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 income1 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. 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� � � 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�
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