UNITED STATES
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 30, 1999
or
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period ended from _____ to _____
Commission File Number 000-25943
Media Metrix, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3374729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Park Avenue South
New York, NY 10003
(Address of principal executive offices) (Zip Code)
(212) 515-8700
(Registrant's telephone number, including area code)
35 East 21st Street
New York, New York 10010
(Former name, former address and former fiscal year,
if changed since last report)
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|_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Common Stock, par value $.01 per share, 19,659,421 shares outstanding as of
November 5, 1999
<PAGE>
Media Metrix, Inc.
Index
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--
September 30, 1999 and December 31, 1998.........................1
Consolidated Statements of Operations--
Three and Nine Months Ended September 30, 1999 and 1998..........2
Consolidated Statement of Stockholders' Equity--
Nine Months Ended September 30, 1999.............................3
Consolidated Statements of Cash Flows--
Nine Months Ended September 30, 1999 and 1998....................4
Notes to Consolidated Financial Statements.......................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................7
Item 3. Quantitative and Qualitative Disclosures of Market Risk.........15
PART II Other Information
Item 1. Legal Proceedings...............................................16
Item 2. Changes in Securities and Use of Proceeds.......................16
Item 3. Defaults Upon Senior Securities.................................16
Item 4. Submission of Matters to a Vote of Security Holders.............16
Item 5. Other Information...............................................17
Item 6. Exhibits and Reports on Form 8-K................................17
Signatures
<PAGE>
Part I. Financial Information
Media Metrix, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 22,280,324 $ 8,012,020
Marketable securities 23,455,969 --
Receivables:
Trade, less allowance for doubtful accounts of $393,000 in 1999
and $220,000 in 1998 2,388,630 1,119,905
Expenditures billable to clients 309,876 250,432
------------------------------
Total receivables 2,698,506 1,370,337
Prepaid expenses and other current assets 1,014,536 207,333
------------------------------
Total current assets 49,449,335 9,589,690
Property and equipment, at cost, net of accumulated depreciation
and amortization of $306,184 in 1999 and $75,930 in 1998 1,878,423 649,790
Intangibles acquired, net of accumulated amortization
of $2,724,605 in 1999 and $479,000 in 1998 3,691,161 5,736,766
Other assets 208,916 83,774
------------------------------
Total assets $ 55,227,835 $ 16,060,020
==============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 5,224,203 $ 2,308,323
Due to The NPD Group, Inc. 338,451 4,705,825
Advance billings to clients 2,811,778 1,391,275
Current portion of long-term debt 193,166 127,179
------------------------------
Total current liabilities 8,567,598 8,532,602
Long-term debt 223,633 225,353
Redeemable Preferred Stock--$1 par value; 41,446 shares issued
and outstanding; liquidation and redemption value--
$4,679,760 in 1998 -- 4,679,760
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value--5,000,000 shares authorized -- --
Common stock, $.01 par value--60,000,000 shares authorized;
shares issued and outstanding--17,457,864 in 1999 and
13,098,808 in 1998 174,579 130,988
Additional paid-in capital 71,464,256 18,149,203
Common stock issuable -- 1,999,831
Accumulated other comprehensive loss (52,832) --
Accumulated deficit (23,783,072) (16,093,242)
Deferred compensation (1,366,327) (1,564,475)
------------------------------
Total stockholders' equity 46,436,604 2,622,305
------------------------------
Total liabilities and stockholders' equity $ 55,227,835 $ 16,060,020
==============================
</TABLE>
See accompanying notes.
1
<PAGE>
Media Metrix, Inc.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 5,496,308 $ 1,492,646 $ 12,931,430 $ 3,997,190
Costs of revenues 2,961,803 885,057 6,799,955 2,485,608
------------------------------------------------------------------
Gross profit 2,534,505 607,589 6,131,475 1,511,582
Operating expenses:
Research and development 1,352,885 274,028 3,025,824 782,160
Sales and marketing 2,229,459 663,597 5,376,592 1,949,817
General and administrative 1,693,633 632,746 4,030,647 1,478,988
Amortization of deferred compensation and
other stock-based compensation 553,601 -- 858,518 --
Amortization of intangibles 748,567 -- 2,245,672 --
------------------------------------------------------------------
Total operating expenses 6,578,145 1,570,371 15,537,253 4,210,965
------------------------------------------------------------------
Loss from operations (4,043,640) (962,782) (9,405,778) (2,699,383)
Interest and other income, net 608,420 7,039 1,019,314 56,073
Minority interest 805,829 -- 805,829 --
------------------------------------------------------------------
Net loss (2,629,391) (955,743) (7,580,635) (2,643,310)
Preferred stock dividends -- (79,103) (109,195) (233,250)
------------------------------------------------------------------
Net loss applicable to common stockholders $ (2,629,391) $ (1,034,846) $ (7,689,830) $ (2,876,560)
==================================================================
Basic and diluted net loss per share applicable to
common stockholders $ (0.15) $ (0.16) $ (0.50) $ (0.44)
==================================================================
Shares used in the calculation of basic and diluted
net loss per share applicable to common
stockholders 17,370,707 6,523,330 15,532,733 6,523,330
==================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
Media Metrix, Inc.
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Additional Common
Common Stock Paid-in Stock
Shares Amount Capital Issuable
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 13,098,808 $ 130,988 $ 18,149,203 $ 1,999,831
Net loss -- -- -- --
Unrealized losses on marketable securities -- -- -- --
Total comprehensive loss
Issuance of common stock issuable 194,380 1,944 1,997,887 (1,999,831)
Initial public offering, net of $5,867,500 of related
costs and expenses 3,250,000 32,500 49,350,000 --
Exercise of warrants and stock options 914,676 9,147 1,281,206 --
Employee stock options -- -- 325,000 --
Amortization of deferred compensation -- -- -- --
Reversal of deferred compensation on options forfeited -- -- (98,231) --
Acceleration of vesting on options -- -- 459,191 --
Accrual of Redeemable Preferred Stock dividends -- -- -- --
-----------------------------------------------------------------
Balance at September 30, 1999 17,457,864 $ 174,579 $ 71,464,256 $ --
=================================================================
<CAPTION>
Accumulated Total
Other Comprehensive Accumulated Deferred Stockholders'
Loss Deficit Compensation Equity
-----------------------------------------------------------------
Balance at December 31, 1998 $ -- $(16,093,242) $ (1,564,475) $ 2,622,305
Net loss -- (7,580,635) -- (7,580,635)
Unrealized losses on marketable securities (52,832) -- -- (52,832)
-------------
Total comprehensive loss (7,633,467)
Issuance of common stock issuable -- -- -- --
Initial public offering, net of $5,867,500 of related
costs and expenses -- -- -- 49,382,500
Exercise of warrants and stock options -- -- -- 1,290,353
Employee stock options -- -- (325,000) --
Amortization of deferred compensation -- -- 424,917 424,917
Reversal of deferred compensation on options forfeited -- -- 98,231 --
Acceleration of vesting on options -- -- -- 459,191
Accrual of Redeemable Preferred Stock dividends -- (109,195) -- (109,195)
-----------------------------------------------------------------
Balance at September 30, 1999 $ (52,832) $(23,783,072) $ (1,366,327) $ 46,436,604
=================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Media Metrix, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
------------------------------
<S> <C> <C>
Operating activities
Net loss $ (7,580,635) $ (2,643,310)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on disposal of equipment 8,455 --
Provision for bad debts 173,144 49,400
Depreciation and amortization of property and equipment 239,698 22,375
Amortization of intangibles 2,245,672 --
Acceleration of vesting on options 459,191 --
Amortization of deferred compensation 424,917 --
Changes in operating assets and liabilities:
Receivables (1,501,313) (197,967)
Prepaid expenses and other current assets (807,203) (113,900)
Accounts payable and accrued liabilities 2,715,880 115,557
Advance billings to clients 1,420,503 256,912
Due to The NPD Group, Inc. (4,367,374) 1,720,645
------------------------------
Net cash used in operating activities (6,569,065) (790,288)
Investing activities
Purchase of marketable securities (23,508,801) --
Purchases of property and equipment (1,476,853) (19,266)
Security deposits (125,142) 4,280
------------------------------
Net cash used in investing activities (25,110,796) (14,986)
Financing activities
Repayments on long-term debt (414,233) --
Proceeds from long-term debt 478,500 --
Redemption of redeemable preferred stock (4,788,955) --
Net proceeds from initial public offering 49,382,500 --
Proceeds from exercise of warrants and options 1,290,353 --
------------------------------
Net cash provided by financing activities 45,948,165 --
------------------------------
Net increase (decrease) in cash and cash equivalents 14,268,304 (805,274)
Cash and cash equivalents at beginning of period 8,012,020 1,869,013
------------------------------
Cash and cash equivalents at end of period $ 22,280,324 $ 1,063,739
==============================
Supplemental information
Interest paid $ 49,074 $ --
==============================
</TABLE>
See accompanying notes.
4
<PAGE>
Media Metrix, Inc.
Notes to Consolidated Financial Statements
September 30, 1999
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine- month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required to by generally accepted accounting principles for
complete financial statements.
For further information, refer to the financial statements and footnotes thereto
for the year ended December 31, 1998 included in Media Metrix's Prospectus dated
October 26, 1999.
B. Marketable Securities
Media Metrix accounts for its investments in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". All investments have been classified as
available-for-sale securities as of September 30, 1999. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses
reported in other comprehensive income (loss). Realized gains and losses and
declines other-than-temporary on available-for-sale securities are included in
interest and other income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
C. Basic and Diluted Net Loss Per Share
Basic and diluted net loss per share is calculated in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". The denominator
used in the computation of basic and diluted net loss per share is the weighted
average number of common shares outstanding for the respective period. The
calculation of diluted net loss per share excludes shares of common stock
issuable upon exercise of employee stock options and warrants and conversion of
convertible preferred stock as the effect would be anti-dilutive.
5
<PAGE>
D. Initial Public Offering
In May 1999, Media Metrix consummated an initial public offering (the "IPO") of
3,000,000 shares of common stock at a price of $17 per share. The underwriters
in connection with the IPO exercised their over-allotment option to purchase an
additional 250,000 shares from Media Metrix and 200,000 shares from existing
shareholders at a price of $17 per share. The total net proceeds to Media Metrix
amounted to approximately $49,383,000 after deducting the underwriters' discount
and related expenses of $5,867,000.
E. European Joint Venture
In September 1999, Media Metrix entered into a joint venture with GfK AG and
IPSOS SA to form MMXI Europe B.V. Pursuant to the terms of the agreement, Media
Metrix owns 54.46%, GfK owns 19.9% and IPSOS owns 25.64% of MMXI Europe. In
connection with the formation of MMXI Europe, Media Metrix granted to each of
GfK and IPSOS an option, subject to certain conditions, to exchange their shares
of MMXI Europe for shares of Media Metrix's common stock at any time commencing
on May 7, 2000 through May 7, 2005. The aggregate maximum number of shares of
Media Metrix's common stock that may be required to be issue in exchange for the
shares of MMXI Europe will equal the then U.S. dollar equivalent of
(Euro)3,825,000 divided by $21.25. On September 30, 1999, (Euro)3,825,000
equaled approximately $4.1 million. If GfK or IPSOS exercises its option to
convert its shares in MMXI Europe into shares of our common stock, Media Metrix
will need to record additional goodwill in an amount equal to the difference
between the then fair market value of the shares of Media Metrix's common stock
multiplied by the number of shares we issued and the net book value of MMXI
Europe attributable to GfK and IPSOS.
F. Subsequent Events
On October 8, 1999, Media Metrix acquired all the outstanding shares of
preferred and common stock of AdRelevance, Inc. ("AdRelevance") and outstanding
options and warrants to purchase shares of AdRelevance common stock in exchange
for shares of Media Metrix common stock and options and warrants to purchase
shares of Media Metrix common stock valued at approximately $59.4 million.
Additional consideration is payable upon AdRelevance achieving certain
post-closing goals. In connection with the acquisition of AdRelevance, Media
Metrix will recognize approximately $54.3 million of intangibles, which will be
amortized over a three-year period. Also, a non-recurring in-process research
and development cost estimated to be $6.8 million will be expensed in the fourth
quarter of 1999.
In October 1999, Media Metrix consummated a secondary offering of 3,000,000
shares of common stock at a price of $50.50 per share. Of the 3,000,000 shares
sold, 1,500,000 shares were sold by Media Metrix and 1,500,000 shares were sold
by existing stockholders. The net proceeds to Media Metrix are estimated to be
approximately $71,100,000 after deducting the underwriters' discount and related
expenses.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Statements in this Form 10-Q concerning our future prospects are "forward
looking statements" under the federal securities laws. Forward looking
statements involve risks and uncertainties, and future events and circumstances
could differ significantly from those anticipated in the forward-looking
statements. We cannot assure you that future results will be achieved, and
actual results could differ materially from forecasts and estimates. Important
factors that could cause actual results to differ materially are discussed in
the section "Risk Factors" included in our prospectus October 26, 1999. You are
encouraged to review such risk factors carefully.
Overview
We provide Internet audience measurement and advertising measurement
products and services to leading Internet advertisers and advertising agencies,
Internet properties, technology companies and financial institutions. We have
been at the forefront of the development and coordination of technology and
standards needed to facilitate advertising and transactions between companies
doing business over the Internet. The quality and depth of our customer base and
our customer renewal rate of over 95% reflect our position as a widely accepted
Internet audience measurement service.
Our business was originally conducted as a division within The NPD Group,
Inc., a leading marketing research firm. Prior to March 1996, we were engaged
primarily in product research and development. In March 1996, PC Meter, L.P.,
was formed to further commercialize our Internet audience measurement business
in an entity separate from NPD, although NPD has continued to provide PC Meter
with administrative and support services and technology licenses. By July 1996,
we increased the size of our panel to over 10,000 individuals and significantly
increased our product offerings. In April 1997, PC Meter was merged into Media
Metrix and we raised approximately $4.0 million in a private placement to fund
the expansion of our business. The assets and liabilities and related revenues
and expenses of PC Meter have been reflected in our financial statements at
their historical book values.
In November 1998, we merged with RelevantKnowledge, our leading
competitor. After giving effect to the merger, the former stockholders of
RelevantKnowledge were issued 3,890,825 shares of Media Metrix common stock.
Following the merger, we increased our panel size and began to integrate the
best technological features from each company into our systems and processes. In
connection with the merger, we acquired $6.4 million of intangibles, which are
being amortized over periods varying from one to three years.
On October 8, 1999, we acquired AdRelevance. The acquisition was
structured as a stock-for-stock transaction valued at approximately $59.4
million. In addition, we may issue additional shares of our common stock,
options and warrants having a value of approximately
7
<PAGE>
$6.6 million, based on the closing price of our common stock on October 4, 1999,
if AdRelevance achieves certain post-closing goals. In connection with our
acquisition of AdRelevance, we will recognize approximately $54.3 million of
intangibles, which will be amortized over a three-year period. Also, a
non-recurring in-process research and development cost estimated to be $6.8
million will be expensed in the fourth quarter of 1999.
In connection with the formation of our European joint venture, MMXI
Europe B.V., we granted to each of GfK AG and IPSOS SA an option, subject to
certain conditions, to exchange their shares of MMXI Europe for shares of our
common stock at any time commencing on May 7, 2000 through May 7, 2005. The
aggregate maximum number of shares of our common stock that we may be required
to issue in exchange for the shares of MMXI Europe will equal the then U.S.
dollar equivalent of (Euro)3,825,000 divided by $21.25. On November 5, 1999,
(Euro)3,825,000 equaled approximately $4.0 million. If GfK or IPSOS exercises
its option to convert its shares in MMXI Europe into shares of our common stock,
we will need to record additional goodwill in an amount equal to the difference
between the then fair market value of the shares of our common stock multiplied
by the number of shares we issued and the net book value of MMXI Europe
attributable to GfK and IPSOS.
Our revenues are derived from our measurement products and services. Our
product offerings include both syndicated products and customized products. We
sell our syndicated products on an annual subscription basis. We typically bill
our syndicated clients, in advance, for the next three months of products. Since
1997, syndicated products have accounted for approximately 90% of our revenues,
while customized products and services have accounted for approximately 10%. Our
combined customer base increased from approximately 100 customers at the end of
1997 to more than 500 as of September 30, 1999. Due to our high customer
retention rate, we have a growing base of recurring revenues from our syndicated
products and services.
We recognize revenues for the syndicated products and services over the
term of the related contract as services are provided. Revenues for customized
products and services are recognized in the period in which the product or
service is delivered.
Our business model is based on creating multiple products and services
from our core panel-based market research, technologies and databases. The core
panel of 50,000 individuals under continuous measurement has been established
over the past three years. We recruit individuals to become members of our panel
through random direct mail and telephone solicitations. We incur costs in
connection with recruiting and retaining members of our panel. These costs are
expensed in the year incurred. We are now introducing a new version of our
patented metering technology and will be completed by the first quarter of 2000,
which is expected to reduce the use of mail in connection with the panel and
provide cost savings. Our rate of expense growth, other than panel and
production, is primarily driven by increases in headcount and sales and
marketing expenditures.
We have incurred significant losses from operations since our inception.
We incurred losses from operations of $3.4 million in 1996, $4.7 million in
1997, $7.2 million in 1998 and
8
<PAGE>
$9.4 million in the nine months ended September 30, 1999. If the merger with
RelevantKnowledge had taken place on January 1, 1998 and the acquisition of
AdRelevance had occurred on October 12, 1998, its date of inception, our pro
forma loss from operations for 1998 would have been $26.7 million. This pro
forma loss from operations includes $6.6 million of amortization of intangibles
and $8.4 million of acquired in-process research and development. If our
acquisition of AdRelevance had taken place on January 1, 1999, our pro forma
loss from operations for the nine months ended September 30, 1999 would have
been $32.6 million. As of September 30, 1999, we had an accumulated deficit of
$23.8 million. As of December 31, 1998, we had an outstanding payable to NPD for
$4.7 million under our management services agreement with NPD, $4.1 million of
which was paid in January 1999. As of September 30, 1999, we had an outstanding
payable to NPD for $338,000. Charges from NPD have decreased in 1999 as we have
taken on the direct management of our own payroll and computer systems.
We expect that we will incur significant expenses in the future associated
with our planned international expansion. In particular, we plan on hiring
senior personnel to manage the anticipated international operations and on
entering into joint ventures with local partners. This will probably involve the
recruitment of a panel in each new country and the expenditure of significant
funds. In addition, we intend to invest heavily in further development and
improvement of our technologies and development of additional products and
services.
Results of Operations
The following table sets forth for the periods indicated our results of
operations expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs of revenues 59.3 53.9 62.2 52.6
----------------------- -----------------------
Gross profit 40.7 46.1 37.8 47.4
Operating expenses:
Research and development 18.3 24.6 19.5 23.4
Sales and marketing 44.5 40.6 48.8 41.6
General and administrative 42.4 30.8 37.0 31.2
Amortization of deferred compensation -- 10.1 -- 6.6
Amortization of intangibles -- 13.6 -- 17.3
----------------------- -----------------------
Total operating expenses 105.2 119.7 105.3 120.1
----------------------- -----------------------
Loss from operations (64.5) (73.6) (67.5) (72.7)
Interest income, net 0.5 11.1 1.4 7.9
Minority interest -- 14.7 -- 6.2
----------------------- -----------------------
Net loss (64.0)% (47.8)% (66.1)% (58.6)%
======================= =======================
</TABLE>
9
<PAGE>
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1999
Revenues. Revenues increased 268.2% from $1.5 million for three months
ended September 30, 1998 to $5.5 million for the three months ended September
30, 1999. Sales of syndicated audience measurement products and services
accounted for approximately 90% of revenues for each of the three months ended
September 30, 1998 and 1999. Sales of customized products and services accounted
for the remaining revenues. The increase in revenues was due primarily to a
substantial increase in the number of new customers and an increase in the
amount of products and services sold to our existing customers. No single
customer accounted for more than 10% of revenues during either of the three
months ended September 30, 1998 and 1999.
Costs of Revenues. Costs of revenues consist primarily of costs associated
with the recruitment and maintenance of the panel, data collection and
production costs. Panel and data collection costs include costs associated with
mailing and printing, incentives, help desk and associated personnel. Production
costs include computer usage charges, printing, report distribution costs and
personnel costs. Gross profit was approximately $608,000 for the three months
ended September 30, 1998, or 40.7% of revenues. Gross profit was $2.5 million
for the three months ended September 30, 1999, or 46.1% of revenues. The
increase in gross profit as a percentage of revenues for the three months ended
September 30, 1999 over the prior period was due to an increase in revenues,
without a commensurate increase in costs.
In the third quarter of 1999, Media Metrix invested approximately $1.1
million in recruiting panels and other start up costs in connection with its
joint venture in Germany, France and the United Kingdom. However, Media Metrix
has not yet realized revenues to offset against these costs, which has resulted
in a decrease in the overall gross margin for the period. Media Metrix also has
announced further expansion plans in Australia and New Zealand through a joint
venture with AMR Interactive Pty. Ltd., a leading new media market research firm
based in Australia and a joint venture in Canada with ComQuest Research, Inc., a
wholly-owned subsidiary of BBM Bureau of Measurement. Costs associated with
panel recruitment and other start up costs in connection with the new joint
ventures will be recognized in the fourth quarter.
Research and Development. Research and development costs consist primarily
of personnel and other related costs attributable to the development of new
products and services. All research and development costs have been expensed as
incurred. Research and development costs were approximately $274,000 for the
three months ended September 30, 1998, or 18.3% of revenues. Research and
development costs were $1.4 million for the three months ended September 30,
1999, or 24.6% of revenues. The increase in research and development costs for
the three months ended September 30, 1999 as compared to the same period in
1998, reflects the Company's investment in its new software meter and
initiatives to upgrade its data warehousing and delivery systems. The Company
began introducing a new version of its metering software in August 1999 which
will capture additional details on Internet usage and provide real time
transmission of data.
10
<PAGE>
Sales and Marketing. Sales and marketing costs consist of personnel,
commissions, travel and entertainment expenses, public relations costs, trade
show expenses, seminars and marketing materials. Sales and marketing costs were
approximately $664,000 for the three months ended September 30, 1998, or 44.5%
of revenues. Sales and marketing costs were $2.2 million for the three months
ended September 30, 1999, or 40.6% of revenues. The increase in absolute dollars
was due primarily to the increase in sales and marketing personnel, including
the addition of personnel in connection with the RelevantKnowledge merger, and
additional marketing costs. The decrease in sales and marketing costs as a
percentage of revenues was due primarily to revenues increasing at a greater
rate.
General and Administrative. General and administrative costs consist
primarily of personnel, lease payments for our facilities, telephone and
utilities and professional services fees. General and administrative costs were
approximately $633,000 for the three months ended September 30, 1998, or 42.4%
of revenues. General and administrative costs were $1.7 million for the three
months ended September 30, 1999, or 30.8% of revenues. The increase in absolute
dollars was due to the expenses associated with becoming a public company and
increased personnel and expansion of our office facilities, including the
addition of personnel and office facilities in connection with the
RelevantKnowledge merger. The decrease in general and administrative costs as a
percentage of revenues was due primarily to revenues increasing at a greater
rate.
Amortization of Deferred Compensation and Other Stock-Based Compensation.
Deferred compensation of approximately $554,000 for the three months ended
September 30, 1999 relates to non-cash compensation expense recorded in
connection with stock options granted in December 1998 and acceleration of the
vesting provisions of certain stock options.
Amortization of Intangibles. Amortization charges of $748,500 for the
three months ended September 30, 1999 represent the amortization of
RelevantKnowledge's panel, which is being amortized over 12 months, and
amortization of other intangibles acquired in our merger with RelevantKnowledge,
which are being amortized over three years.
Loss from Operations. Our loss from operations was $963,000 for the three
months ended September 30, 1998, or 64.5% of revenues. Loss from operations was
$4.0 million for the three months ended September 30, 1999, or 73.6% of
revenues. Loss from operations was higher in the three months ended September
30, 1999 due to the continued expansion of our business, the merger with
RelevantKnowledge and amortization of intangibles.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1999
Revenues. Revenues increased 223.5% from $4.0 million for nine months
ended September 30, 1998 to $12.9 million for the nine months ended September
30, 1999. Sales of syndicated audience measurement products and services
accounted for approximately 90% of revenues for each of the nine months ended
September 30, 1998 and 1999. Sales of
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customized products and services accounted for the remaining revenues. The
increase in revenues was due primarily to a substantial increase in the number
of new customers and an increase in the amount of products and services sold to
our existing customers. No single customer accounted for more than 10% of
revenues during either of the nine months ended September 30, 1998 and 1999.
Costs of Revenues. Gross profit was $1.5 million for the nine months ended
September 30, 1998, or 37.8% of revenues. Gross profit was $6.1 million for the
nine months ended September 30, 1999, or 47.4% of revenues. The increase in
gross profit as a percentage of revenues for the nine months ended September 30,
1999 over the prior period was due to an increase in revenues, without a
commensurate increase in costs.
Research and Development. Research and development costs were
approximately $782,000 for the nine months ended September 30, 1998, or 19.5% of
revenues. Research and development costs were $3.0 million for the nine months
ended September 30, 1999, or 23.4% of revenues. The increase in research and
development costs as a percentage of revenues for the nine months ended
September 30, 1999 was due primarily to increases in research and development
personnel and consulting costs.
Sales and Marketing. Sales and marketing costs were $1.9 million for the
nine months ended September 30, 1998, or 48.8% of revenues. Sales and marketing
costs were $5.4 million for the nine months ended September 30, 1999, or 41.6%
of revenues. The increase in absolute dollars was due primarily to the increase
in sales and marketing personnel, including the addition of personnel in
connection with the RelevantKnowledge merger, and additional marketing costs.
The decrease in sales and marketing costs as a percentage of revenues was due
primarily to revenues increasing at a greater rate.
General and Administrative. General and administrative costs were $1.5
million for the nine months ended September 30, 1998, or 37.0% of revenues.
General and administrative costs were $4.0 million for the nine months ended
September 30, 1999, or 31.2% of revenues. The increase in absolute dollars was
due to the expenses associated with becoming a public company and increased
personnel and expansion of our office facilities, including the addition of
personnel and office facilities in connection with the RelevantKnowledge merger.
The decrease in general and administrative costs as a percentage of revenues was
due primarily to revenues increasing at a greater rate.
Amortization of Deferred Compensation and Other Stock-Based Compensation.
Deferred compensation of approximately $859,000 for the nine months ended
September 30, 1999 relates to non-cash compensation expense recorded in
connection with stock options granted in December 1998 and the acceleration of
the vesting provisions of certain stock options.
Amortization of Intangibles. Amortization charges of $2.2 million for the
nine months ended September 30, 1999 represent the amortization of
RelevantKnowledge's panel and amortization of other intangibles acquired in our
merger with RelevantKnowledge.
12
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Loss from Operations. Our loss from operations was $2.7 million for the
nine months ended September 30, 1998, or 67.5% of revenues. Loss from operations
was $9.4 million for the nine months ended September 30, 1999, or 72.7% of
revenues. Loss from operations in was higher in the nine months ended September
30, 1999 due to the continued expansion of our business, the merger with
RelevantKnowledge and amortization of intangibles.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through an
initial investment and loan by NPD, the private placement of equity securities,
RelevantKnowledge's cash on hand at the time of the merger, cash from operations
and the proceeds of public offerings. On May 12, 1999, we completed the initial
public offering of 3,250,000 shares of our common stock for gross proceeds of
$55.3 million, and net proceeds of $49.4 million. On October 29, 1999, we
completed a secondary offering of 3,000,000 shares of our common stock. Of the
shares offered, Media Metrix sold 1,500,000 shares and 1,500,000 shares were
sold by existing stockholders. Gross proceeds to Media Metrix were $75.8
million, and net proceeds to Media Metrix are estimated to be $71.1 million.
Net cash used in operating activities was approximately $790,000 for the
nine months ended September 30, 1998, compared with $6.6 million for the nine
months ended September 30, 1999. The variance for the 1998 period compared to
the 1999 period was primarily due to the net repayment of $4.4 million to NPD
for services preformed under the management agreement, in addition to a higher
net loss for the period.
Net cash used in investing activities was approximately $15,000 for the
nine months ended September 30, 1998, compared with $25.1 million for the nine
months ended September 30, 1999. The increase was primarily attributable to the
purchase of investment securities with the proceeds from our initial public
offering of common stock pending the use of these proceeds for working capital
purposes.
Net cash provided by financing activities was $45.9 million for the nine
months ended September 30, 1999. Cash provided by financing activities for the
nine months ended September 30, 1999 resulted from the receipt of the proceeds
of our initial public offering, plus $1.3 million in proceeds received from the
exercise of warrants and stock options, offset by the redemtpion of our
redeemable preferred stock for $4.8 million.
As of September 30, 1999, we had $22.3 million of cash and cash
equivalents and $23.5 million of marketable securities. We expect to invest at
least an additional $10 million over the next several years in our international
operations.
Although we have no material commitments for capital expenditures,
management anticipates that we will experience an increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and
13
<PAGE>
personnel, including in connection with the anticipated separation of our
systems from those of NPD. We currently anticipate that we will continue to
experience growth in our operating expenses for the foreseeable future and that
operating expenses will be a material use of our cash resources.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000.
State of Readiness. We rely on NPD's computer and communications networks
for collecting and processing much of our data. NPD has advised us that it has
completed a comprehensive review of its products, information systems and
critical suppliers for year 2000 compliance and has reported that its computer
and communications networks are year 2000 compliant.
We have conducted tests of our meter, as well as our internal programs,
and to date we have not found significant year 2000 issues within our meter or
our systems or services. We will continue to periodically test our systems to
ensure our computers and communications networks remain year 2000 compliant. We
have installed new billing, accounting and administrative systems that are fully
operational and have been represented to be fully year 2000 compliant.
Our assessment plan consists of:
o quality assurance testing of our proprietary software, including our
metering technology;
o contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related
to the collection and processing of the data received from
panelists;
o contacting vendors of material non-IT systems;
o assessment of repair or replacement requirements;
o implementation; and
o creation of contingency plans in the event of year 2000 failures.
Costs. To date, we have not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. Most of
our expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and year 2000 compliance matters generally. At this time, we do not
anticipate that we will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant.
However, significant uncertainty exists concerning the potential costs and
effects associated with year 2000 compliance. If expenses relating to year 2000
compliance are higher than anticipated, it could have a material adverse effect
on our business, results of operations and financial condition.
Risks. We are not currently aware of any year 2000 compliance problems
relating to our meter or our data collection and retrieval systems that would
have a material
14
<PAGE>
adverse effect on our business, results of operations and financial condition,
other than those that are currently being corrected. However, we cannot assure
you that we will not discover year 2000 compliance problems in the meter or the
data retrieval and collection systems that will require substantial expenditures
to correct. In addition, there can be no assurance that third-party software,
hardware or services incorporated into our systems will not need to be revised
or replaced, all of which could be time consuming and expensive. Our failure to
fix the meter or to fix or replace third-party software, hardware or services on
a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions, any of which could have a
material adverse effect on our business, results of operations and financial
condition. Moreover, the failure to adequately address year 2000 compliance
issues in our meter and our operating systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, we cannot assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be year 2000 compliant. The failure by such entities
to be year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from receiving data from our panelists, processing the
data and providing reports to our clients, which would have a material adverse
effect on our business, results of operations and financial condition.
Worst Case Scenario. We believe that our worst case scenario would be a
complete failure of the metering software installed on our panelists' computers
due to year 2000 complications. This would lead to a loss of data for the time
period during which the failure is not remedied. Lack of data could prevent us
from issuing our reports for the period during which the failure is not
remedied. We will continue to monitor this and any other potential problem
areas.
Contingency Plan. We have developed a contingency plan based on the
results of our evaluation of our year 2000 readinessd. This plan includes:
o preparing staff to be on call during critical times;
o preparing for communication of problems with employees and business
partners;
o monitoring external factors affecting our systems;
o designating and testing alternative communications;
o identifying alternative sources for key services and products; and
o tracking critical events and coordinating media relations.
Our contingency plan includes scheduled drills and rehearsals for a
variety of situations and response scenarios.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Not applicable
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2: Changes in Securities and Use of Proceeds.
The effective date of our first registration statement, filed on Form S-1
under the Securities Act of 1933 (No. 333-72883) relating to the initial public
offering of our Common Stock, was May 6, 1999. A total of 3,250,000 shares of
our common stock were sold at a price of $17.00 per share to an underwriting
syndicate led by Donaldson, Lufkin & Jenrette Securities Corporation, BancBoston
Robertson Stephens Inc. and Thomas Weisel Partners LLC. The offering commenced
on May 7, 1999, and closed on May 12, 1999. An additional 200,000 shares of
common stock were sold on behalf selling stockholders as part of the same
offering. The initial public offering resulted in gross proceeds of $55.3
million, $3.9 million of which was applied toward the underwriting discount.
Expenses related to the offering totaled approximately $2.0 million. Net
proceeds to us and the selling stockholders were $49.4 million and $3.2 million,
respectively. From the time of receipt through September 30, 1999, proceeds were
applied as follows:
o $4.8 million towards the redemption of our redeemable preferred
stock from The NPD Group, Inc.;
o $1.5 million for working capital purposes; and
o the remainder has been invested in short term, investment grade
securities.
From July 1, 1999 through September 30, 1999, we issued 122,813 shares of
our common stock pursuant to the exercise of a warrant to an investor who
elected to exercise such warrant pursuant to its cashless exercise provision.
This investor surrendered that number of warrant shares the value of which at
the fair market value on the date of exercise equaled the aggregate exercise
price of the remaining warrant shares.
No underwriters were engaged in connection with the sale of the shares
pursuant to the exercise of outstanding warrants. The issuance of the shares
upon the exercise of the warrants was made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
16
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
17
<PAGE>
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.
Media Metrix, Inc.
------------------
(Registrant)
Dated: November 12, 1999 By: /s/ Tod Johnson
---------------------------------
Tod Johnson
Chief Executive Officer
Dated: November 12, 1999 By: /s/ Thomas A. Lynch
---------------------------------
Thomas A. Lynch
Chief Financial Officer, Secretary and
Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Registrant Company
Condensed Consolidated Balance Sheet (Unaudited) for September 30, 1999 and
Condensed Consolidated Statement of Income (Unaudited) for the Nine Months ended
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 22,280
<SECURITIES> 23,456
<RECEIVABLES> 3,092
<ALLOWANCES> (393)
<INVENTORY> 0
<CURRENT-ASSETS> 49,449
<PP&E> 2,185
<DEPRECIATION> (306)
<TOTAL-ASSETS> 55,228
<CURRENT-LIABILITIES> 8,568
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 46,262
<TOTAL-LIABILITY-AND-EQUITY> 55,228
<SALES> 12,931
<TOTAL-REVENUES> 12,931
<CGS> 6,800
<TOTAL-COSTS> 6,800
<OTHER-EXPENSES> 15,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,581)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,581)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,581)
<EPS-BASIC> (0.5)
<EPS-DILUTED> (0.5)
</TABLE>
