24/7 Real Media's Third Quarter Results

Revenue Growth in the Third Quarter of 2004

During the third quarter, 24/7 Real Media’s revenue surged to $20.8 million, marking a 72.9% increase from the $12.0 million earned in the same period of 2003. Compared to the previous quarter’s $19.6 million, the growth rate was 6.2% sequentially. The jump reflects a combination of expanded inventory, higher demand for advertising impressions, and the integration of the newly acquired Decide Interactive platform. 24/7 Real Media’s web alliance, which spans more than 800 publisher sites, delivered a record number of impressions - 13.7 billion - an increase of over 140% year over year. The company’s ability to capture more users across a broad network of sites has directly translated into higher advertising revenue.

Beyond the sheer volume of impressions, the firm leveraged its behavioral targeting solution, 24/7 OnTarget, to offer advertisers more granular audience data. OnTarget uses anonymous behavioral patterns to match ads to the right users, improving click-through rates and allowing publishers to monetize previously underperforming inventory. The introduction of this technology in Q3 helped boost revenue, especially within the Media Solutions segment, which saw a 109.4% rise to $12.1 million in the quarter. 24/7 Real Media’s commitment to providing a seamless blend of inventory and targeting data has attracted new branded publishers and diversified its advertiser base, ensuring a more stable revenue stream.

Industry context also played a role. The online advertising market was still in a growth phase, with businesses increasingly turning to pay‑per‑click and behavioral advertising models. 24/7 Real Media’s mix of paid search and display services positioned it well to capture this expanding spend. At the same time, the company’s focus on technology integration - especially the partnership with Lycos and the sale to Daum Communications - provided new avenues for traffic and monetization. Though the company faced short‑term margin pressure from the Lycos transition, the overall revenue trajectory indicates a solid performance against industry peers.

Finally, the quarter’s revenue growth demonstrates the effectiveness of the company’s acquisition strategy. By adding Decide Interactive’s search engine optimization services and distribution channels, 24/7 Real Media expanded its portfolio beyond display advertising into paid search. This diversification helped buffer against seasonal fluctuations, ensuring revenue grew steadily even as the Media Solutions segment experienced a slight dip due to market seasonality. The combined effect of these factors is a robust upward trajectory that the company intends to continue into the fourth quarter and beyond.

Operating Income Dynamics: Pro Forma vs. GAAP Results

Pro forma operating income for the third quarter stood at $13,000, or $0.00 per share. Although this figure appears modest, it is a significant improvement over the previous year’s $145,000, or $0.00 per share. The pro forma measure excludes one‑time costs that were incurred for Sarbanes‑Oxley compliance, allowing a clearer view of the company’s recurring profitability. The adjustment underscores how compliance expenses, though necessary, can distort traditional earnings metrics.

In contrast, the GAAP net loss for the quarter was $1.7 million, or $0.04 per share. When compared to the $1.6 million, or $0.10 per share loss in Q3 2003, the figure shows a modest reduction in the loss amount. The tighter loss reflects both higher revenue and cost management initiatives, though the company still faces ongoing challenges. The net loss includes all costs, including the one‑time compliance charges, and offers a complete picture of the company’s bottom line for investors and regulators.

It is important to note that both pro forma and GAAP results fall within the guidance issued on August 5, 2004. This guidance outlined expected ranges for operating income and net loss, taking into account the anticipated impact of acquisition integration and compliance costs. By staying within these parameters, 24/7 Real Media demonstrates disciplined financial management and transparent communication with its shareholders.

Looking ahead, the company’s management emphasized that the one‑time costs associated with Sarbanes‑Oxley compliance will not recur in future periods. This expectation, combined with a strategic focus on higher margin services such as paid search and behavioral targeting, positions the company to achieve positive operating income in the next quarter. The management team’s confidence is rooted in the steady increase in revenue and the continued expansion of the company’s service portfolio.

Nine‑Month Performance Highlights and Cash Position

Across the first nine months of 2004, 24/7 Real Media recorded revenue of $57.8 million - an increase of 60.5% from the $36.0 million reported in the same period of 2003. This jump reflects the cumulative impact of new advertising inventory, improved ad rates, and the successful integration of Decide Interactive’s search capabilities. The company’s revenue stream has become more diversified, with display, paid search, and technology services all contributing to the top line.

Pro forma operating income for the nine‑month period rose to $1.0 million, or $0.02 per share, compared with a loss of $0.9 million, or $0.06 per share, a year earlier. This shift from loss to profit illustrates the effect of higher revenues and improved cost control. Meanwhile, the GAAP net loss for the nine‑month period narrowed to $0.7 million, or $0.02 per share, from a $8.5 million, or $0.57 per share, loss in 2003. The reduced GAAP loss demonstrates that non‑recurring expenses are less of a burden as the company moves past initial integration and compliance costs.

At the end of September 2004, 24/7 Real Media reported $34.1 million in cash and cash equivalents. This liquidity buffer provides the firm with flexibility to invest in technology upgrades, pursue new acquisitions, or support marketing initiatives. A strong cash position also mitigates financial risk in an industry subject to rapid change and shifting advertiser preferences.

In summary, the nine‑month results reveal a company on an upward trajectory, moving from a GAAP loss to a modest pro forma profit, while maintaining a healthy cash balance. These metrics provide a solid foundation for future growth, especially as the company continues to capitalize on its expanded product suite and strategic partnerships.

Segment Analysis: Media, Search, and Technology

Following the acquisition of Decide Interactive, 24/7 Real Media reorganized its operations into three distinct segments: Media Solutions, Search Solutions, and Technology Solutions. This structure offers greater transparency into each business’s contributions and allows for more accurate benchmarking against industry peers.

Media Solutions remains the company’s core display advertising arm, driving revenue through the 24/7 Web Alliance. In Q3 2004, revenue climbed to $12.1 million from $5.8 million a year earlier, reflecting a 109.4% year‑over‑year increase. Although the segment reported a slight dip from the $12.4 million of Q2, seasonal trends account for this variance. Gross margin for Media Solutions fell to 23.9% from 28.6% in Q2, largely due to a decline in Lycos traffic and uncertainties surrounding the Daum Communications sale. Management is actively working with Lycos to address these issues, and the company expects gross margins to normalize to around 30% by Q4.

Search Solutions benefits from a dual model: paid inclusion in algorithmic search engines and paid placement in bidded services. The segment’s revenue surged to $4.1 million, an 87.7% increase from $2.2 million a year earlier, and grew 62.3% from $2.5 million in Q2. The acquisition of Decide Interactive played a pivotal role, adding new distribution channels and advertisers that generated higher search volumes and click‑throughs. Gross margin for Search Solutions improved to 45.5% in Q3 from 34.3% in Q2, thanks to higher margin services introduced through Decide Interactive, such as XML feed provision for Overture’s Site Match Xchange.

Technology Solutions centers on Open AdStream, Insight XE, and Insight ACT, a suite of software and services that help publishers deliver and manage online advertising. Revenue for this segment increased to $4.6 million, up 13.4% from $4.1 million a year earlier, and held steady from the $4.7 million of Q2, reflecting seasonal patterns. Gross margin widened slightly to 82.1% from 81.3% in Q2, a testament to the high‑margin nature of software licensing and SaaS services. The segment added notable clients such as TheKnot.com, Date.com, and Mail.com, which further integrated the Open AdSystem suite. In Europe, clients ntl and Telewest expanded their reliance on 24/7 Real Media’s ad‑serving and sales solutions for digital TV initiatives.

In addition to revenue and margin performance, the company’s technology and advertising sales earned industry recognition. Open Adstream Central received the ClickZ Network’s “ClickZ Marketing Excellence award for 2004” in the “Best Ad Serving Software Solution” category, while the 24/7 Web Alliance tied for first place in the “Best Advertising Network” vote. These accolades highlight the company’s continued innovation and strong market position.

Future Outlook and Guidance for 2004

For the fourth quarter of 2004, 24/7 Real Media forecasts revenue between $26 million and $28 million, positioning the mid‑point at $27 million. This projection represents a 104.5% increase from the $13.2 million recorded in Q4 2003. The company expects diluted pro forma operating income per share to range from $0.02 to $0.04 in the same period. The guidance reflects confidence in continued demand for ad impressions, behavioral targeting, and paid search services, especially as the integration of Decide Interactive matures.

Full‑year 2004 revenue guidance has been updated to $84 million to $86 million, a 72.8% increase over the $49.2 million reported in 2003. This adjustment accounts for the strategic acquisition and the company’s expanded service mix. The pro forma earnings guidance for the year is set between $0.04 and $0.06 per share, signaling that the company anticipates turning its operating performance around while remaining cautious about the potential impact of one‑time compliance costs.

Management highlights the importance of the company’s diversified product offering in driving future growth. The Media Solutions segment continues to scale through its web alliance, Search Solutions benefits from higher margin services and broader distribution, and Technology Solutions offers high‑margin software licensing. The company’s focus on integrating behavioral targeting across all segments is expected to generate incremental revenue and improve gross margins.

Investor relations activity includes a conference call scheduled for 5:00 p.m. EST, which will discuss these results in more detail. The call will be broadcast live over the Internet, and a replay will be available for three weeks after the live session. Investors are encouraged to review the attached reconciliation schedule, which explains the differences between GAAP net income and pro forma operating income, to fully understand the financial statements.

Investor Relations and Financial Transparency

24/7 Real Media remains committed to transparent communication with its shareholders and the broader investment community. In addition to the quarterly earnings call, the company provides detailed financial disclosures, including a reconciliation of GAAP net income to pro forma operating income. This schedule clarifies the impact of non‑recurring expenses, such as Sarbanes‑Oxley compliance costs, and offers a clearer view of ongoing profitability.

The firm’s cash position of $34.1 million as of September 30 provides a cushion for strategic investments and potential acquisitions. Coupled with the company’s strong revenue growth and expanding customer base, this liquidity enhances 24/7 Real Media’s ability to adapt to market shifts and invest in future technology initiatives.

Stakeholders can access the company’s latest filings, press releases, and other investor materials through the 24/7 Real Media website and regulatory filings. Regular updates on financial performance, operational milestones, and strategic developments are posted to keep investors informed and engaged.