· Gross Margin Increases from 43% to 46%
· Pro Forma Operating Loss Continues to Shrink
· 24/7 Website Results Unit Continues Rapid Revenue Growth
· Completion of $8 Million Investment by Sunra Capital Will Greatly Enhance Financial Stability
· Major New Clients Include: Vivendi Universal, Terra Lycos, ABC Television, AccuWeather.com, and Ask Jeeves
NEW YORK, August 8, 2002 -- 24/7 Real Media, Inc. (Nasdaq: TFSM), a leader in interactive marketing, today announced its financial results for the second quarter ended June 30, 2002.
The Company increased revenue 7.8% from $9.5 million in the first quarter to $10.2 million in the second quarter, in both cases excluding revenue from the US 24/7 Mail product, certain related assets of which were sold on May 3, 2002. Gross Margin increased 225 basis points to 46% for the second quarter, reflecting the Company’s continuing shift toward higher margin products. The Company’s pro forma loss from continuing operations continued to shrink, from $3.7 million in the first quarter to $3.1 million in the second quarter, which does not exclude depreciation of $1.0 million in the first and second quarter. Primary operating expenses, comprised of sales and marketing, general and administrative and product technology expenses, fell by 6%. Pro forma loss per share from continuing operations was $0.06, one cent per share less than the loss in the prior quarter, and 27 cents better than the prior year’s results. These results meet or exceed the Company’s guidance provided with its first quarter report.
“We are progressing right on target, and building a very strong company,” said David J. Moore, Chairman and Chief Executive Officer of 24/7 Real Media. “Unlike most other media businesses these days, we are adding employees, and growing the business in a controlled fashion.”
Technology Solutions
Technology Solutions revenue held steady at $3.3 million. Sales of the fully hosted Open AdStream Central product grew rapidly from the first quarter. Total revenue from Open AdStream Local decreased sequentially due to a number of large sales in the first quarter; however, the total number of customers continues to grow, which should lead to an increasing renewable revenue stream for maintenance and support. Open AdStream Local has acquired dozens of customers from rival companies over the past year, and in the second quarter Open AdStream Central also began to take business from rivals. In all, 17 ad serving clients switched from DoubleClick ad serving technology to Open AdStream technology in the second quarter. Companies that switched to Open AdStream technology in the second quarter include ABC Television, AccuWeather.com, eMarketer, and the multiple sites associated with Vivendi Universal Net USA, such as RollingStone.com, GetMusic.com, the Flipside Network and Education.com.
Media Solutions
Excluding the results of the US 24/7 Mail product, Media Solutions revenue for the second quarter increased 11.6% from the first quarter, despite a continuing difficult market. Including the results of the US 24/7 Mail product, Media Solutions revenue decreased 2.5% from the first quarter, due to reduced Mail revenue. 24/7 Website Results, our search engine marketing unit, increased revenues 36% from the first quarter to the second quarter, continuing its dramatic growth. 24/7 Website Results garnered deals with prestigious brands in the second quarter, including Ask Jeeves and Terra Lycos.
Equity Investor
As announced on July 2, the Company entered into an agreement with Sunra Capital Holdings Limited, providing for Sunra’s purchase of $5 million of preferred stock in the Company, $1.6 million of which has been received, and $3.4 million of which was placed into escrow pending stockholder approval of the investment at the Annual Meeting of Stockholders scheduled for September 10, 2002. Sunra has exercised its option to increase its investment by an additional $2 million, and Sunra and the Company have agreed to further increase the investment by $1 million. This additional $3 million in investment, which is also subject to stockholder approval and the satisfaction of certain other conditions, will bring the total amount invested to $8 million.
GAAP Results
On a GAAP basis, loss per share from continuing operations decreased from ($0.66) in the second quarter of 2001 to ($0.08) in the second quarter of 2002 even as revenue declined from $11.7 million to $10.6 million. The decline in revenue is attributable to the disposition of Exactis in May 2001, and the 24/7 Mail product in May 2002, offset by the acquisition of Real Media in October 2002. Gross profit increased from 28% to 46%, reflecting the higher margins associated with the Open AdStream technology business acquired with Real Media. Included in the results for 2002 is a loss on sale of assets of $0.8 million, primarily related to the sale of certain assets of 24/7 Mail. Included in the results in 2001 is an impairment charge of $11.6 million, a gain on sale of assets of $0.9 million related to the sale of Exactis and a restructuring charge of $0.1 million.
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (“FAS 142”) "Goodwill and Other Intangible Assets." In accordance with the provision of FAS 142, goodwill is no longer amortized and requires an initial assessment for goodwill impairment within six months of adoption and at least annually thereafter. The Company`s loss from continuing operations for the three and six months ended June 30, 2001, excluding goodwill amortization, would have been ($25.0) million, or ($0.57) per share and ($84.6) million, or ($1.95) per share, respectively. The Company has not yet completed the review required by FAS 142 of the appropriateness of the valuation of the goodwill on the Company’s balance sheet as of January 1, 2002. The Company does not anticipate at this time that the required adjustments to the valuation of goodwill, if any, will be material.
Third Quarter Guidance
During the first half of 2002, and the last two months of 2001, 24/7 Real Media focused on its turnaround, improving its gross margins, reducing operating expenses, reducing operating losses, and achieving financial stability. The Company has achieved all of these, and is now focused intently on achieving revenue growth. During the third quarter of 2002, the Company expects sequential revenue growth of between 5% and 10% in a traditionally weak seasonal quarter, as well as continued improvement in gross margins. Operating expenses are expected to be slightly higher, as the Company prepares for its launch of Open Advertiser, the Company’s agency and advertiser solution. Pro forma loss from continuing operations is anticipated to remain in the range of 5 to 7 cent per share.
“We’ve exceeded all expectations since we instituted our restructuring plan in November 2000. We’ve executed very effectively,” said Mr. Moore. “We’ve dramatically cut costs and tightened our focus on the best performing parts of the business. Our recovery is almost complete – and with the launch of Open Advertiser in the next quarter, and improved market conditions, we expect to post continued, improved results in future quarters.”
A conference call will be held to discuss these results at 5:00 pm EST on Thursday, August 8. The dial-in number is 800/475-3716 for domestic listeners, and 719/457-2728 for international listeners. The confirmation code is 329720.
About 24/7 Real Media, Inc.
24/7 Real Media provides marketing and technology solutions to online marketers and publishers to maximize customer relationships and revenue. Our products and services include: Internet ad serving technology, online media representation, integrated marketing solutions comprised of network and site specific advertising, email list management & brokerage, online promotions and search engine optimization. For more information, please visit our Web site: www.247realmedia.com.
Contact: 24/7 Real Media: Mark Naples 212.231.7175 mark.naples@247realmedia.com.
Caution concerning forward-looking statements:
Investors are cautioned that the pro forma loss from continuing operations information contained in this news announcement is not a financial measure under generally accepted accounting principles. In addition, it should not be construed as an alternative to any other measures of performance determined in accordance with generally accepted accounting principles, or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that it fails to address. We present this pro-forma financial information because we believe that it is helpful to some investors as one measure of our operations. We caution investors that pro forma financial information, by its very nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare our results with our results from other reporting periods and with the results of other companies.
This news release includes certain ``forward-looking statements`` within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management`s current expectations and are naturally subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to changes in economic, business, competitive and/or regulatory factors. More detailed information about those factors is set forth in our filings with the Securities and Exchange Commission. In addition, the following factors, among others, could cause actual results to differ materially from those described herein: enhanced competition, the potential for impairment of relationships with employees or major customers, loss of faith in Internet advertising, international risks, and other economic, business, competitive and/or regulatory factors affecting the businesses of 24/7 Real Media. The Company is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
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