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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 000-26167
iXL ENTERPRISES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 58-2234342
---------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
1900 Emery Street, NW, Atlanta, Georgia 30318
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(800) 673-5544
---------------------------
(Registrant's telephone number, including area code)
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes. [ ] No.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of each class Outstanding at May 5, 2000
- -------------------- -------------------------------
Common Stock, $.01 par value 74,796,282
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iXL ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
QUARTER ENDED MARCH 31, 2000
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited).............. 1
Consolidated Balance Sheet at March 31, 2000 and
December 31, 1999 ...................................... 1
Consolidated Statement of Operations for the
Three Months Ended March 31, 2000 and 1999 ............. 2
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 ............. 3
Notes to Consolidated Financial Statements................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results Of Operations .............................. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 11
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds ................. 12
Item 6. Exhibits and Reports on Form 8-K .......................... 12
Signatures ............................................................. 13
</TABLE>
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PART 1
ITEM 1. FINANCIAL STATEMENTS
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................. $ 221,533 $ 120,812
Marketable securities ...................................................... 34,814 34,895
Accounts receivable, net ................................................... 79,145 62,836
Unbilled revenues .......................................................... 29,866 21,794
Prepaid expenses and other assets .......................................... 8,609 6,610
--------- ---------
Total current assets ............................................ 373,967 246,947
Property and equipment, net ................................................ 61,576 52,273
Intangible assets, net ..................................................... 167,308 55,851
Other non-current assets ................................................... 8,144 2,784
--------- ---------
Total assets .................................................... $ 610,995 $ 357,855
========= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Accounts payable ........................................................... $ 8,163 $ 13,988
Deferred revenues .......................................................... 13,839 10,750
Accrued liabilities ........................................................ 31,375 22,229
Current portion of long-term debt .......................................... 578 530
--------- ---------
Total current liabilities ....................................... 53,955 47,497
Long-term debt ............................................................. 744 1,308
--------- ---------
Total liabilities ............................................... 54,699 48,805
--------- ---------
Mandatorily redeemable preferred stock of subsidiary ....................... 176,311 48,955
Stockholders' equity
Common Stock ........................................................ 740 676
Additional paid in capital .......................................... 539,083 392,432
Accumulated deficit ................................................. (156,599) (135,973)
Accumulated other comprehensive income .............................. 4,858 12,020
Treasury stock at cost .............................................. (888) (888)
Note receivable from stockholder .................................... -- (900)
Unearned compensation ............................................... (7,209) (7,272)
--------- ---------
Total stockholders' equity ...................................... 379,985 260,095
--------- ---------
Total liabilities, mandatorily redeemable preferred
stock and stockholders' equity .............................. $ 610,995 $ 357,855
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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IXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Professional services revenue ............................................. $ 102,287 $ 32,528
Other revenue ............................................................. 676 484
------------ ------------
Net revenue .................................................. 102,963 33,012
Professional services expense, excluding stock-based compensation
amounts of $362 and $28 for the three months ended March 31, 2000,
and March 31, 1999 ........................................................ 48,253 15,840
Sales and marketing expenses, excluding stock-based compensation
amounts of $2,358 and $417 for the three months ended March 31,
2000, and March 31, 1999 .................................................. 19,141 7,733
General and administrative expenses, excluding stock-based
compensation amounts of $377 and $1,029 for the three months ended
March 31, 2000, and March 31, 1999 ........................................ 38,654 19,469
------------ ------------
Operating loss before stock compensation, depreciation and amortization ... (3,085) (10,030)
Stock-based compensation .................................................. 3,097 1,474
Depreciation .............................................................. 5,022 2,284
Amortization .............................................................. 11,404 4,351
------------ ------------
Total operating expenses ........................................... 125,571 51,151
Loss from operations ............................................... (22,608) (18,139)
Other (expense) income, net .............................................. (183) 69
Loss on equity investment ................................................. -- (65)
Interest income ........................................................... 2,648 216
Interest expense .......................................................... (483) (336)
------------ ------------
Loss before income taxes ....................................... (20,626) (18,255)
Income tax expense ........................................................ -- --
------------ ------------
Net loss ....................................................... (20,626) (18,255)
Dividends and accretion on mandatorily
redeemable preferred stock .......................................... (452) (5,293)
------------ ------------
Net loss available to common
stockholders .................................................. $ (21,078) $ (23,548)
============ ============
Basic and diluted net loss per common
share ............................................................ $ (0.29) $ (1.46)
============ ============
Weighted average common shares
outstanding ...................................................... 71,877 16,082
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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IXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss ........................................................ $ (20,626) $(18,255)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation .................................................. 5,022 2,284
Amortization .................................................. 11,404 4,351
Provision for bad debts ....................................... 4,629 202
Non-cash investment and losses in equity affiliate and
amortization ................................................ -- 64
Stock options and warrants charges ............................ 3,246 1,474
Changes in assets and liabilities, net of effects from purchase
of subsidiaries
Accounts receivable ......................................... (14,725) (3,422)
Unbilled revenues ........................................... (6,126) (3,647)
Prepaid expenses and other assets ............................. (5,964) (1,075)
Accounts payable and accrued liabilities .................... 1,441 1,515
Deferred revenues ........................................... (426) 2,832
--------- --------
Net cash used in operating activities .................... (22,125) (13,677)
--------- --------
Cash flows from investing activities
Purchases of property and equipment ........................... (14,649) (6,463)
Purchases of subsidiaries, net of cash acquired ............... 1,460 --
Purchases of marketable securities ............................ (22,610) --
Proceeds from sale of marketable securities ................... 15,965 --
Proceeds from sale of fixed and intangible assets ............. 147 1,892
--------- --------
Net cash used in investing activities .................... (19,687) (4,571)
Cash flows from financing activities
Repayment of borrowings ....................................... (225) (9,732)
Proceeds from issuance of stock ............................... 16,290 22,718
Proceeds from issuance of mandatorily redeemable preferred
stock of subsidiary ......................................... 126,905 --
--------- --------
Net cash provided by financing activities ................ 142,970 12,986
--------- --------
Effect of exchange rate changes on cash and cash equivalents .... (437) (117)
Net increase (decrease) in cash and cash equivalents ..... 100,721 (5,379)
Cash and cash equivalents at beginning of period ................ 120,812 19,259
--------- --------
Cash and cash equivalents at end of period ...................... $ 221,533 $ 13,880
========= ========
Supplemental disclosure of cash flow information
Cash paid for interest ........................................ $ 82 $ 347
Non-cash investing and financing activities
Acquisition of equipment through capital leases ................. $ -- $ 312
Unrealized loss on marketable securities ........................ $ (6,725) $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
iXL Enterprises, Inc. (the "Company") is an Internet services company,
which provides Internet strategy consulting and comprehensive Internet-based
solutions to Fortune 1000 companies and other corporate users of information
technology. The Company helps businesses identify how the Internet can be used
to their competitive advantage and provides expertise in creative design and
systems engineering to design, develop and deploy advanced Internet applications
and solutions. In addition to its Internet services offerings, the Company
operates Consumer Financial Network, Inc. ("CFN"), a sophisticated e-commerce
platform for marketing financial services and employee benefits over corporate
intranets and the Internet, as well as through a telesales center.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission regarding interim financial reporting. Accordingly, they
do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements and should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation of iXL's
financial condition as of March 31, 2000 the results of its operations for the
three month periods ended March 31, 2000 and 1999 and its cash flows for the
three month periods ended March 31, 2000 and 1999. Certain items have been
reclassed to conform to the current year presentation. Operating results for the
three month period ended March 31, 2000 are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 2000.
3. LONG-TERM DEBT
On January 7, 2000, the Company entered into a senior secured revolving
syndicated credit facility (the "Credit Facility") with several banks providing
for borrowings of up to $50,000,000. The Credit Facility expires December 31,
2002. The Credit Facility bears interest payable at least quarterly at a rate
of either 2.75% plus an adjusted LIBOR rate or 1.75% plus the greater of Chase
Manhattan Bank's prime rate or .5% plus the federal funds rate. The Credit
Facility is secured by liens on substantially all of the assets of the Company's
domestic subsidiaries except CFN and CFN's subsidiaries and 65% of the stock of
iXL's foreign subsidiaries, including the pledge of the capital stock of the
same subsidiary companies. The Credit Facility provides for borrowings based
upon a borrowing base formula. A commitment fee is charged on the unused portion
of the Credit Facility.
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4. ACQUISITION
In January 2000, the Company acquired Tessera Enterprise Systems, Inc.
in exchange for $3,700,000 and 3,588,655 shares of the Company's common stock.
Pro forma information is as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31, 1999
-------------------------------
(in thousands except per share)
<S> <C>
Revenue $ 38,390
Net loss available to common stockholders $(30,012)
Basic and diluted net loss per common share $ (1.53)
</TABLE>
5. MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
In March 2000, CFN sold 32,896,000 shares of its mandatorily redeemable
Series C Convertible Preferred Stock for net proceeds of $126,905,000. iXL's
ownership percentage of CFN on an as converted basis decreased from 76% to 61%
as a result of the sale of the stock. As of March 31, 2000, iXL owned 98% of
CFN's outstanding common shares.
LIQUIDATION PREFERENCE
Upon CFN's voluntary or involuntary dissolution, liquidation or winding
up, after payment to creditors but prior to any payments in respect of any
common stock, holders of Series C Convertible Preferred Stock will be entitled
to receive a liquidation preference equal to $4.00 subject to proportional
adjustment upon any subdivision or combination of Series C Convertible Preferred
Stock occuring after March 22, 2000.
REDEMPTION
Holders of Series C Convertible Preferred Stock have the right at their
option to require CFN to redeem Series C Convertible Preferred Stock held by
them at any time on or after December 31, 2005.
6. SEGMENT REPORTING
The Company operates in two business segments: strategic Internet
services, which includes Internet strategy consulting, Internet-based business
solutions and solution sets; and CFN, an e-commerce platform for marketing
financial services and employee benefits.
iXL's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology, strategic competencies, and marketing
strategies.
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Information concerning the operations in these reportable segments is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
---------- ----------
(in thousands)
<S> <C> <C>
Revenues:
Strategic Internet Services $ 102,287 $ 32,528
CFN 676 484
---------- ----------
$ 102,963 $ 33,012
========== ==========
Loss from operations:
Strategic Internet Services $ (11,188) $ (13,760)
CFN (11,420) (4,379)
---------- ----------
$ (22,608) $ (18,139)
========== ==========
Depreciation and amortization:
Strategic Internet Services $ 15,027 $ 6,346
CFN 1,399 289
---------- ----------
$ 16,426 $ 6,635
========== ==========
<CAPTION>
AS OF
-----------------------------------
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(in thousands)
<S> <C> <C>
Identifiable assets:
Strategic Internet Services $ 310,256 $ 281,211
CFN 150,512 34,368
--------- ---------
$ 460,768 $ 315,579
========= =========
</TABLE>
7. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company implemented Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income." This
standard requires that the total changes in equity resulting from revenue,
expenses, and gains and losses, including those which do not affect the
accumulated deficit, be reported. The components of comprehensive income are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ----------
(in thousands)
<S> <C> <C>
Net Loss $(20,626) $(18,255)
Foreign currency translation adjustment (437) (117)
Unrealized loss on marketable securities (6,725) --
-------- --------
Comprehensive loss $(27,788) $(18,372)
======== ========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements that involve known and unknown
risks and uncertainties, including statements regarding iXL's strategy,
financial performance, and revenue sources. These risks may cause iXL's actual
results to differ materially from any future results expressed or implied by
these forward-looking statements.
Overview
iXL is a leading Internet services company, which provides Internet
strategy consulting and comprehensive Internet-based solutions to Fortune 1000
companies and other corporate users of information technology. iXL helps
businesses identify how the Internet can be used to their competitive advantage
and uses its expertise in creative design and systems engineering to design,
develop and deploy advanced Internet applications and solutions.
iXL was founded in March 1996, and since that time has acquired a total
of 38 companies. All of iXL's acquisitions have been accounted for using the
purchase method. Therefore, the historical financial data include the results of
operations of companies acquired from their respective acquisition dates. iXL
has incurred substantial losses since its inception and anticipates continuing
to incur substantial losses for the foreseeable future. As of March 31, 2000,
iXL had an accumulated deficit of approximately $156.6 million. Although iXL has
experienced revenue growth, this growth may not be sustainable or indicative of
future results of operations.
iXL's customers generally retain iXL on a project-by-project basis. iXL
typically does not have material contracts that commit a customer to use its
services on a long-term basis. Revenue is recognized primarily using the
percentage of completion method on a contract-by-contract basis. iXL's use of
the percentage of completion method of recognition requires management to
estimate the degree of completion of each project. To the extent these estimates
prove to be inaccurate, the revenues and gross profits reported for periods
during which work on the project is ongoing may not accurately reflect the final
results of the project. Any anticipated losses on projects are charged to
earnings when identified. iXL prices its projects on both a fixed-price and
time-and-materials basis. iXL has implemented an internally developed estimation
process to determine the fixed price for an engagement, and has standardized
pricing throughout its offices. This methodology incorporates standard personnel
billing rates, project implementation risks and the overall technical complexity
of the project. We believe that the standardization of pricing throughout our
network of offices will decrease project pricing risk.
iXL's revenues are comprised of fees primarily from Internet strategy
consulting and Internet-based business solutions. iXL's revenue composition has
changed substantially from inception, and iXL expects further change as its
business develops. Historically, a substantial majority of iXL's revenues have
been derived from traditional website development and internet strategy
consulting. To succeed, iXL must leverage its existing relationships and
establish new relationships in order to substantially increase the revenues
derived from more comprehensive strategic Internet service.
Professional services expenses consist primarily of compensation and
benefits for our employees engaged in the delivery of professional services.
Professional services margins reflect net revenues less professional services
expenses which are incurred regardless of whether or not the employee's time is
billed to a client. We expect that our professional services expenses will
increase over time due to growth in employee base and wage increases. Our
professional services margins are affected by trends in the percentage of
professional services employees' time that is billed to clients, and will vary
in the future. Any significant decline in fees billed to clients or the
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loss of a significant client would materially adversely affect our professional
services margins. If a client engagement ends earlier than we expect, we must
re-deploy professional services personnel. Any resulting unbillable time will
adversely affect professional services margins.
In connection with (1) the reasonable efforts of GE Capital Equity
Investments, Inc. to provide the CFN program to its employees and (2) the
marketing agreement among iXL and General Electric, iXL issued warrants to
purchase 1,500,000 shares of Common Stock to General Electric. iXL believes the
value of these marketing services to be $1.4 million and accordingly this
marketing campaign resulted in $1.4 million of non-cash marketing expenses to be
recorded in the 12-month period from April 1999, through March 2000. iXL
recorded approximately $380,000 of the $1.4 million non-cash marketing expenses
during the three months ended March 31, 2000. Net loss available to common
stockholders and stockholders' equity is also impacted by non-cash charges
related to this warrant issuance.
iXL's future success will depend in large part upon its ability to
attract, train and retain additional highly skilled executive-level management
and creative, technical, consulting and sales personnel. Competition for such
personnel is intense, and iXL is unsure that it will be successful in
attracting, training, and retaining such personnel. iXL's ability to hire and
retain colleagues will have a significant impact on its profitability.
CFN has expended and will continue to expend significant resources to
build electronic data interchange interfaces with participating institutions, to
grow its technology infrastructure, to add additional participating companies
and employees to the program and to establish access to the YouDecide.com (TM)
website. In addition, CFN has expended and will continue to expend significant
resources to promote its YouDecide.com brand and website. These expenditures
must be incurred in advance of the recognition of revenue. None of these
expenses is incurred under long-term vendor contracts. As a result, these
expenses are expensed as incurred, except for fixed asset purchases, which are
depreciated over their expected useful lives. CFN recognizes revenue upon
completion of an end-user transaction thorough the CFN operating network, which
also will require the realization of expenses in advance of related revenue. To
date, the volume of transactions on CFN has been limited and, accordingly, the
revenue recognized has been minimal. As a result, iXL may not be able to achieve
or sustain profitability. CFN incurred an operating loss of $11.4 million and
$4.4 million for the three months ended March 31, 2000 and 1999 respectively. As
of March 31, 2000, iXL owned 98% of CFN's outstanding common shares, and its
ownership percentage of CFN was 61% on an as converted basis. In April 2000,
CFN, executed an Agreement and Plan of Merger with Interactive Corporate
Communications, Inc., a New York corporation ("iClick"), regarding a
stock-for-stock merger between the parties. If the merger is consummated, the
stockholders of iClick would be entitled to receive approximately 9% of the
fully-diluted common equity of CFN, reducing iXL's interest in CFN to
approximately 55% on a fully-diluted basis. The closing of this transaction is
subject to iClick stockholder approval and other conditions precedent. CFN
expects that this transaction will close on or about May 15, 2000.
iXL incurred non-cash stock compensation expense related to its option
grants for the three months ended March 31, 2000, totaling $3.1 million as
compared to $1.5 for the three months ended March 31, 1999. iXL expects to
recognize approximately $4.9 million in 2000, $2.4 million
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in 2001, $2.0 million in 2002 and $1.1 million in 2003 in stock compensation
expense relating to the grant of options in 1998, 1999, and 2000.
Acquisition Program
iXL has acquired a total of 38 businesses since its inception and may
continue acquiring businesses based on the future need to add new strategic
skill sets. iXL evaluates acquisitions based on numerous quantitative and
qualitative factors. Quantitative factors include historical and projected
revenues and profitability, geographic coverage and contract backlog.
Qualitative factors include strategic and cultural fit, management skills,
customer base and technical proficiency. Most of the consideration paid by iXL
for prior acquisitions has been in the form of common stock. iXL anticipates
that common stock and options to acquire common stock will continue to
constitute most of the consideration used to make future acquisitions. iXL's
acquisition program will result in additional ownership dilution to current
investors.
All of iXL's acquisitions have been accounted for using the purchase
method. The results of operations of the acquired entities are consolidated with
those of iXL from the date of the acquisition. For each acquisition, a portion
of the purchase price is allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed based on their respective fair market
values on the acquisition date. A portion of the purchase price in excess of
tangible and identifiable intangible assets and liabilities assumed is allocated
to goodwill and amortized on a straight-line basis over the estimated period of
benefit, which is primarily five years. Identifiable intangible assets consist
primarily of assembled workforce and are being amortized over a period of three
years. iXL expects additional acquisition-related amortization expense as a
result of its acquisition program.
Results of Operations
Discussions of results of operations exclude all non-cash stock compensation
expense.
Comparison of Three Months Ended March 31, 2000 and March 31, 1999
Net revenue. Net revenues increased $70.0 million, or 212%, to $103.0
million for the quarter ended March 31, 2000 from $33.0 million for the quarter
ended March 31, 1999. The increase was attributable to an aggressive hiring
initiative which expanded our client base and headcount. The growth was also due
to an increase in the number and size of client engagements and the development
and growth of specialized strategy consulting groups. Specifically, averaged
annualized revenue from the Company's top ten clients increased from $3.6
million during the quarter ended March 31, 1999 to $12.2 million during the
quarter ended March 31, 2000.
Professional services expense. Professional services expense increased
$32.4 million, or 205%, to $48.3 million for the quarter ended March 31, 2000
from $15.8 million for the quarter ended March 31, 1999. As a percentage of
professional services revenues, professional services expense decreased from 49%
for the quarter ended March 31, 1999, to 47% for the quarter ended March 31,
2000. The dollar increase was primarily attributable to an increase in headcount
due to the growth in billable
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headcount. The decrease as a percentage of revenues was primarily attributable
to increases in billing rates and improvements in revenue per billable employee.
Sales and marketing expenses. Sales and marketing expenses increased
$11.4 million, or 148%, to $19.1 million for the quarter ended March 31, 2000
from $7.7 million for the quarter ended March 31, 1999. As a percentage of net
revenue, sales and marketing expenses decreased from 23% for the quarter March
31, 1999 to 19% for the quarter ended March 31, 2000. The dollar increase was
primarily attributable to the increase in sales personnel and increased
commissions and marketing expenditures.
General and administrative expenses. General and administrative
expenses increased $19.2 million, or 99%, to $38.7 million for the quarter ended
March 31, 2000 from $19.5 million for the quarter ended March 31, 1999. The
dollar increase was primarily attributable to the increase in recruiting,
knowledge management, information technology, finance and administrative
personnel and costs of leasing additional office space. As a percentage of net
revenue, general and administrative expenses decreased from 59% for the quarter
ended March 31, 1999 to 38% for the quarter ended March 31, 2000.
Stock-based compensation. In accordance with APB 25, the Company has
recorded stock compensation for the difference between the exercise price of
certain stock option grants and the deemed fair value of our common stock at the
time of such grants. We are expensing this amount over the vesting periods of
the applicable options, resulting in expense of $3.1 million and $1.5 million in
the three months ended March 31, 2000 and 1999, respectively.
Depreciation. Depreciation expenses increased $2.7 million to $5.0
million for the quarter ended March 31, 2000 from $2.3 million for the quarter
ended March 31, 1999. The increase is primarily related to the investments in
physical infrastructure to support continued growth of the company.
Amortization. Amortization expense increased $7.1 million to $11.4
million for the quarter ended March 31, 2000, from $4.4 million for the quarter
ended March 31, 1999. The increase was primarily a result of the amortization of
goodwill and assembled workforce recorded in connection with the one acquisition
which took place during January 2000.
Liquidity and Capital Resources
On January 7, 2000, iXL terminated its existing July 29, 1998 credit
agreement and entered into a senior secured revolving syndicated Credit Facility
with several banks providing for borrowings of up to $50 million. As of March
31, 2000, no borrowings were outstanding under the Credit Facility. iXL's
obligations under the Credit Facility are secured by substantially all of the
assets of iXL and its domestic operating subsidiaries other then iXL Ventures,
Inc., CFN and CFN's subsidiaries. These obligations are also secured by all of
the stock of iXL's domestic operating subsidiaries, other than CFN's
subsidiaries, and 65% of the stock of iXL's foreign subsidiaries. Borrowings
under the Credit Facility mature December 31, 2002 and accrue interest either
(a) at a rate of 1.75% plus the greater of Chase Manhattan Bank's prime rate or
0.5% plus the weighted average of the rates on overnight Federal funds
transactions, or (b) at a rate of 2.75% plus
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an adjusted LIBOR rate. The Credit Facility provides for borrowings based upon
a borrowing base formula. A commitment fee is charged on the unused portion of
the Credit Facility.
At March 31, 2000, iXL had approximately $222 million in cash and cash
equivalents. For the three month period ended March 31, 2000, iXL used
approximately $22.1 million and $14.6 million to fund operating activities and
capital expenditures, respectively. These expenditures were financed primarily
with proceeds of previous sales of capital stock.
In addition, at March 31, 2000, iXL had outstanding commitments for
capital expenditures of approximately $18.6 million, primarily related to the
expansion and improvement of its Atlanta, New York, Richmond and Chicago
offices. The remainder of iXL's significant commitments consists of obligations
outstanding under operating leases.
iXL believes its available cash resources and credit facilities,
combined with the net proceeds of its recent secondary offering, will be
sufficient to meet its anticipated working capital and capital expenditures
requirements for a least the next twelve months. However, iXL may need to raise
significant additional funds sooner in order to support its growth, develop new
or enhanced services and products, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities. In March 2000 CFN sold 32,896,000 shares of its mandatorily
redeemable Series C Convertible Preferred Stock for net proceeds of
$126,905,000. iXL believes that the available cash resources for CFN will be
sufficient to meet its anticipated working capital expenditures for at least the
next twelve months.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for the quarter ended
March 31, 2001. iXL does not expect the adoption to have a material impact on
its financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In March 2000, the
SEC released SAB 101A which defers reporting on the effects of the adoption of
SAB 101 until the second fiscal quarter of 2000. The Company is evaluating the
implications of SAB 101 and to date nothing has been identified that would
significantly change the Company's historical practices with respect to the
events that trigger revenue recognition and the measurement of revenue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments which would
require disclosure under this item.
11
<PAGE> 14
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period from January 1, 2000 through March 31, 2000, iXL
issued and sold 75,000 shares of common stock upon exercise of options granted
under the 1998 Non-Employee Stock Option Plan for an aggregate consideration of
$1,125,000 in cash. These issuances of stock were made in reliance on Section
4(2) of the Securities Act and Rule 701 promulgated under the Securities Act.
In January 2000, the Company acquired Tessera Enterprise Systems, Inc.
in exchange for $3,700 and 3,588,655 shares of the Company's common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial data schedule (for SEC use only)
(b) Reports on Form 8-K
iXL did not file any Reports on Form 8-K during the quarter ended March
31, 2000.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
iXL Enterprises, Inc.
By: /s/ MARK STEELE
------------------------------------------------
Mark Steele
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 2000
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IXL ENTERPRISES INC. FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 221,533
<SECURITIES> 34,814
<RECEIVABLES> 85,837
<ALLOWANCES> 6,692
<INVENTORY> 0
<CURRENT-ASSETS> 373,967
<PP&E> 87,726
<DEPRECIATION> 26,150
<TOTAL-ASSETS> 610,995
<CURRENT-LIABILITIES> 53,955
<BONDS> 0
176,311
0
<COMMON> 740
<OTHER-SE> 379,245
<TOTAL-LIABILITY-AND-EQUITY> 610,995
<SALES> 0
<TOTAL-REVENUES> 102,963
<CGS> 0
<TOTAL-COSTS> 48,253
<OTHER-EXPENSES> 77,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 483
<INCOME-PRETAX> (20,626)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,626)
<EPS-BASIC> (0.29)
<EPS-DILUTED> 0
</TABLE>
