quarter of 2006 from $16.4 million in the fourth quarter of
2005. Gross margins for the segment were 21.6% in the fourth quarter
of 2006.
Technology Solutions revenue grew 21% to $7.8 million in the
fourth quarter of 2006 from $6.5 million in the fourth quarter of
2005. Technology gross margins, excluding stock based compensation
expenses, were 80.7% in the fourth quarter of 2006.
Financial Guidance and Business Outlook
The Company expects first quarter revenue for 2007 to be between
$58 million and $59 million, the mid-point of which represents an
increase of 36% from first quarter 2006 revenue of $42.9 million. The
Company expects diluted pro forma operating income per share in the
first quarter of 2007 to be between $0.09 and $0.10 per share.
The Company is raising guidance for full year 2007 revenue to be
in the range of $255 million to $265 million, the mid-point of which
represents an increase of 30% 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 venture 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.
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 these operations on a consolidated basis.
The Company is not providing GAAP net income per share guidance
for the first 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. EST on Thursday, March 1, 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 first 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 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 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, which the Company expects to file with the
Securities and Exchange Commission on or before March 16, 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 and year
ended December 31, 2006 and 2005 appears in the financial statement
portion of this release.
(2) Diluted pro forma operating income per share guidance for the
first quarter and full year 2007 excludes the following items that are
required to be included under GAAP: depreciation expense of $1.2
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 $3.2 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 undermined.
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24/7 REAL MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three months ended Twelve months ended
-----------------------------------------------
December 31, December 31,
2006 2005 2006 2005
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Revenues:
Media $26,205 $18,903 $84,851 $65,363
Search 25,955 16,367 86,202 51,430
Technology 7,823 6,451 29,190 23,001
----------- ----------- ----------- -----------
Total
revenues 59,983 41,721 200,243 139,794
----------- ----------- ----------- -----------
Cost of revenues:
Media 17,777 13,092 57,531 44,562
Search 20,347 12,085 65,590 36,490
Technology (inclusive
of $126, $18, $510
and $41 in stock-
based compensation,
respectively) 1,632 1,099 6,293 4,289
----------- ----------- ----------- -----------
Total cost
of
revenues 39,756 26,276 129,414 85,341
----------- ----------- ----------- -----------
Gross
profit 20,227 15,445 70,829 54,453
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing
(inclusive of $1,352,
$219, $4,621 and $541
of stock-based
compensation,
respectively) 8,540 6,170 31,629 23,120
General and
administrative
(inclusive of $2,291,
$440, $13,104 and
$1,391 of stock-based
compensation,
respectively) 7,915 5,191 33,897 20,598
Product development
(inclusive of $477,
$103, $2,212 and $254
of stock-based
compensation,
respectively) 2,720 1,765 10,047 6,087
Other expenses:
Amortization
of
intangible
assets and
deferred
financing
costs 742 972 3,403 4,391
Provision for
capital
assessment - 387 - 387
Restructuring
costs - - - 973
----------- ----------- ----------- -----------
Total
operating
expenses 19,917 14,485 78,976 55,556
----------- ----------- ----------- -----------
Operating
income
(loss) 310 960 (8,147) (1,103)
Interest income
(expense), net 344 (23) 772 (213)
Change in fair value of
warrant liability (79) (37) (176) (381)
Recovery of investment - 240 - 2,340
Impairment of
marketable securities - - - (588)
Gain on sale of
marketable securities - 34 - 16
Other income (expense),
net (340) 248 (243) 153
----------- ----------- ----------- -----------
Income (loss) before
income taxes and
minority interest in
operations of
consolidated
subsidiary 235 1,422 (7,794) 224
Provision for income
taxes (424) (130) (692) (314)
Minority interest in
operations of
consolidated
subsidiary (38) 107 (136) 128
----------- ----------- ----------- -----------
Net income (loss) (227) 1,399 (8,622) 38
Dividends on preferred
stock - - - (25)
----------- ----------- ----------- -----------
Net income (loss)
attributable to common
stockholders $(227) $1,399 $(8,622) $13
=========== =========== =========== ===========
Basic net income (loss)
attributable to common
stockholders per share $0.00 $0.03 $(0.18) $0.00
=========== =========== =========== ===========
Shares used in per
share calculation -
basic 49,498,214 46,100,532 48,508,739 45,350,466
=========== =========== =========== ===========
Diluted net income
(loss) attributable to
common stockholders
per share $0.00 $0.03 $(0.18) $0.00
=========== =========== =========== ===========
Shares used in per
share calculation -
diluted 49,498,214 51,694,510 48,508,739 47,694,027
=========== =========== =========== ===========
24/7 REAL MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three months ended Twelve months ended
-----------------------------------------------
December 31, December 31,
2006 2005 2006 2005
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Pro forma:
Operating income (a) $6,525 $3,988 $19,582 $9,866
Diluted operating
income per share $0.12 $0.08 $0.36 $0.20
=========== =========== =========== ===========
Shares used in pro
forma per share
calculation 56,282,745 51,694,510 54,649,189 49,783,253
=========== =========== =========== ===========
(a) Pro forma
operating
income
excludes
certain
other
expenses
computed as
follows:
Operating income
(loss) $310 $960 $(8,147) $(1,103)
Excluding:
Transaction
costs 294 - 294 -
Amortization
of
intangible
assets and
deferred
financing
costs 742 972 3,403 4,391
Stock-based
compensation 4,246 780 20,447 2,227
Provision for
capital
assessment - 387 - 387
Restructuring
costs - - - 973
Minority
interest in
pro forma
operations
loss of
consolidated
subsidiary (94) 100 (214) 122
Depreciation 1,027 789 3,799 2,869
----------- ----------- ----------- -----------
Pro forma operating
income $6,525 $3,988 $19,582 $9,866
=========== =========== =========== ===========
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24/7 REAL MEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
December 31, December 31,
2006 2005
-------------- ---------------
(unaudited)
Cash $59,390 $40,009
Accounts receivable 55,490 38,316
Total current assets 117,567 80,694
Total assets 176,658 142,804
Accounts payable and accrued liabilities 51,942 43,383
Deferred revenue 3,609 3,218
Short-term debt 7,500 14,542
Total current liabilities 63,051 61,143
Long-term debt 7,500 -
Total liabilities 71,327 62,529
Minority interests 1,673 1,556
Total stockholders' equity 103,658 78,719
*T
