New Q4 Guidance, Cuts, Management Changes at 24/7 Media

New York-based ad and marketing technology firm 24/7 Media dropped a few New Year surprises on investors, analysts and employees — cutting fourth quarter earnings estimates, announcing a new round of layoffs and the departure of a top executive.

While Chief Financial Officer Andy Johns confirmed that he does not have another position lined up after he leaves 24/7 at the end of the year, he waved away suggestions that linked the departure to 24/7’s valuation or performance.

“I can assure you that the decision has nothing to do with 24/7 Media, its financial performance or its future prospects,” Johns said. “Instead, this decision has everything to do with the fact that I have a beautiful wife and three great kids, and I want my career to properly balance my desire to give 100 percent at work with my need to be with my family.”

“I feel the opportunities ahead for the company are outstanding and really are not accurately reflected in the current market valuation. The operating plan, the long-term market outlook and the management team … really position the company for solid growth,” he said.

Stu Shaw, senior vice president for finance and administration will be filling Johns’ position until a permanent replacement can be found.

Surprise number two came in the form of fourth-quarter earnings cuts — less than a month after several reiterations that its earlier fourth-quarter estimates would live up to previous guidance.

On top of the seemingly interminable and often-cited effects of the downturn in ad spending, macroeconomic conditions, and the slowness of traditional advertisers to step forward, 24/7 Media management pointed to a seasonal, holiday upturn in advertising spending that never came for the firm.

Officers also cited problems with a recent acquisition. Website Results, snapped up by 24/7 for $95 million in stock in August, optimizes companies’ pages for higher placement on third-party search engines. However, the company said the unit required extensive technology modifications and testing earlier in the quarter — costing about $2.5 million. Company execs said the changes would help 24/7’s bottom line in the future.

The company also lowered revenue and EPS outlook for the fourth quarter. 24/7 now expects quarterly revenues in the range of $43 million to $45 million, down from previous guidance of between $48 million and $55 million.

The firm also expects to post a loss of $0.46 to $0.49 per share, lower than its $0.39 to $0.44 per-share loss it gave earlier in the month. Last quarter, 24/7 Media posted a net loss of $56.8 million, or $1.49 per-share.

The company also said that it would write down a goodwill charge of $400 million, rather than the $150 million it gave in early December.

“The bulk of the current projected weakness is in the particularly market-sensitive segments of the business, namely, network and mail revenues,” Johns said. “We’re cautiously optimistic for the combined rebound in the advertising marketplace with the greater adoption of Internet marketing solutions by traditional advertisers will result in a stronger second half of next year,” he added.

Johns added that the company has raised about $31 million in cash from the sale of non-core assets, including 3.7 million shares of chinadotcom stock. 24/7 Media now retains about 1.2 million shares.

That cash injection is good news for the company — at the end of third quarter, the company reported only about $20.1 million in the bank. But even with an additional chunk of cash on hand, the questions loom about whether that cash can carry the company through profitability, projected for fourth quarter, 2001.

“We recognize … that the cash reserves currently do not provide the cushion we would like to enjoy as we fund operations to profitability,” Johns said. “To address this concern, we’ll continue to diligently reduce cash expenses and identify means to monetize other non-core assets.”

Chief executive officer David Moore said the company would continue to “rationalize” its business — by cutting unprofitable clients, capturing new ones and adding incremental revenue streams from remaining clients.

Moore also said the firm would continue its efforts to “optimize” — by cutting about 100 additional positions, or 10 percent of its workforce. The new round of layoffs, expected to shave $12 million from the company’s projected 2001 costs, brings the total eliminated from the Alley-based firm in recent months to 300.

“We’re deploying our assets to best capitalize on the near-term biz opportunities,” chief operating officer Tom Detmer said. “We’re focusing on our key biz competencies … of customer acquisition solutions, … technology solutions, … ad serving and broadband professional services.”

At press time, shares of TSFM were trading at $0.56, down 18 percent from its previous close and well off its 52-week high of $65.

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