<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 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 NUMBER: 0-26303
VIANT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0427302
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
89 SOUTH STREET, BOSTON, MA 02111
(Address of Principal Executive Offices) (Zip Code)
617-531-3700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed 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. Yes [X] No [ ].
As of September 29, 2000 there were 48,465,184 shares of Common Stock,
$.001 par value, outstanding.
================================================================================
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VIANT CORPORATION
Form 10-Q
Table of Contents
September 29, 2000
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PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for the Three and Nine
Months Ended September 29, 2000 and October 1, 1999............. 1
Consolidated Balance Sheets as of September 29, 2000 and
December 31, 1999............................................... 2
Consolidated Statements of Cash Flows for the Nine
Months Ended September 29, 2000 and October 1,1999.............. 3
Notes to Consolidated Financial Statements...................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 14
Item 2. Changes in Securities and Use of Proceeds....................... 14
Item 6. Exhibits and Report on Form 8-K................................. 14
Signatures .............................................................. 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
VIANT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
2000 1999 2000 1999
-------- -------- -------- --------
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Net revenues .................................................. $ 33,078 $ 18,751 $102,211 $ 37,625
-------- -------- -------- --------
Operating expenses:
Professional services ..................................... 16,543 8,440 44,084 18,542
Sales and marketing ....................................... 2,796 1,770 10,168 4,647
General and administrative ................................ 16,092 6,701 39,576 14,998
Research and development .................................. 1,326 932 4,431 2,472
-------- -------- -------- --------
Total operating expenses .............................. 36,757 17,843 98,259 40,659
-------- -------- -------- --------
Income (loss) from operations ......................... (3,679) 908 3,952 (3,034)
Interest and other income (expenses), net ..................... 2,546 660 8,235 722
-------- -------- -------- --------
Income (loss) before income taxes ..................... (1,133) 1,568 12,187 (2,312)
Provision for income taxes .................................... - - 1,473 -
-------- -------- -------- --------
Net income (loss) ............................................. $ (1,133) $ 1,568 $ 10,714 $ (2,312)
======== ======== ======== ========
Net income (loss) per share:
Basic ......................................... $ (0.02) $ 0.04 $ 0.23 $ (0.11)
Diluted ....................................... $ (0.02) $ 0.03 $ 0.19 $ (0.11)
Shares used in computing net income (loss) per share:
Basic ......................................... 48,247 42,818 47,475 21,690
Diluted ....................................... 48,247 51,980 55,280 21,690
Pro forma net income (loss) per share:
Basic ......................................... $ (0.02) $ 0.04 $ 0.23 $ (0.06)
Diluted ....................................... $ (0.02) $ 0.03 $ 0.19 $ (0.06)
Shares used in computing pro forma net income (loss) per share:
Basic ......................................... 48,247 42,818 47,475 37,808
Diluted ....................................... 48,247 51,980 55,280 37,808
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
VIANT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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<CAPTION>
SEPTEMBER 29, DECEMBER 31,
ASSETS 2000 1999
(UNAUDITED)
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Current assets:
Cash and cash equivalents.................................................... $ 151,446 $ 66,450
Short-term investments........................................................ 43,047 121,726
Accounts receivable, net...................................................... 27,813 16,927
Prepaid expenses and other current assets..................................... 1,332 1,595
-------- ---------
Total current assets....................................................... 223,638 206,698
Property and equipment, net..................................................... 12,448 6,767
Long-term investments........................................................... 4,386 500
Other assets.................................................................... 3,767 261
-------- ---------
Total assets..................................................................$ 244,239 $ 214,226
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations.................................. $ 659 $ 608
Accounts payable.............................................................. 5,252 2,877
Accrued expenses.............................................................. 18,700 13,381
Deferred revenues............................................................ 6,364 2,748
--------- ---------
Total current liabilities................................................... 30,975 19,614
Capital lease obligations, less current portion............................... 1,031 1,533
--------- ---------
Total liabilities.......................................................... 32,006 21,147
--------- ---------
Stockholders' equity:
Common stock; $0.001 par value; 200,000,000 and 50,000,000 shares authorized,
respectively; 48,465,184 and 46,071,286 shares issued and outstanding,
respectively................................................................ 48 46
Additional paid-in capital...................................................... 216,257 208,489
Deferred compensation........................................................... (3,208) (3,958)
Other comprehensive income...................................................... (85) (5)
Accumulated deficit............................................................. (779) (11,493)
--------- ---------
Total stockholders' equity...................................................... 212,233 193,079
--------- ---------
Total liabilities and stockholders' equity......................................$ 244,239 $ 214,226
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
VIANT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------------
SEPTEMBER 29, OCTOBER 1,
2000 1999
----------------------- --------------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................. $ 10,714 $ (2,312)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Tax benefit from disqualifying dispositions................................. 1,473 -
Depreciation and amortization............................................... 2,867 1,352
Write-down of investments................................................... 507 -
Stock-based compensation expense........................................... 1,072 -
Changes in operating assets and liabilities:
Accounts receivable, net.................................................. (11,456) (8,142)
Prepaid expenses and other assets......................................... (3,243) (258)
Accounts payable.......................................................... 2,375 2,721
Accrued expenses.......................................................... 5,319 5,131
Deferred revenues......................................................... 3,616 903
------------------ ---------------
Net cash provided by (used in) operating activities..................... 13,244 (605)
------------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments........................................... (93,508) (4,888)
Maturities of short-term investments.......................................... 172,187 4,114
Purchases of long-term investments............................................ (21,949) -
Proceeds from sale of long-term investments................................... 18,126 -
Purchases of property and equipment........................................... (8,548) (2,601)
------------------- ---------------
Net cash provided by (used in) investing activities..................... 66,308 (3,375)
------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options...................................... 5,975 722
Proceeds from issuance of convertible preferred stock, net................... - 75
Proceeds from issuance of common stock, net.................................. - 50,155
Principal payments on borrowings on lines of credit.......................... - (3,453)
Principal payments on capital lease obligations.............................. (451) (208)
------------------- ----------------
Net cash provided by financing activities.............................. 5,524 47,291
------------------- ---------------
Effect of exchange rate changes on cash and cash equivalents................... (80) (20)
------------------- ---------------
Net increase in cash and cash equivalents...................................... 84,996 43,291
Cash and cash equivalents at beginning of period............................... 66,450 18,209
------------------- ---------------
Cash and cash equivalents at end of period..................................... $ 151,446 $ 61,500
=================== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
VIANT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Viant Corporation ("Viant" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1999
included in the Company's Form 10-K, filed March 28, 2000 (File No. 0-26303).
The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting solely of normal, recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of results for the
interim periods presented. The results of operations for the three and nine
month periods ended September 29, 2000 are not necessarily indicative of the
results to be expected for any future period or the full fiscal year.
Viant's fiscal year is the 52-week period ending on the Friday nearest to
the last day of December of that year. Within that fiscal year, Viant's
quarterly periods are the 13 week periods ending on the Friday nearest to the
last day of March, June and September.
2. EARNINGS (LOSS) PER SHARE
Basic net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted income per common share reflects the maximum dilution that would
have resulted from the assumed exercise and share repurchase related to dilutive
stock options and is computed by dividing net income by the weighted average
number of common shares and all dilutive securities outstanding. For the three
months ended September 29, 2000, the calculation of diluted net loss per
common share does not include potential shares of common stock equivalents as
their inclusion would be anti-dilutive.
Unaudited pro forma net income (loss) per share for the three and nine
months ended October 1, 1999 included in the statement of operations is computed
using the weighted average number of common shares outstanding, adjusted to
include the pro forma effects of the conversion of preferred stock to common
stock as if such conversion had occurred on January 2, 1999, or at the date of
original issuance, if later.
3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Viant considers all highly liquid instruments with an original maturity of
three months or less to be cash equivalents. All other investments with original
maturities between 91 and 360 days are classified as short-term investments
because they are liquid and are available to meet working capital needs.
Investments with original maturities greater than one year are classified as
long-term investments. At September 29, 2000 and December 31, 1999, Viant's
short-term investments consisted primarily of certificates of deposit and money
market funds secured by U.S. Government-backed securities, commercial paper and
high grade corporate debt obligations.
4. LONG-TERM INVESTMENTS
Investments in entities in which Viant has an equity interest of less
than 20% and does not have the ability to exercise significant influence are
classified as long-term investments. These investments are accounted for
under the cost method. At September 29, 2000 and December 31, 1999, Viant's
long-term investments consisted primarily of investments acounted for under
the cost method. At each balance sheet date, Viant assesses the value of its
cost-based investments and recognizes any identified impairment. During the
three months ended September 29, 2000, Viant recorded a charge of $.5 million
to account for an identified impairment in certain of its cost-based
investments.
<PAGE>
5. CAPITAL STOCK
On June 23, 1999, Viant closed its initial public offering of common stock
at a public offering price of $8 per share. The proceeds to Viant from the
offering were $50.2 million, net of underwriting discounts and offering costs.
On December 13, 1999, Viant closed its secondary public offering of common
stock at a public offering price of $47.3125 per share. The proceeds to Viant
from the offering were $120.3 million, net of underwriting discounts and
offering costs.
On February 24, 2000, Viant, effectuated a two-for-one stock split in
the form of a 100% stock dividend to stockholders of record on February 8,
2000. All share data in this report has been restated to reflect this stock
split retroactively for all periods presented.
6. COMPREHENSIVE INCOME
Total comprehensive income, which was comprised of net income (loss) and
foreign currency translation adjustments, was $(1,237,000) and $10,634,000
for the three and nine months ended September 29, 2000, respectively and
$1,547,000 and $(2,333,000) for the three and nine and months ended October
1, 1999, respectively.
7. SUBSEQUENT EVENTS
The Company's Board of Directors has authorized the repurchase of up to
$50 million of Viant's outstanding common stock. Under the stock repurchase
program, Viant may purchase shares from time to time over the next 24 months
in the open market.
8. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101 summarizes
certain of the SEC's view in applying generally accepted accounting principles
to revenue recognition in financial statements. The Company is required to adopt
SAB 101 no later than the fourth quarter of fiscal 2000. The Company has
conducted a preliminary evaluation of the impact of SAB 101 on its results of
operations and financial position. The company believes the adoption of SAB 101
will have no significant impact on its results of operations and financial
position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
which was issued in June 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge transaction.
The Company did not use derivative instruments or engage in hedging
activities in fiscal 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VIANT SHOULD BE READ IN CONJUNCTION WITH VIANT'S UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS REPORT AND WITH THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
<PAGE>
THE YEAR ENDED DECEMBER 31, 1999. EXCEPT FOR THE HISTORICAL INFORMATION
CONTAINED HEREIN, THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE EXCHANGE ACT OF 1934. THESE STATEMENTS INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS AS TO SUCH MATTERS AS VIANT'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS REPORT
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS REPORT. VIANT'S ACTUAL RESULTS, LEVELS OF ACTIVITY,
PERFORMANCE, ACHIEVEMENTS AND REPORTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED BELOW. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED IN "FACTORS AFFECTING VIANT'S OPERATING RESULTS,
BUSINESS PROSPECTS AND MARKET PRICE OF STOCK," AS WELL AS THOSE DISCUSSED
ELSEWHERE HEREIN. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE
MADE AS OF THE DATE HEREOF, BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE
DATE THEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.
OVERVIEW
Viant is a leading builder of digital businesses providing strategic
consulting, creative design and technology services to companies seeking to
capitalize on the Internet. Viant creates value by helping clients rapidly
develop and deploy Internet solutions.
Viant derives substantially all of its revenues from services performed on
a fixed-price, fixed-time basis. Viant generally enters into a Master Services
Agreement with its clients which establishes the legal and general business
terms of the relationship. As specific engagements are identified, the Company
and the client then enter into separate statements of work which outline the
time frame and fees applicable to the specific engagement. Typically these
engagements are of a short predetermined time frame, generally lasting three to
six months. To determine the proposed fixed price for an engagement, Viant uses
an estimation process which takes into account the type and overall complexity
of the project, the anticipated number of consultants needed and their
associated billing rates, and the estimated duration of and risks associated
with the engagement. All fixed-price proposals are approved by a member of
Viant's management team. Revenues from fixed-price engagements are recognized
using the percentage of completion method (based on the ratio of costs incurred
to the total estimated project costs). Project costs are based on the direct
payroll and associated fringe benefits of the consultants on the engagement.
Additionally, the finance department personnel meet regularly with project
managers to ensure that the budgeted costs to complete, which are used to
calculate revenue recognition, reflect the actual status of the project and the
anticipated costs to complete. Based upon theses discussions, provisions for
estimated losses on contracts are made during the period in which such losses
become probable and can be reasonably estimated. To date, such losses have not
been significant. Viant reports revenue net of reimbursable expenses.
Viant's revenues and earnings have fluctuated, and may fluctuate in the
future, from quarter to quarter based on such factors within and outside its
control, including: the variability in market demand for the Internet and for
Internet professional services, the length of the sales cycle associated with
our service offerings, the number, size and scope of our projects, the
efficiency with which we utilize our employees and the ability of Internet-based
start-ups to obtain venture capital funding and pay their current obligations to
us. Viant does not track backlog information. Any information regarding
anticipated future revenue from clients would not be meaningful and would be
potentially misleading.
The number of Viant employees increased from 213 as of January 1, 1999 to
405 as of December 31, 1999 and to 737 employees as of September 29, 2000.
Personnel compensation and facilities costs represent a high percentage of
Viant's operating expenses and are relatively fixed in advance of each quarter.
Accordingly, if revenues do not increase at a rate equal to expenses, Viant's
business, financial condition or results of operations could be materially and
adversely affected. In addition, Viant's liquidity may also be adversely
<PAGE>
affected if revenues do not increase at a rate equal to these additional
expenses, to the extent Viant is unable to reduce operating expenses.
Viant's fiscal year is the 52-week period ending on the Friday nearest to
the last day of December of that year. Within that fiscal year, Viant's
quarterly periods are the 13 week periods ending on the Friday nearest to the
last day of March, June and September.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues of certain items
included in the Company's consolidated statements of operations:
VIANT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS PERCENTAGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- -------------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenues.............................. .............. 100 % 100 % $ 100 % $ 100 %
=== === ===== =====
Operating expenses:
Professional services............................................ 50 45 43 49
Sales and marketing.............................................. 8 9 10 12
General and administrative...................................... 49 36 39 40
Research and development...................................... 4 5 4 7
--------- --------- --------- ---------
Total operating expenses.................................... 111 95 96 108
--------- --------- --------- ---------
Income (loss) from operations........................................ (11) 5 4 (8)
Interest and other income (expenses), net............................ 8 3 8 2
-------- -------- -------- ---------
Income (loss) before income taxes..................... (3) 8 12 (6)
Provision for income taxes....................................... - - 1 -
--------- --------- --------- --------
Net income (loss).................................................... (3)% 8 % 11 % (6)%
== = == ==
</TABLE>
COMPARISON OF THE QUARTERS ENDED OCTOBER 1, 1999 AND SEPTEMBER 29, 2000
NET REVENUES. Revenues increased 76% from $18.8 million for the third
quarter of 1999 to $33.1 million for the third quarter of 2000. The increase in
net revenues reflected continued demand for Internet professional services and
increases in both the size and number of Viant's client engagements, although we
are uncertain as to the continued, long-term sustainability of such percentage
revenue growth on a quarter-over-quarter basis and we believe that any such
period-to-period comparisons of our operating results are not necessarily
meaningful. Revenues derived from Viant's three largest clients, as a percentage
of total net revenues, decreased from 41% for the third quarter of 1999 to 23%
for the third quarter of 2000.
PROFESSIONAL SERVICES. Professional services expense consists primarily of
compensation and benefits for employees engaged in the delivery of Internet
professional services and non-reimbursable expenses related to client projects.
Professional services expense increased 96% from $8.4 million for the third
quarter of 1999 to $16.5 million for the third quarter of 2000. This increase
was primarily due to an increase in the number of professional services
personnel employed by Viant. Professional services expense increased as a
percentage of revenues from 45% for the third quarter of 1999 to 50% for the
third quarter of 2000. This increase was primarily the result of an increase in
the number of professional services personnel employed during the quarter and a
slowing in revenue growth during the quarter.
SALES AND MARKETING. Sales and marketing expense consists primarily of
compensation, benefits and travel costs for employees in the sales and marketing
groups, marketing program costs and an allocation of facilities costs. Sales and
marketing expense increased $1.0 million, or 58%, from $1.8 million in the third
quarter of 1999 to $2.8 million for the third quarter of 2000. This increase was
primarily attributable to an increase in the number of sales and marketing
personnel and an increase in Viant's marketing and branding efforts. Viant
expects that the dollar amount of sales and marketing expenses will continue to
increase due to the hiring and retention of additional sales and marketing
professionals and other advertising and promotional activities. Sales and
marketing expense decreased as a percentage of revenues from 9% for the third
quarter of 1999 to 8% for the third quarter of 2000. This decrease was due to
higher revenues generated per sales employee, a reduction in marketing program
expenses and an increase in revenues for the third quarter of 2000 versus the
same period in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expense consists
primarily of compensation, benefits and travel costs for employees in Viant's
management, human resources, recruiting, finance and administration groups, and
facilities costs not allocated to sales and marketing or research and
development.
<PAGE>
General and administrative expense increased $9.4 million, or 140%,
from $6.7 million in the third quarter of 1999 to $16.1 million for the third
quarter of 2000. This increase was the result of an increase in the number of
employees in Viant's management, human resources, recruiting, finance and
administration groups and an increase in facilities costs associated with our
offices in London, Atlanta, Chicago, Houston, Mountain View and Munich. General
and administrative expense increased as a percentage of revenues from 36% for
the third quarter of 1999 to 49% for the third quarter of 2000. This increase
was primarily due to an increase in the number of employees in Viant's
management, human resources, recruiting, finance and administration groups and
higher infrastructure support costs.
RESEARCH AND DEVELOPMENT. Research and development expense consists
primarily of compensation, benefits, subscription fees and an allocation of
facilities costs for employees associated with Viant's innovation center. The
innovation center enhances the knowledge and expertise of the strategic
consulting, creative design and technology disciplines. Research and
development expense increased $0.4 million, or 42%, from $0.9 million in the
third quarter of 1999 to $1.3 million for the third quarter of 2000. This
increase was primarily the result of increased headcount. Research and
development expense decreased as a percentage of revenue from 5% for the third
quarter of 1999 to 4% for the third quarter of 2000. This decrease was primarily
the result of higher revenue growth versus research and development expense.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net consists primarily of interest earned on cash and cash
equivalents and short and long term investments, interest paid on capital lease
obligations and the write-down of long term investments. Interest and other
income (expense), net increased $1.9 million, or 286%, from $0.7 million in the
third quarter of 1999 to $2.5 million in the third quarter of 2000. This
increase is primarily the result of income from the investment of proceeds from
Viant's initial public offering and secondary offering, offset by the write-down
of $.5 million of long-term investments.
PROVISION FOR INCOME TAXES. The zero provision for the three months
ended September 29, 2000 reflect the loss for the period and the related
changes in the estimated tax provision for the full year 2000. The Company no
longer requires a valuation allowance offsetting its net deferred tax assets.
Based upon an analysis of the Company's ability to generate sufficient future
taxable income during periods in which temporary differences reverse,
management believes it is more likely than not the Company will realize the
benefits of its net deferred tax assets. The amount of net deferred tax
assets considered realizable could be reduced if estimated future taxable
income cannot be achieved.
COMPARISON OF THE NINE MONTHS ENDED OCTOBER 1, 1999 AND SEPTEMBER 29, 2000
NET REVENUES. Revenues increased 172% from $37.6 million for the first nine
months of 1999 to $102.2 million for the first nine months of 2000. The increase
in net revenues reflected continued demand for Internet professional services
and increases in both the size and number of Viant's client engagements,
although we are uncertain as to the continued, long-term sustainability of such
percentage revenue growth on a period-over-period basis and we believe that any
such period-to-period comparisons of our operating results are not necessarily
meaningful. Revenues derived from Viant's three largest clients, as a percentage
of total net revenues, decreased from 44% for the first nine months of 1999 to
19% for the first nine months of 2000.
PROFESSIONAL SERVICES. Professional services expenses increased 138%
from $18.5 million for the first nine months of 1999 to $44.1 million for the
first nine months of 2000. This increase was primarily due to the hiring of
additional Internet professionals. Professional services expense decreased as
a percentage of revenues from 49% for the first nine months of 1999 to 43%
for the first nine months of 2000. This decrease was primarily the result of
better utilization of the professional staff and planning and execution on
client engagements for the previous two quarters and an overall increase in
revenue growth.
SALES AND MARKETING. Sales and marketing expense increased $5.6 million,
<PAGE>
or 119%, from $4.6 million in the first nine months of 1999 to $10.2 million for
the first nine months of 2000. This increase was primarily attributable to an
increase in the number of sales and marketing personnel and an overall increase
in Viant's marketing and branding efforts. Viant expects that the dollar amount
of sales and marketing expenses will continue to increase due to the hiring and
retention of additional sales and marketing professionals and other advertising
and promotional activities. Sales and marketing expense decreased as a
percentage of revenues from 12% for the first nine months of 1999 to 10% for the
first nine months of 2000. This decrease was primarily due to overall higher
revenues generated per sales employee, reduction in marketing program expense
and an increase in revenues for the first nine months of 2000 versus the same
period in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
$24.6 million, or 164%, from $15.0 million in the first nine months of 1999 to
$39.6 million for the first nine months of 2000. This increase was the result of
an increase in the number of employees in Viant's management, human resources,
recruiting, finance and administrative groups and facilities costs in connection
with our offices in London, Atlanta, Chicago, Houston, Mountain View and Munich.
General and administrative expense decreased as a percentage of revenues from
40% for the first nine months of 1999 to 39% for the first nine months of 2000.
This decrease was the result of higher revenue growth versus infrastructure
support costs.
RESEARCH AND DEVELOPMENT. Research and development expense increased $2.0
million, or 79%, from $2.5 million in the first nine months of 1999 to $4.4
million for the first nine months of 2000. This increase was primarily the
result of increased headcount. Research and development expense decreased as a
percentage of revenue from 7% for the first nine months of 1999 to 4% for the
first nine months of 2000. This decrease was primarily the result of higher
revenue growth versus research and development expense.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net increased $7.5 million, or 1041%, from $0.7 million in first nine
months of 1999 to $8.2 million in the first nine months of 2000. This increase
is primarily the result of income from investment of proceeds from Viant's
initial public offering and secondary offering offset by the write-down of $.5
million of long-term investments in the third quarter of 2000.
PROVISION FOR INCOME TAXES. The provision for income taxes in the 2000
periods reflect the Company's expectation of taxable income for the full
year, offset by the determination that the Company no longer requires a
valuation allowance offsetting its deferred tax assets. Based upon an
analysis of the Company's ability to generate sufficient future taxable
income during periods in which temporary differences reverse, management
believes it is more likely than not the Company will realize the benefits of
its net deferred tax assets. The amount of net deferred tax assets considered
realizable could be reduced if estimated future taxable income cannot be
achieved. The zero provision for income taxes in the 1999 periods reflects
the taxable loss for the year and the full evaluation allowance in net
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Viant has funded its operations and investments in
property and equipment through private and public equity financings, bank
borrowings and capital lease financing arrangements. Viant's cash and cash
equivalents and short-term investments increased from $188.2 million at December
31, 1999 to $194.5 million as of September 29, 2000.
Cash provided by operations during the nine months ended September 29, 2000 was
$12.7 million, primarily due to an increase in net income and accrued expenses,
offset by an increase in accounts receivable. Cash provided by investing
activities during this period was $66.8 million, primarily due to the conversion
of short term investments into cash and cash equivalents.
Viant has a $3.2 million capital lease facility with a leasing company that
<PAGE>
is secured by the capital assets purchased with the borrowings. Outstanding
borrowings under the above credit facility totaled $1.7 million as of September
29, 2000.
Viant believes that its current cash, cash equivalents and short-term
investments will be sufficient to meet Viant's working capital and capital
expenditure requirements for at least the next 24 months. However, there can be
no assurance that Viant will not require additional financings within this time
frame or that such additional financing, if needed, will be available on terms
acceptable to Viant, if at all.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
subsequently updated by SAB 101A and SAB 101B (collectively, "SAB 101"). SAB 101
summarizes certain of the SEC's view in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is
required to adopt SAB 101 no later than the fourth quarter of fiscal 2000. The
Company has conducted a preliminary evaluation of the impact of SAB 101 on its
results of operations and financial position. The company believes the adoption
of SAB 101 will have no significant impact on its results of operations and
financial position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
which was issued in June 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge transaction.
The Company did not use derivative instruments or engage in hedging
activities in fiscal 2000.
FACTORS AFFECTING VIANT'S OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET
PRICE OF STOCK
The following important factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements made in
this Quarterly Report on Form 10-Q or presented elsewhere by management from
time to time.
OUR LIMITED OPERATING HISTORY IN THE NEW AND EXPANDING INTERNET PROFESSIONAL
SERVICES MARKET INCREASES THE POSSIBILITY THAT THE VALUE OF YOUR INVESTMENT WILL
DECLINE
We were formed in 1996. Our limited operating history in the new and
expanding Internet professional services market makes it difficult to evaluate
our business. The uncertainty of our future performance and the uncertainties
regarding the Internet, such as taxation, technical limitations and competition,
increase the risk that the value of your investment will decline. Our failure to
accurately address the issues facing our business could cause our business
results to significantly decline.
<PAGE>
TO SUCCEED IN OUR LABOR INTENSIVE BUSINESS, WE MUST RECRUIT AND RETAIN QUALIFIED
PROFESSIONALS, WHO ARE CURRENTLY IN HIGH DEMAND
The labor-intensive Internet professional services industry currently faces
a shortage of qualified professional services and sales personnel, which is
expected to continue. We compete intensely with other companies to recruit and
hire from this limited pool. The recent stock market decline has affected the
demand for Internet professional services and lengthened the sales cycle for
Internet-based start-ups and Global 2000 companies. If we cannot hire and retain
qualified professional services and sales professionals or if a significant
number of our current employees leave, we may be unable to service this new
sales cycle and compete for existing or new client projects. Any inability to
hire and retain employees would cause our business results to suffer.
OUR BUSINESS MAY BE NEGATIVELY IMPACTED IF WE FAIL TO ACCURATELY ESTIMATE THE
TIME AND RESOURCES NECESSARY FOR THE PERFORMANCE OF OUR SERVICES
A key element of our strategy is to enter into fixed-price, fixed-time
contracts, rather than contracts in which the client pays us on a time and
materials basis. If we fail to accurately estimate the resources required for a
project or fail to satisfy our contractual obligations in a manner consistent
with the project plan, then our costs to complete the project could increase
substantially. We have occasionally had to commit unanticipated additional
resources to complete projects, and we may have to take similar action in the
future.
IF CLIENTS DO NOT REHIRE US FOR NEW PROJECTS, OR THEY TERMINATE OR REDUCE THE
SCOPE OF EXISTING PROJECTS OUR REVENUES MAY DECLINE
Substantially all of our revenues are derived from fixed-price, fixed-time
contracts for discrete client engagements. These engagements vary in size and
scope. If clients do not retain us for subsequent engagements, then our revenues
could decline. In addition, while our service model is designed as an integrated
approach, each sequential phase of that process represents a separate
contractual commitment. The client may elect not to proceed to the next phase of
a project. The decision of clients not to proceed to the next phase of a project
could impair our revenues.
Most of our contracts cannot be terminated by a client unless we have
materially breached the contract. However, a client may nevertheless attempt to
cancel or reduce the scope of a project. It is possible that we may agree to the
cancellation or reduction in scope, or that in the event of a dispute over
whether it has the right to cancel or reduce the scope of a project, the client
may prevail. The cancellation, or reduction in scope, of a project could have a
negative impact on our revenues.
OUR REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OF A MAJOR CLIENT
We derive a significant portion of our revenues from large projects for a
limited number of clients. The loss of any major client could dramatically
reduce our revenues. In the third quarter of 1999, our five largest clients
accounted for approximately 54% of our revenues. During such period BankBoston
and Compaq Computer Corporation each accounted for more than 10% of our revenues
and four other clients each accounted for more than 5% of our revenues. In the
third quarter of 2000, our five largest clients accounted for approximately 35%
of our revenues. During such period no clients accounted for more than 10% of
our revenues and seven clients each accounted for more than 5% of our revenues.
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY LEAD TO REDUCED
PRICES FOR OUR STOCK
We believe that period-to-period comparisons of our operating results are
not necessarily meaningful. You should not rely upon these comparisons or
existing statements made by the Company regarding our ability to sustain revenue
growth as actual indicators of future performance. Moreover, if our operating
results in any future period fall below the expectations of
<PAGE>
securities analysts and investors, whether these expectations are based upon
such comparisons or statements, the market price of our securities would likely
decline. For example, on August 31, 2000 we pre-announced to the public that we
expected our revenue and per share earnings for the third quarter of 2000 to be
less than the market's expectations. As a result of this pre-announcement, the
market price of our securities declined by approximately 40% the following day.
Factors that have caused our results to fluctuate in the past and which are
likely to affect us in the future include the following:
- variability in market demand for the Internet and for Internet
professional services;
- length of the sales cycle associated with our service offerings;
- the number, size and scope of our projects
- the efficiency with which we utilize our employees, including our ability
to transition employees from completed engagements to new engagements and our
ability to effectively capture additional client projects
- the ability of Internet-based start-ups to obtain venture capital funding
and pay their current obligations to us
In addition, other factors may also affect us, including:
- the introduction of new services by our competitors;
- changes in pricing policies by our competitors; and
- our ability to attract and retain clients.
Some of these factors are within our control and others are outside our
control.
THE INTERNET PROFESSIONAL SERVICES MARKET IS HIGHLY COMPETITIVE AND HAS LOW
BARRIERS TO ENTRY. IF WE CANNOT EFFECTIVELY COMPETE, OUR REVENUES MAY DECLINE
The Internet professional services market is relatively new and intensely
competitive. We expect competition to intensify even further as this market
evolves. Many of our competitors have longer operating histories, more clients,
longer relationships with their clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we do. As a result, our competitors may be in a stronger position
to respond quickly to new or emerging technologies and changes in client
requirements. They may also develop and promote their products and services more
effectively than we do.
There are relatively low barriers to entry into the Internet professional
services market. In addition, we do not own any patented technology that stops
competitors from entering the Internet professional services market or from
providing services similar to ours. As a result, new and unknown market entrants
pose a threat to our business. Current or future competitors may develop or
offer services that are comparable or superior to ours at a lower price, which
could significantly decrease our revenues.
OUR BUSINESS WILL BE NEGATIVELY AFFECTED IF WE DO NOT KEEP UP WITH THE
INTERNET'S RAPID TECHNOLOGICAL CHANGE, EVOLVING INDUSTRY STANDARDS AND CHANGING
CLIENT REQUIREMENTS
The Internet professional services market is characterized by rapidly
changing technology, evolving industry standards and changing client needs.
Accordingly, our future success will depend, in part, on our ability to meet
these challenges. Among the most important challenges facing us are the needs
to:
<PAGE>
- effectively use leading technologies;
- continue to develop our strategic and technical expertise;
- influence and respond to emerging industry standards and other
technological changes;
- enhance our current services;
- develop new services that meet changing customer needs; and
- advertise and market our services.
All of these challenges must be met in a timely and cost-effective manner.
We cannot assure you that we will succeed in effectively meeting these
challenges and our failure to do so could harm our business results.
OUR REVENUES MAY DECREASE IF GROWTH IN THE USE OF THE INTERNET DECLINES
Our business is dependent upon continued growth in the use of the Internet
by our clients, prospective clients and their customers and suppliers. Published
reports indicate that capacity constraints caused by growth in Internet usage
may, unless resolved, impede further growth in Internet use. If the number of
users on the Internet does not increase and commerce over the Internet does not
become more accepted and widespread, demand for our services may decrease and,
as a result, our revenues would decline. The factors that may affect Internet
usage or electronic commerce adoption include:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- congestion of Internet traffic;
- inconsistent quality of service;
- increases in access costs to the Internet;
- excessive governmental regulation;
- uncertainty regarding intellectual property ownership;
- reluctance to adopt new business methods; and
- costs associated with the obsolescence of existing infrastructure.
WE MAY FACE INTELLECTUAL PROPERTY CLAIMS THAT MAY BE COSTLY TO RESOLVE OR LIMIT
OUR ABILITY TO USE INTELLECTUAL PROPERTY IN THE FUTURE
We are obligated under some agreements to indemnify other parties as a
result of claims that we infringe on the proprietary rights of third parties.
Although we do not believe that the solutions that we develop for clients
infringe on any third-party proprietary rights, we cannot assure you that third
parties will not assert infringement claims against us in the future or that
these claims will not be successful. We could incur substantial costs and
diversion of management resources to defend any claims relating to proprietary
rights. These costs and diversions could cause our business results to suffer.
If any party asserts a claim against us relating to proprietary technology or
information, we may need to obtain licenses to the disputed intellectual
property. We cannot assure you, however, that we will be able to obtain these
licenses on commercially reasonable terms or that we will be able to obtain any
licenses at all. The failure to obtain necessary licenses or other rights could
cause our business results to suffer.
Our business often involves the development of software applications for
<PAGE>
specific client engagements. We generally retain the right to use any
intellectual property that is developed during a client engagement that is of
general applicability and is not specific to the client's project. We also
develop software applications for our own internal use and we retain ownership
of these applications. There can be no assurance that clients will not demand
assignment of ownership or restrictions on our use of the work that we produce
for clients in the future. Issues relating to the ownership of and rights to use
software can be complicated and there can be no assurance that disputes will not
arise that affect our ability to reuse this software which could harm our
business results.
DIFFICULTIES PRESENTED BY INTERNATIONAL FACTORS COULD NEGATIVELY AFFECT OUR
BUSINESS
One component of our strategy is to expand into international markets, as
evidenced by our London and Munich offices. We believe that we will face certain
risks in doing business abroad that we do not face domestically. Among the
international risks we believe are most likely to affect us are:
- difficulties in staffing and managing international operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- international currency issues, including fluctuations in currency
exchange rates and the conversion to the euro by all countries of the
European Union by year end 2003; and
- restrictions on the import and export of sensitive U.S. technologies,
such as data security and encryption technologies that we may wish to
use in solutions we develop for customers.
Any of these factors or other factors not enumerated here could damage our
business results.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Viant may be involved in litigation incidental to the
conduct of its business. Viant is not currently a party to any material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following information is provided as an amendment to the initial report
regarding the use of proceeds from the sale of common stock under the Company's
Registration Statement on Form S-1 (SEC file number 333-76049), which was
declared effective on June 17, 1999. The information provided is for the period
from May 29, 1999 through September 29, 2000.
During this period the Company had a positive cash flow of $183,082,000
from operations and financings. Viant's proceeds from its initial public
offering and secondary offering were invested primarily in certificates of
deposit and short-term, high grade commercial paper, U.S. government backed
securities and long-term high grade corporate debt obligations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial data schedule.
(b) Reports on Form 8-k
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The Company did not file any reports on Form 8-k during the three months
ended September 29, 2000.
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.
VIANT CORPORATION
By /s/ Robert L. Gett
-------------------------------------
Robert L. Gett
President and Chief Executive Officer
Director
Date: November 13, 2000
By /s/ M. Dwayne Nesmith
-------------------------------------
M. Dwayne Nesmith
Vice President and
Chief Financial Officer
Date: November 13, 2000
