<PAGE>
--------------------------------------------------------------------------------
U.S. 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, 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: 000-23709
-------------------
DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3870996
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
450 WEST 33RD STREET, 16TH FLOOR
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA
CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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 November 1, 2000 there were 123,534,944 shares of the registrant's Common
Stock outstanding.
--------------------------------------------------------------------------------
<PAGE>
DOUBLECLICK INC.
INDEX TO FORM 10-Q
PART I: FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1: Financial Statements
Consolidated Balance Sheet as of September 30, 2000 and
December 31, 1999......................................... 1
Consolidated Statement of Operations for the three and nine
months ended September 30, 2000 and 1999.................. 2
Consolidated Statement of Cash Flows for the nine months
ended September 30, 2000 and 1999......................... 3
Notes to Consolidated Financial Statements.................. 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
Item 3: Quantitative and Qualitative Disclosures about Market
Risk...................................................... 18
PART II: OTHER INFORMATION
Item 1: Legal Proceedings........................................... 34
Item 5: Other Information........................................... 35
Item 6: Exhibits and Report on Form 8-K............................. 35
</TABLE>
ii
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 198,838 $119,238
Investments in marketable securities.................... 391,779 179,776
Accounts receivable, net of allowances of $27,007 and
$15,004, respectively................................. 128,394 89,177
Prepaid expenses and other current assets............... 57,839 34,089
---------- --------
Total current assets................................ 776,850 422,280
Investments in marketable securities........................ 302,994 145,789
Property and equipment, net................................. 145,277 61,980
Intangible assets, net...................................... 115,095 94,475
Investments in affiliates................................... 59,801 --
Other assets................................................ 9,767 4,883
---------- --------
Total assets........................................ $1,409,784 $729,407
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 71,537 $ 32,846
Accrued expenses and other current liabilities.......... 101,714 49,768
Deferred revenue........................................ 37,148 29,783
---------- --------
Total current liabilities........................... 210,399 112,397
Long-term obligations and notes............................. 12,116 5,348
Convertible subordinated notes.............................. 250,000 250,000
Minority interest........................................... 5,301 --
STOCKHOLDERS' EQUITY:
Common stock, par value $0.001; 400,000,000 shares
authorized, 123,026,718 and 112,453,892 shares issued,
respectively.......................................... 123 112
Treasury stock, 160,283 shares at September 30, 2000.... (18,419) --
Additional paid-in capital.............................. 1,112,906 475,565
Deferred compensation................................... (355) (1,106)
Accumulated deficit..................................... (161,120) (109,831)
Other accumulated comprehensive loss.................... (1,167) (3,078)
---------- --------
Total stockholders' equity.......................... 931,968 361,662
---------- --------
Total liabilities and stockholders' equity.......... $1,409,784 $729,407
---------- --------
---------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue............................................. $135,169 $ 75,336 $373,312 $164,604
Cost of revenue..................................... 57,216 29,198 169,232 65,574
-------- -------- -------- --------
Gross profit.................................... 77,953 46,138 204,080 99,030
Operating expenses:
Sales and marketing (exclusive of non-cash
compensation of $7,862 and $17,616 in 2000,
respectively)................................. 53,077 27,528 148,738 67,569
General and administrative (exclusive of
non-cash compensation of $63, $513, $164 and
$1,503 respectively).......................... 20,752 9,150 63,651 21,966
Product development............................. 12,179 7,391 33,030 19,525
Amortization of intangibles..................... 14,067 195 32,605 693
Non-cash compensation........................... 7,925 513 17,780 1,503
Facility relocation and other................... -- 388 -- 2,520
-------- -------- -------- --------
Total operating expenses.................... 108,000 45,165 295,804 113,776
Income (loss) from operations....................... (30,047) 973 (91,724) (14,746)
Other income:
Equity in earnings (losses) of affiliates....... 374 (208) (4,385) (573)
Gain on equity transactions of affiliates,
net........................................... 2,077 -- 11,026 --
Interest and other, net......................... 16,272 3,891 34,885 9,128
-------- -------- -------- --------
Total other income.......................... 18,723 3,683 41,526 8,555
Income (loss) before income taxes................... (11,324) 4,656 (50,198) (6,191)
Benefit (provision) for income taxes................ 147 (4,520) (1,485) (7,484)
-------- -------- -------- --------
Income (loss) before minority interest.............. (11,177) 136 (51,683) (13,675)
Minority interest................................... 453 -- 453 --
-------- -------- -------- --------
Net income (loss)................................... $(10,724) $ 136 $(51,230) $(13,675)
-------- -------- -------- --------
-------- -------- -------- --------
Basic net income (loss) per share................... $ (0.09) $ 0.00 $ (0.43) $ (0.13)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted-average shares used in net income (loss)
per share-basic................................... 122,621 110,446 120,517 109,034
Diluted net income (loss) per share................. $ (0.09) $ 0.00 $ (0.43) $ (0.13)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted-average shares used in net income (loss)
per share-diluted................................. 122,621 121,752 120,517 109,034
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(51,230) (13,675)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and leasehold amortization................. 23,020 13,392
Equity in losses of affiliates.......................... 4,385 573
Gain on equity transactions of affiliates, net.......... (11,026) --
Minority interest....................................... (453) --
Facility relocation and other........................... -- 1,363
Non-cash compensation................................... 17,780 1,503
Amortization of intangible assets....................... 32,605 693
Provision for bad debts and advertiser discounts........ 37,261 11,050
Changes in operating assets and liabilities:
Accounts receivable..................................... (73,476) (28,747)
Prepaid expenses and other assets....................... (22,411) (16,017)
Accounts payable........................................ 36,649 1,294
Accrued expenses and other.............................. 31,151 16,439
Income taxes receivable................................. -- 415
Deferred revenue........................................ 7,365 14,232
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 31,620 2,515
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments in marketable securities, net...... (392,949) (305,828)
Maturities of investments in marketable securities.......... 25,828 19,703
Purchases of property, plant and equipment.................. (102,704) (34,924)
Investments in affiliates and other......................... (12,760) (564)
Security deposits........................................... (5,820) --
Acquisitions of businesses and intangible assets............ (21,165) --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES............... (509,570) (321,613)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock net of issuance
costs..................................................... 502,918 114,015
Proceeds from the exercise of stock options and the issuance
of warrants............................................... 49,643 5,871
Proceeds from the issuance of Convertible Subordinated
Notes, net of deferred offering costs..................... -- 244,747
Proceeds from issuance of stock by affiliate................ 5,614 --
Payment of notes and capital lease obligations.............. (448) (1,797)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 557,727 362,836
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (177) (283)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 79,600 43,455
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 119,238 161,670
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $198,838 $205,125
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
DoubleClick Inc. (together with its subsidiaries, 'DoubleClick') is a
leading provider of comprehensive global interactive marketing and advertising
solutions. DoubleClick offers a broad range of integrated media, technology and
data solutions to advertisers, ad agencies, Web publishers and merchants.
DoubleClick is organized in three segments: Media, Technology (or
'TechSolutions') and Data (or 'Data Services') based on types of service
provided. DoubleClick Media consists of the worldwide DoubleClick networks,
which provide fully outsourced and highly effective advertising sales, delivery
and related services to a worldwide group of advertisers and publishers.
DoubleClick TechSolutions consists of the DART-based service bureau offering and
the AdServer family of software products. DoubleClick Data Services includes
Abacus Direct, consisting of a proprietary database of consumer purchasing
behavior used for direct mail marketing purposes, and Abacus Online, including
targeted e-mail prospecting solutions for Internet advertising.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
DoubleClick, its wholly-owned subsidiaries, and subsidiaries over which it
exercises a controlling financial interest. All significant intercompany
transactions and balances have been eliminated. Investments in entities in which
DoubleClick does not have a controlling financial interest, but over which
DoubleClick has significant influence are accounted for using the equity method.
Investments where DoubleClick does not have the ability to exercise significant
influence are accounted for using the cost method.
In 1999, DoubleClick consummated mergers with NetGravity, Inc.
('NetGravity'), Abacus Direct Corporation ('Abacus'), and Business Link
Incorporated (d/b/a Opt-In Email.com, 'Opt-In'), which have been accounted for
using the pooling of interests method, and accordingly, the consolidated
financial statements for the prior periods presented and the accompanying notes
have been restated.
The accompanying interim consolidated financial statements are unaudited,
but in the opinion of management, contain all the adjustments (consisting of
those of a normal recurring nature) considered necessary to present fairly the
financial position, the results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles applicable
to interim periods. Results of operations are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
The accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of DoubleClick
for the year ended December 31, 1999. Certain reclassifications have been made
to the prior period's financial statements to conform to the current period
presentation.
BASIC AND DILUTED NET INCOME/LOSS PER COMMON SHARE
Basic net income/loss per common share excludes the effect of potentially
dilutive securities and is computed by dividing the net income or loss available
to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted net income/loss per share adjusts for the
effect of convertible securities, stock options and other potentially dilutive
financial instruments only in the periods in which such effect would be
dilutive.
For the three and nine month periods ending September 30, 2000, and for the
nine month period ending September 30, 1999, approximately 22.7 million and 16.3
million respectively, outstanding options to purchase common stock were not
included in the computation of diluted net loss per share because to do so would
have had an antidilutive effect for the periods presented. For all periods
presented in the consolidated statement of operations, the computations of
diluted net income/loss per
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share exclude the effect of 6,060,606 shares issuable upon the conversion of
$250 million, 4.75% Convertible Subordinated Notes due 2006, since their
inclusion would have had an antidilutive effect. As a result, the basic and
diluted net loss per share amounts are equal for the three month period ending
September 30, 2000 and the nine month periods ending September 30, 2000 and
1999.
Approximately 5.9 million options to purchase shares of common stock were
not included in the calculation of diluted earnings per share for the three
month period ended September 30, 1999, since their inclusion would have had an
antidilutive effect.
ISSUANCE OF STOCK BY AFFILIATES
Changes in DoubleClick's equity interest in its affiliates arising as the
result of their issuance of common stock are recorded as gains and losses in the
consolidated statement of operations, except for any transactions that must be
recorded directly to equity in accordance with the provisions of Staff
Accounting Bulletin ('SAB') No. 51.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject DoubleClick to
concentrations of credit risk consist principally of cash and cash equivalents,
investments in marketable securities, accounts receivable and advances.
Credit is extended to customers based on the evaluation of their financial
condition, and collateral is not required. DoubleClick performs ongoing credit
assessments of its customers and maintains an allowance for doubtful accounts.
In November 1999, DoubleClick advanced approximately $20 million to a single
publisher, of which approximately $19 million remains outstanding at September
30, 2000 on an unsecured basis. This amount is included in prepaid expenses and
other current assets on the consolidated balance sheet.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ('SEC') issued
Staff Accounting Bulletin No. 101 ('SAB 101'), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the SEC's views on the application of
generally accepted accounting principles to revenue recognition in financial
statements. In June 2000, the SEC issued SAB 101B to defer the effective date of
the implementation of SAB 101 until the fourth quarter of fiscal 2000.
DoubleClick does not expect the adoption of SAB 101 to have a material effect on
its financial position or results of operations.
NOTE 2 -- BUSINESS COMBINATIONS
In July 2000, DoubleClick contributed its wholly-owned subsidiary,
NetGravity Japan, to its affiliate DoubleClick Japan in return for an additional
27% ownership interest in DoubleClick Japan. In addition to increasing
DoubleClick's equity interest to approximately 37%, the agreement with
DoubleClick Japan enables it to nominate a majority of the seats on DoubleClick
Japan's Board of Directors and exercise a controlling financial interest in its
operations. Pursuant to APB 16, Business Combinations, DoubleClick has
consolidated the net assets and results of operations of DoubleClick Japan as of
the date of the agreement. As DoubleClick Japan's net assets and results of
operations had not previously been consolidated in DoubleClick's financial
statements, this simultaneous transfer and acquisition was treated as a partial
sale of its interest in NetGravity Japan and a step acquisition of an additional
equity interest in DoubleClick Japan. Full reverse acquisition accounting was
used and a $20.7 million gain recognized to the extent that NetGravity Japan was
deemed sold to the minority shareholders of DoubleClick Japan. This gain has
been included in 'Gain on equity transactions of affiliates, net' in
DoubleClick's consolidated statement of operations. Goodwill of $21.3 million
was also recorded to reflect the proportionate step-up in DoubleClick Japan's
assets as the result of the reverse acquisition.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to the transfer of NetGravity Japan described above, DoubleClick
made an additional investment of $5.4 million in DoubleClick Japan, which
increased its interest to approximately 43%. This transaction has been accounted
for as a step acquisition and DoubleClick has recorded approximately $0.7
million of goodwill, which represents the excess of its additional investment
over the fair value of the incremental assets acquired.
Effective May 26, 2000, DoubleClick acquired Flashbase, Inc. ('Flashbase')
for approximately $19.6 million. The acquisition was accounted for under the
purchase method of accounting, and the purchase price was allocated to the
assets acquired and the liabilities assumed based on their estimated fair values
at the date of acquisition. DoubleClick recorded approximately $19.5 million of
goodwill, which represents the excess of the purchase price over the fair value
of net assets acquired.
DoubleClick consummated mergers with NetGravity, Abacus and Opt-In Email.com
during 1999 which have been accounted for as poolings of interests. DoubleClick
acquired the remaining interests it did not previously own in DoubleClick
Scandinavia AB in December 1999 and DoubleClick Iberoamerica S.L. in November
1999. These transactions were accounted for as purchases.
NOTE 3 -- INVESTMENT IN VALUECLICK, INC
Effective February 28, 2000, DoubleClick acquired an approximately 33%
interest in ValueClick, Inc. ('ValueClick') as well a warrant to purchase
additional shares in ValueClick using a combination of cash and DoubleClick
shares. DoubleClick's equity investment in ValueClick was recorded based on the
fair value of the consideration paid (approximately $94.2 million), less
approximately $27.7 million of treasury stock that represents DoubleClick's
proportionate share of its common stock held by ValueClick. In addition to
approximately $41.3 million of goodwill, DoubleClick's investment in
ValueClick also included an amount of approximately $18.7 million which
represented the fair value of the warrant on February 28, 2000.
In March 2000, ValueClick completed its initial public offering of common
stock, issuing 4,000,000 shares at a price of $19 per share, which raised net
proceeds of approximately $69.5 million. As a result, DoubleClick's ownership
interest in ValueClick was reduced to approximately 28% and the value of its
proportionate share of ValueClick's net assets increased. DoubleClick recorded
an increase in the value of its investment of approximately $12.9 million,
reduced the carrying amount of treasury stock to approximately $23.8 million and
recognized a gain of approximately $8.9 million.
In the third quarter of 2000, DoubleClick recorded an increase in the value
of its investment in ValueClick of approximately $2.9 million as the result of
ValueClick selling a portion of the DoubleClick shares it owned to third
parties. Also as a result of this sale, DoubleClick recognized a reduction in
its treasury stock of approximately $5.3 million and a $2.4 million reduction of
additional paid-in capital, which represented the difference between the
treasury shares' original basis and the cash proceeds from the sale.
During the third quarter of 2000, DoubleClick recognized a gain as the
result of the initial public offering of ValueClick Japan, a consolidated
subsidiary of ValueClick. Pursuant to SAB 51, ValueClick recognized a gain to
the extent that a portion of its interest was deemed sold through the offering
at a price higher than its original basis. DoubleClick has recognized its
proportionate share of this gain, approximately $3.9 million in 'Equity in
earnings of affiliates'.
In the third quarter of fiscal 2000, DoubleClick management made an
assessment of the carrying value of its warrant to purchase additional shares of
ValueClick and determined that it was in excess of its estimated net realizable
value. Consequently, DoubleClick wrote down its investment in ValueClick and
recognized an impairment charge of approximately $18.7 million relating to this
warrant. This impairment has been recorded in 'Gain on equity transactions of
affiliates, net' in DoubleClick's consolidated statement of operations.
DoubleClick's investment in ValueClick is being accounted for under the
equity method. DoubleClick's proportionate share of ValueClick's net income or
loss and amortization of goodwill is
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
included in 'Equity in earnings of affiliates' in the accompanying consolidated
statement of operations. Amortization of goodwill is being recorded on a
straight-line basis over three years.
NOTE 4 -- NON-CASH COMPENSATION
Non-cash compensation consists primarily of the expected additional
consideration payable to certain former shareholders of DoubleClick Scandinavia
and Flashbase. Additional shares of DoubleClick common stock are contingently
issuable based on the continued employment of the former shareholders and the
attainment of specific performance objectives. We have assessed, and will
continue to assess, the probability and amount of the shares payable and expect
to incur significant non-cash compensation charges in 2000 and 2001. The maximum
total value of the contingently issuable shares is approximately $65.0 million.
NOTE 5 -- AGREEMENT WITH ALTAVISTA
On August 7, 2000 DoubleClick announced a restructuring of its Advertising
Services Agreement with AltaVista. DoubleClick has recognized income of
approximately $5.0 million related to contract termination fees associated
with the restructuring of its Advertising Services Agreement. This amount has
been included in 'Interest and other, net'.
NOTE 6 -- STOCKHOLDERS' EQUITY
Pursuant to an underwriting agreement dated February 17, 2000, DoubleClick
completed a public offering of 7,500,000 shares of its common stock, of which
DoubleClick sold 5,733,411 shares and certain stockholders sold 1,766,589
shares. DoubleClick's net proceeds were approximately $502.9 million, after
deducting underwriting discounts, commissions and offering expenses.
In April 1999 and January 2000, DoubleClick effected two-for-one stock
splits in the form of 100 percent stock dividends. The splits were approved for
shareholders of record as of March 22, 1999 and December 31, 1999, respectively.
Accordingly, all share and per share amounts presented in these consolidated
financial statements and related notes have been restated to reflect these stock
splits.
NOTE 7 -- SEGMENT REPORTING
Effective December 31, 1998, DoubleClick adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
DoubleClick is organized into three segments: Media, Technology and Data.
Revenues and gross profit by segment are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000 THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------ ------------------------------------------
MEDIA TECHNOLOGY DATA TOTAL MEDIA TECHNOLOGY DATA TOTAL
----- ---------- ---- ----- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $ 64,264 $ 53,493 $24,020 $141,777 $ 34,644 $ 19,728 $23,019 $ 77,391
Intersegment elimination...... -- (6,541) (67) (6,608) -- (2,055) -- (2,055)
-------- -------- ------- -------- -------- -------- ------- --------
Revenue from external
customers.................... $ 64,264 $ 46,952 $23,953 $135,169 $ 34,644 $ 17,673 $23,019 $ 75,336
-------- -------- ------- -------- -------- -------- ------- --------
-------- -------- ------- -------- -------- -------- ------- --------
Gross profit.................. $ 21,089 $ 38,798 $18,066 $ 77,953 $ 13,758 $ 13,324 $19,056 $ 46,138
-------- -------- ------- -------- -------- -------- ------- --------
-------- -------- ------- -------- -------- -------- ------- --------
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------ ------------------------------------------
MEDIA TECHNOLOGY DATA TOTAL MEDIA TECHNOLOGY DATA TOTAL
----- ---------- ---- ----- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $193,443 $141,921 $54,538 $389,902 $ 74,585 $ 46,000 $48,987 $169,572
Intersegment elimination...... -- (16,523) (67) (16,590) -- (4,968) -- (4,968)
-------- -------- ------- -------- -------- -------- ------- --------
Revenue from external
customers.................... $193,443 $125,398 $54,471 $373,312 $ 74,585 $ 41,032 $48,987 $164,604
-------- -------- ------- -------- -------- -------- ------- --------
-------- -------- ------- -------- -------- -------- ------- --------
Gross profit.................. $ 65,260 $100,886 $37,934 $204,080 $ 30,134 $ 30,414 $38,482 $ 99,030
-------- -------- ------- -------- -------- -------- ------- --------
-------- -------- ------- -------- -------- -------- ------- --------
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- COMPREHENSIVE LOSS
Comprehensive loss consists of net loss, unrealized gains and losses on
marketable securities and foreign currency translation adjustments.
Comprehensive loss was $8.0 million and $0.5 million for the three months ended
September 30, 2000 and 1999, respectively. For the nine months ended
September 30, 2000 and 1999, comprehensive loss was $49.3 million and $14.9
million respectively.
NOTE 9 -- CONTINGENCIES
Several civil litigations related to DoubleClick's online data collection
practices are currently pending against DoubleClick. These proceedings seek
remedies, including damages, of an indeterminable nature and amount, and allege
variously that DoubleClick has unlawfully obtained and used consumers' personal
information. DoubleClick vigorously contests these allegations.
There have been a number of political, legislative, regulatory and other
developments relating to online data collection that have received widespread
media attention. These developments may negatively affect the outcomes of
related legal proceedings and encourage the commencement of additional similar
proceedings. Since February 2000, the Federal Trade Commission has been pursuing
an inquiry into DoubleClick's ad serving and data collection practices.
DoubleClick is complying with the Federal Trade Commission's requests for
information. In addition, DoubleClick's ad serving and data collection practices
are also the subject of inquiries by the attorneys general of several states.
DoubleClick is cooperating fully with all such inquiries by the various states.
DoubleClick may receive additional regulatory inquiries and intends to cooperate
fully.
It is impossible to predict the outcome of such events on pending litigation
or the results of the litigation itself, all of which may have a material
adverse effect on DoubleClick's business, financial condition and results of
operations.
Determinations of liability against other companies that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
legal proceedings against DoubleClick and its affiliates and could encourage an
increase in the number of such claims.
DoubleClick believes that, notwithstanding the quality of defenses
available, it is possible that our financial condition and results of operations
could be materially adversely effected by the ultimate outcome of the pending
litigation. As of September 30, 2000, no provision has been made for any damages
that may result upon the resolution of these uncertainties.
NOTE 10 -- RECENT DEVELOPMENTS
On September 24, 2000, DoubleClick announced the signing of an agreement to
purchase all the outstanding shares of @plan.inc., a leading online business to
business exchange for optimizing Internet advertising and merchandising
strategies through its target market research planning systems. This purchase
will be effected through a combination of stock and cash that is intended to
qualify as a tax-free reorganization for United States federal income tax
purposes. The number of shares of DoubleClick common stock issuable in the
merger will be determined based on the average closing price of DoubleClick
common stock on the Nasdaq National Market on the ten trading days ending four
business days before the @plan special shareholders' meeting, or the closing
date if the special shareholders' meeting does not occur on the closing date. In
addition, all outstanding options and warrants to acquire shares of @plan common
stock will be assumed by DoubleClick and converted at the same exchange ratio
into options to purchase shares of DoubleClick common stock. This transaction is
subject to regulatory approvals, the approval of a majority of @plan shares and
other customary conditions. DoubleClick anticipates that this merger will be
consummated in the first quarter of fiscal 2001.
On October 2, 2000 DoubleClick announced the signing of an agreement to
acquire, in a stock-for-stock transaction, NetCreations, Inc., a provider of
opt-in e-mail marketing services, specializing in e-mail address list
management, brokerage and delivery. This purchase will be effected through the
exchange of 0.41 of a share of DoubleClick common stock for each share of
NetCreations common
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock outstanding. In addition, all outstanding options to acquire shares of
NetCreations common stock will be assumed by DoubleClick and converted at the
same exchange ratio into options to purchase shares of DoubleClick common stock.
In the acquisition, DoubleClick will exchange approximately 6.4 million shares
of DoubleClick common stock for all the issued and outstanding capital stock of
NetCreations. Following the merger, NetCreations will become a wholly-owned
subsidiary of DoubleClick. DoubleClick and NetCreations expect this acquisition
to qualify as a tax-free reorganization for United States federal income tax
purposes. This transaction is subject to regulatory approvals, the adoption of
the merger agreement by holders of 66 2/3% of NetCreations' outstanding common
stock and other customary conditions. DoubleClick anticipates that this merger
will be consummated in the fourth quarter of fiscal 2000.
In October 2000, DoubleClick, 24/7 Media and Sabela Media settled the patent
litigation 24/7 Media initiated against DoubleClick and the patent litigation
previously initiated against Sabela Media by DoubleClick. Consequently, both of
these lawsuits will be dismissed with prejudice. As part of the settlement, 24/7
Media and DoubleClick granted each other certain rights in certain of their
respective patents. Separately, L90 and DoubleClick have entered into an
agreement pursuant to which the parties will enter into definitive documents to
settle the patent infringement lawsuit, including L90's related counterclaims,
pending in federal district court in Manhattan. Under the definitive documents,
the parties will dismiss the pending lawsuit with prejudice, and grant each
other certain rights in certain of their respective patents. The resolution of
these matters did not have a material impact on DoubleClick's financial position
or results of operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DOUBLECLICK INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF DOUBLECLICK CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS AND THE FUTURE PERFORMANCE OF DOUBLECLICK WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. STOCKHOLDERS ARE CAUTIONED THAT SUCH
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. DOUBLECLICK'S ACTUAL RESULTS AND
TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER 'RISK FACTORS' AND ELSEWHERE IN THIS REPORT
AND IN DOUBLECLICK'S OTHER PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
OVERVIEW
We are a leading provider of technology-driven marketing and advertising
solutions to thousands of advertisers, advertising agencies, Web publishers and
e-commerce merchants worldwide. We provide a broad range of media, technology
and data products and services to our customers to allow them to optimize their
advertising and marketing campaigns on the Internet and through other
interactive media. Our patented DART technology is the platform for many of our
solutions and enables our customers to use preselected criteria to deliver the
right ad to the right person at the right time. Our service and product
offerings are grouped into three segments:
DoubleClick Media ('Media')
DoubleClick Technology Solutions ('Technology' or 'TechSolutions'); and
DoubleClick Data Services ('Data')
BUSINESS COMBINATIONS
On September 24, 2000, DoubleClick announced the signing of an agreement to
purchase all the outstanding shares of @plan.inc., a leading online business to
business exchange for optimizing Internet advertising and merchandising
strategies through its target market research planning systems. This purchase
will be effected through a combination of stock and cash that is intended to
qualify as a tax-free reorganization for United States federal income tax
purposes. The number of shares of DoubleClick common stock issuable in the
merger will be determined based on the average closing price of DoubleClick
common stock on the Nasdaq National Market on the ten trading days ending four
business days before the @plan special shareholders' meeting, or the closing
date if the special shareholders' meeting does not occur on the closing date. In
addition, all outstanding options and warrants to acquire shares of @plan common
stock will be assumed by DoubleClick and converted at the same exchange ratio
into options to purchase shares of DoubleClick common stock. This transaction is
subject to regulatory approvals, the approval of a majority of @plan shares and
other customary conditions. DoubleClick anticipates that this merger will be
consummated in the first quarter of fiscal 2001.
On October 2, 2000 DoubleClick announced the signing of an agreement to
acquire, in a stock-for-stock transaction, NetCreations, Inc., a provider of
opt-in e-mail marketing services, specializing in e-mail address list
management, brokerage and delivery. This purchase will be effected through the
exchange of 0.41 of a share of DoubleClick common stock for each share of
NetCreations common stock outstanding. In addition, all outstanding options to
acquire shares of NetCreations common stock will be assumed by DoubleClick and
converted at the same exchange ratio into options to purchase shares of
DoubleClick common stock. In the acquisition, DoubleClick will exchange
approximately 6.4 million shares of DoubleClick common stock for all the issued
and outstanding capital stock of NetCreations. Following the merger,
NetCreations will become a wholly-owned subsidiary of DoubleClick. DoubleClick
and NetCreations expect this acquisition to qualify as a tax-free reorganization
for United States federal income tax purposes. This transaction is subject to
regulatory approvals, the adoption of the merger agreement by holders of 66 2/3%
of NetCreations' outstanding
10
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common stock and other customary conditions. DoubleClick anticipates that this
merger will be consummated in the fourth quarter of fiscal 2000.
In July 2000, we contributed our wholly-owned subsidiary, NetGravity Japan,
to our affiliate DoubleClick Japan in return for an additional 27% ownership
interest in DoubleClick Japan. In addition to increasing our equity interest to
approximately 37%, the agreement with DoubleClick Japan enables us to nominate a
majority of the seats on DoubleClick Japan's Board of Directors and exercise a
controlling financial interest in its operations. Pursuant to APB 16, Business
Combinations, we have consolidated the net assets and results of operations of
DoubleClick Japan as of the date of the agreement. As DoubleClick Japan's net
assets and results of operations had not previously been consolidated in our
financial statements, this simultaneous transfer and acquisition was treated as
a partial sale of its interest in NetGravity Japan and a step acquisition of an
additional equity interest in DoubleClick Japan. Full reverse acquisition
accounting was used and a $20.7 million gain recognized to the extent that
NetGravity Japan was deemed sold to the minority shareholders of DoubleClick
Japan. This gain has been included in 'Equity transactions of affiliates' in our
consolidated statement of operations. Goodwill of $21.3 million was also
recorded to reflect the proportionate step-up in DoubleClick Japan's assets as
the result of the reverse acquisition.
Effective May 26, 2000, DoubleClick acquired Flashbase, Inc. ('Flashbase')
for approximately $19.6 million. The acquisition was accounted for under the
purchase method of accounting, and the purchase price was allocated to the
assets acquired and the liabilities assumed based on their estimated fair values
at the date of acquisition. DoubleClick recorded approximately $19.5 million of
goodwill, which represents the excess of the purchase price over the fair value
of net assets acquired.
We consummated mergers with NetGravity, Abacus and Opt-In Email.com during
1999 which have been accounted for as poolings of interests. We acquired the
remaining interests not previously owned by us in DoubleClick Scandinavia AB in
December 1999 and DoubleClick Iberoamerica S.L. in November 1999. These
transactions were accounted for as purchases.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
RESULTS OF OPERATIONS
Revenues and gross profit by segment are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000 THREE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------- ----------------------------------------
MEDIA TECHNOLOGY DATA TOTAL MEDIA TECHNOLOGY DATA TOTAL
----- ---------- ---- ----- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $64,264 $53,493 $24,020 $141,777 $34,644 $19,728 $23,019 $77,391
Intersegment
elimination........ -- (6,541) (67) (6,608) -- (2,055) -- (2,055)
------- ------- ------- -------- ------- ------- ------- -------
Revenue from external
customers.......... $64,264 $46,952 $23,953 $135,169 $34,644 $17,673 $23,019 $75,336
------- ------- ------- -------- ------- ------- ------- -------
------- ------- ------- -------- ------- ------- ------- -------
Gross profit......... $21,089 $38,798 $18,066 $ 77,953 $13,758 $13,324 $19,056 $46,138
------- ------- ------- -------- ------- ------- ------- -------
------- ------- ------- -------- ------- ------- ------- -------
</TABLE>
DOUBLECLICK MEDIA
DoubleClick Media revenue is derived primarily from the sale and delivery of
advertising impressions through third-party Web sites comprising the worldwide
DoubleClick Media networks. Cost of revenues consists primarily of service fees
paid to Web publishers for impressions delivered on our worldwide networks, the
costs of ad delivery, and technology support provided by DoubleClick
TechSolutions.
Revenue for DoubleClick Media increased 85.5% to $64.3 million for the three
months ended September 30, 2000 from $34.6 million for the three months ended
September 30, 1999. DoubleClick Media gross margin was 32.8% for the three
months ended September 30, 2000 and 39.7% for the three months ended September
30, 1999. The increase in DoubleClick Media revenue was due to an increase
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<PAGE>
in on-line ad spending on the worldwide DoubleClick networks. Gross margin
decreased due to a less favorable product mix and declining prices, while the
costs of ad delivery remained constant. Gross margin also decreased due to a
reduction in the proportion of revenue derived from advertising impressions
delivered to users of the AltaVista web site.
DoubleClick Media revenue derived from advertising impressions delivered to
the users of the AltaVista Web site was $7.6 million, or 11.8% of DoubleClick
Media revenue for the three months ended September 30, 2000, compared to $6.1
million, or 17.6% of DoubleClick Media revenue for the three months ended
September 30, 1999. Because of specific contractual terms unique to AltaVista,
we recognize revenue from sales commissions, billing and and collection fees and
DART service fees derived from the sale and delivery of ads on the AltaVista Web
site and associated services. AltaVista DART services fees recognized by
TechSolutions were $2.5 million and $1.2 million for the three months ended
September 30, 2000 and 1999, respectively.
On August 7, 2000, we announced a restructuring of our Advertising Services
Agreement with AltaVista ('New Agreement'). Under the New Agreement, AltaVista
will assume lead ad sales responsibility for domestic advertisers by February
2001, and international advertisers by December 2001 (subject to AltaVista's
right to assume lead responsibility sooner in certain international markets).
After AltaVista assumes lead ad responsibility in a market, DoubleClick will
have the right to sell ads on the AltaVista Web sites in that market on a
non-exclusive basis, as part of DoubleClick's worldwide ad networks, through
December 31, 2004. In addition, under the New Agreement, the DART for Publishers
Service will serve ads on AltaVista's Web sites through December 31, 2004 with
the ads required to be served through the DART for Publishers Service declining
in each year of the agreement, subject to certain minimums. The DART for
Advertisers Service will serve the majority of AltaVista'a online advertising
campaigns through December 2004. As a result of the New Agreement, DoubleClick
Media revenue derived from advertising impressions delivered to the users of the
AltaVista website will decrease significantly commencing in the first quarter of
2001.
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions revenue is derived primarily from sales of our
DART and AdServer product offerings. DoubleClick TechSolutions cost of revenue
includes costs associated with the delivery of advertisements, including
Internet access costs, depreciation of the ad delivery system, facilities,
personnel related costs incurred to operate our ad delivery system, and
consulting and support of our AdServer product.
DoubleClick TechSolutions revenue increased 171.2% to $53.5 million for the
three months ended September 30, 2000 from $19.7 million for the three months
ended September 30, 1999. DoubleClick TechSolutions gross margin was 72.5% for
the three months ended September 30, 2000 and 67.5% for the three months ended
September 30, 1999. The increase in DoubleClick TechSolutions revenue was due
primarily to an increase in the number of DART and AdServer clients coupled with
an increased volume of advertising impressions delivered for new and existing
clients. The increase in gross margin is due primarily to increased efficiencies
in our DART-based service bureau and in our consulting and support of the
AdServer product.
DOUBLECLICK DATA SERVICES
DoubleClick Data Services revenue is derived primarily from providing
services such as prospecting lists, housefile scoring, list optimization, and
marketing research services primarily to catalog-based retailers. DoubleClick
Data Services cost of revenue includes expenses associated with creating,
maintaining and updating the Abacus Alliance database as well as the technical
infrastructure to produce our products and services.
DoubleClick Data Services revenue increased 4.3% to $24.0 million for the
three months ended September 30, 2000 from $23.0 million for the three months
ended September 30, 1999. Gross margin declined from 82.8% for the three months
ended September 30, 1999 to 75.2% for the three months ended September 30, 2000.
The increase in revenue was due primarily to an increase in sales to new and
existing clients. The decline in gross margin was primarily attributable to
increases in personnel related
12
<PAGE>
costs resulting from higher employment levels and, to a lesser extent,
facilities, depreciation and processing costs associated with supporting new
product initiatives.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing costs consist primarily of compensation and related
benefits, sales commissions, advertising, bad debt expense, general marketing
costs, telecommunications expenses, and other operating expenses associated with
the sales and marketing departments. Sales and marketing costs were $53.1
million, or 39.3% of revenue for the three months ended September 30, 2000,
compared to $27.5 million, or 36.5% of revenue for the three months ended
September 30, 1999. This increase in sales and marketing costs was primarily due
to the increase in compensation and related benefits associated with the growth
of our business, increases in sales commissions associated with the increase in
revenue, increased costs related to the continued development and implementation
of our marketing and branding campaigns and an increase in the provision for
doubtful accounts associated with the increase in revenues and level of business
activity. The increase in sales and marketing expenses as a percentage of
revenues resulted from our continued effort to build our sales and marketing
infrastructure. We expect sales and marketing expenses to increase in absolute
dollars as we expand into new markets, continue to promote the DoubleClick
brand and hire additional personnel, as needed, but decrease as a percentage
of revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation and
related benefits, professional services fees and facility related costs. General
and administrative expenses were $20.8 million, or 15.4% of revenue for the
three months ended September 30, 2000 and $9.2 million, or 12.1% of revenue for
the three months ended September 30, 1999. The increase in absolute dollars was
primarily the result of increased compensation and related benefits, increased
professional services fees and increases in other general costs associated with
the growth of our business and operations. Increased professional services fees
related largely to consulting fees to integrate, convert and develop our systems
and legal services incurred to address privacy concerns and patent infringement
lawsuits. We expect general and administrative expenses to continue to increase
in absolute dollars as we incur costs related to the growth of our business but
decrease as a percentage of revenue.
PRODUCT DEVELOPMENT
Product development costs consist primarily of compensation and related
benefits, consulting fees and other operating expenses incurred by the various
product development departments. To date, all product development costs have
been expensed as incurred. Product development costs were $12.2 million, or 9.0%
of revenue for the three months ended September 30, 2000, compared to $7.4
million, or 9.8% of revenue for the three months ended September 30, 1999. This
increase in absolute dollars is due primarily to the increase in compensation
and related benefits of product development personnel, consulting fees for
enhancements to our DART and AdServer technologies, as well as our new eMail
suite of products, and operating expenses associated with the general growth of
our business and operations. The decrease in product development costs as a
percentage of revenue is due to the growth in revenue generated from a
significant number of new clients, renewals and extended contracts of existing
clients, and an increase in services and products being offered.
We believe that the continued investment in product development is critical
to attaining our strategic objectives and, as a result, expect product
development costs to increase in absolute dollars, but remain fairly consistent
as a percentage of revenue.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets consists primarily of goodwill
amortization. Amortization expense was $14.1 million for the three months ended
September 30, 2000 and $0.2 million for the three months
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<PAGE>
ended September 30, 1999. The increase was primarily the result of the
amortization of goodwill related to our acquisitions of DoubleClick Scandinavia,
DoubleClick Japan, Flashbase, and DoubleClick Iberoamerica.
NON-CASH COMPENSATION
Non-cash compensation expense was $7.9 million for the three months ended
September 30, 2000 and $0.5 million for the three months ended September 30,
1999. The increase in non-cash compensation relates primarily to the expected
additional consideration payable to certain former shareholders of DoubleClick
Scandinavia and Flashbase. Additional shares of DoubleClick common stock are
contingently issuable based on the continued employment of the former
shareholders and the attainment of specific performance objectives. We have
assessed, and will continue to assess, the probability and amount of the
shares payable and expect to incur significant non-cash compensation charges
for the three months ended December 31, 2000 and fiscal year 2001.
FACILITY RELOCATION AND OTHER
For the three months ended September 30, 1999 we incurred approximately $0.4
million in costs associated with the relocation of our corporate headquarters.
LOSS FROM OPERATIONS
For the three months ended September 30, 2000, our operating loss was $30.0
million compared to operating income of $1.0 million for the three months ended
September 30, 1999. The increase in operating loss is primarily attributable to
the amortization of intangible assets and non-cash compensation as well as the
building of our personnel infrastructure as discussed above. We plan to continue
to grow and expand our business and therefore anticipate future losses from
operations.
INTEREST AND OTHER, NET
Interest and other, net was $16.3 million for the three months ended
September 30, 2000 and $3.9 million for the three months ended September 30,
1999. For the three months ended September 30, 2000, Interest and other, net
included $14.5 million in interest income and income of approximately
$5.0 million related to contract termination fees associated with the
restructuring of our Advertising Services Agreement with AltaVista in fiscal
2000. These amounts were partially offset by interest expense of approximately
$3.0 million. Interest and other, net included $6.8 million of interest income
for the three months ended September 30, 1999, partially offset by $3.0 million
of interest expense. The increase in interest income was attributable to
interest earned on cash and cash equivalents and investments in marketable
securities funded primarily from the net cash proceeds from our common stock
offering in February 2000. Additionally, our average yield increased due to
increases in interest rates. Interest and other, net in future periods may
fluctuate as a result of our average cash, investment and future debt balances
as well as changes in the market rates of our investments.
INCOME TAXES
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit. The provision for income taxes recorded for the
three months ended September 30, 1999 relates to the standalone results of
Abacus prior to our merger on November 23, 1999. The benefit for the three
months ended September 30, 2000 principally relates to a refund claim for taxes
paid by Abacus in fiscal 1999, offset by corporate income taxes on the earnings
of some of our foreign subsidiaries.
14
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
RESULTS OF OPERATIONS
Revenue and gross profit by segment are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------ -----------------------------------------
MEDIA TECHNOLOGY DATA TOTAL MEDIA TECHNOLOGY DATA TOTAL
----- ---------- ---- ----- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $193,443 $141,921 $54,538 $389,902 $74,585 $46,000 $48,987 $169,572
Intersegment
elimination........ -- (16,523) (67) (16,590) -- (4,968) -- (4,968)
-------- -------- ------- -------- ------- ------- ------- --------
Revenue from external
customers.......... $193,443 $125,398 $54,471 $373,312 $74,585 $41,032 $48,987 $164,604
-------- -------- ------- -------- ------- ------- ------- --------
-------- -------- ------- -------- ------- ------- ------- --------
Gross profit......... $ 65,260 $100,886 $37,934 $204,080 $30,134 $30,414 $38,482 $ 99,030
-------- -------- ------- -------- ------- ------- ------- --------
-------- -------- ------- -------- ------- ------- ------- --------
</TABLE>
DOUBLECLICK MEDIA
Revenue for DoubleClick Media increased 159.4% to $193.4 million for the
nine months ended September 30, 2000 from $74.6 million for the nine months
ended September 30, 1999. DoubleClick Media gross margin was 33.7% for the nine
months ended September 30, 2000 and 40.4% for the nine months ended September
30, 1999. The increase in DoubleClick Media revenue was due primarily to an
increase in on-line ad spending on the worldwide DoubleClick networks. Gross
margin decreased due to a less favorable product mix and declining prices, while
the costs of ad delivery remained constant. Gross margin also decreased due to a
reduction in the proportion of revenue derived from advertising impressions
delivered to users of the AltaVista web site.
DoubleClick Media revenue derived from advertising impressions delivered to
the users of the AltaVista Web sites was $23.2 million, or 12.0% of DoubleClick
Media revenue for the nine months ended September 30, 2000 compared to $14.7
million, or 19.7% of DoubleClick Media revenue for the nine months ended
September 30, 1999. AltaVista DART services fees recognized by TechSolutions
were $7.1 million and $3.6 million for the nine months ended September 30, 2000
and 1999, respectively.
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions revenue increased 208.5% to $141.9 million for the
nine months ended September 30, 2000 from $46.0 million for the nine months
ended September 30, 1999. DoubleClick TechSolutions gross margin was 71.1% for
the nine months ended September 30, 2000 and 66.1% for the nine months ended
September 30, 1999. The increase in DoubleClick TechSolutions revenue was due
primarily to an increase in the number of DART and AdServer clients coupled with
an increased volume of advertising impressions delivered for new and existing
clients. The increase in gross margin is due primarily to increased efficiencies
in our DART-based service bureau and in our consulting and support of the
AdServer product.
DOUBLECLICK DATA SERVICES
DoubleClick Data Services revenue increased 11.3% to $54.5 million for the
nine months ended September 30, 2000 from $49.0 million for the nine months
September 30, 1999. Gross margin declined from 78.6% for the nine months ended
September 30, 1999 to 69.6% for the nine months ended September 30, 2000. The
increase in revenue was due primarily to an increase in sales to new and
existing clients. The decline in gross margin was primarily attributable to
increases in personnel related costs resulting from higher employment levels
and, to a lesser extent, facilities, depreciation and processing costs
associated with supporting new product initiatives.
15
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing costs consist primarily of compensation and related
benefits, sales commissions, advertising, bad debt expense, general marketing
costs, telecommunications expenses, and other operating expenses associated with
the sales and marketing departments. Sales and marketing costs were $148.7
million, or 39.8% of revenue for the nine months ended September 30, 2000,
compared to $67.6 million, or 41.0% of revenue for the nine months ended
September 30, 1999. This increase in sales and marketing costs was primarily due
to the increase in compensation and related benefits associated with the growth
of our business, increases in sales commissions associated with the increase in
revenue, increased costs related to the continued development and implementation
of our marketing and branding campaigns and an increase in the provision for
doubtful accounts associated with the increase in revenues and level of business
activity. The decrease in sales and marketing expenses as a percentage of
revenues was primarily a result of the substantial growth in revenue. We expect
sales and marketing expenses to increase in absolute dollars as we expand into
new markets, continue to promote the Doubleclick brand and hire additional
personnel, as needed , but decrease as a percentage of revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation and
related benefits, professional services fees and facility related costs. General
and administrative expenses were $63.7 million, or 17.1% of revenue for the nine
months ended September 30, 2000 and $22.0 million, or 13.3% of revenue for the
nine months ended September 30, 1999. The increase in absolute dollars was
primarily the result of increased compensation and related benefits, increased
professional services fees and increases in other general costs associated with
the growth of our business and operations. Increased professional services fees
related largely to consulting fees to integrate, convert and develop our systems
and legal services incurred to address privacy concerns and patent infringement
lawsuits. We expect general and administrative expenses to continue to increase
in absolute dollars as we incur costs related to the growth of our business but
decrease as a percentage of revenue.
PRODUCT DEVELOPMENT
Product development costs consist primarily of compensation and related
benefits, consulting fees and other operating expenses incurred by the various
product development departments. To date, all product development costs have
been expensed as incurred. Product development costs were $33.0 million, or 8.8%
of revenue for the nine months ended September 30, 2000, compared to $19.5
million, or 11.9% of revenue for the nine months ended September 30, 1999. This
increase in absolute dollars is due primarily to the increase in compensation
and related benefits of product development personnel, consulting fees for
enhancements to our DART and AdServer technologies, as well as our new eMail
suite of products, and operating expenses associated with the general growth of
our business and operations. The decrease in product development costs as a
percentage of revenue is due to the growth in revenue generated from a
significant number of new clients, renewals and extended contracts of existing
clients, and an increase in services and products being offered.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets consists primarily of goodwill
amortization. Amortization expense was $32.6 million for the nine months ended
September 30, 2000 and $0.7 million for the nine months ended September 30,
1999. The increase was primarily the result of the amortization of goodwill
related to our acquisitions of DoubleClick Scandinavia, DoubleClick Japan,
Flashbase, and DoubleClick Iberoamerica.
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<PAGE>
NON-CASH COMPENSATION
Non-cash compensation was $17.8 million for the nine months ended September
30, 2000 and $1.5 million for the nine months ended September 30, 1999. The
increase in non-cash compensation relates primarily to the expected additional
consideration payable to certain former shareholders of DoubleClick Scandinavia
and Flashbase. Additional shares of DoubleClick common stock are contingently
issuable based on the continued employment of the former shareholders and the
attainment of specific performance objectives. We have assessed, and will
continue to assess, the probability and amount of the shares payable and expect
to incur significant non-cash compensation charges in 2000 and 2001.
FACILITY RELOCATION AND OTHER
For the nine months ended September 30, 1999 we incurred approximately $2.5
million in costs associated with the relocation of our corporate headquarters.
As a result of our relocation, completed in December 1999, we incurred a
non-recurring charge for the impairment of fixed assets of approximately $1.4
million. These assets were abandoned and not relocated to our new headquarters.
Our management made an assessment of the carrying value of the assets to be
disposed of and determined that their carrying value was in excess of their
estimated fair value. The estimated fair value of the assets was determined
based on an estimate of the recoverability of the assets' carrying values over
their remaining useful life to the abandonment date using their initial cost
recovery rate. Also included in facility relocation and other for the nine
months ended September 30, 1999 were duplicative rental and moving costs of
approximately $1.1 million.
LOSS FROM OPERATIONS
Loss from operations was $91.7 million for the nine months ended September
30, 2000 and $14.7 million for the nine months ended September 30, 1999. The
increase in the loss from operations was due largely to the amortization of
intangible assets and non-cash compensation as well as the building of our
personnel infrastructure described above. We plan to continue to grow and expand
our business and therefore anticipate future losses from operations.
INTEREST AND OTHER, NET
Interest and other, net was $34.9 million for the nine months ended
September 30, 2000 and $9.1 million for the nine months ended September 30,
1999. For the nine months ended September 30, 2000, Interest and other, net
included $40.5 million in interest income and income of approximately
$5.0 million related to contract termination fees associated with the
restructuring of our Advertising Services Agreement with AltaVista in fiscal
2000. These amounts were partially offset by interest expense of approximately
$9.0 million. Interest and other, net included $15.8 million of interest income
for the nine months ended September 30, 1999, partially offset by $6.4 million
of interest expense. The increase in interest income was attributable to
interest earned on cash and cash equivalents and investments in marketable
securities funded primarily from the net cash proceeds from our common stock
offering in February 2000. Additionally, our average yield increased due to
increases in interest rates. Interest and other, net in future periods may
fluctuate as a result of our average cash, investment and future debt balances
as well as changes in the market rates of our investments.
INCOME TAXES
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit. The provision for income taxes recorded for the nine
months ended September 30, 1999 relates to the standalone results of Abacus
prior to our merger on November 23, 1999. The provision for the nine months
ended September 30, 2000 principally relates to corporate taxes on the earnings
of some of our foreign subsidiaries and a change in estimated tax refunds
receivable, partially offset by a refund claim for taxes paid by Abacus in
fiscal 1999.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception we have financed our operations primarily through private
placements of equity securities, and public offerings of our common stock and
Convertible Subordinated Notes.
Net cash provided by operating activities was $31.6 million for the nine
months ended September 30, 2000, and $2.5 million for the nine months ended
September 30, 1999. The increase in cash provided by operating activities
resulted primarily from a decrease in net loss (excluding certain non-cash
expenses) and increases in accounts payable and accrued expenses, which were
partially offset by increases in accounts receivable and prepaid expenses. Net
cash used in investing activities was $509.6 million for the nine months ended
September 30, 2000 and $321.6 million for the nine months ended September 30,
1999. During the nine months ended September 30, 2000, we continued to acquire
businesses, invest in affiliates and purchase equipment to support our growth
and expansion. In addition, we invested the proceeds from our common stock
issuance in marketable securities. Net cash provided by financing activities
was $557.7 million for the nine months ended September 30, 2000 and $362.8
million for the nine months ended September 30, 1999. Cash provided by
financing activities consisted of net proceeds from our public offerings of
common stock during the nine months ended September 30, 2000 and net proceeds
from our public offerings of Convertible Subordinated Notes and common stock
for the nine months ended September 30, 1999.
As of September 30, 2000 we had $198.8 million in cash and cash equivalents
and $694.8 million in investments in marketable securities. As of September 30,
2000, our principal commitments consisted of our Convertible Subordinated Notes
and our obligations under operating leases. Although we have no material
commitments for capital expenditures, we anticipate that we will increase our
capital expenditures and lease commitments in conjunction with our growth in
operations and infrastructure. We continue to anticipate that our operating
expenses will be a material use of our cash resources.
On February 17, 2000, we conducted a public offering of 7,500,000 shares of
our common stock, of which we sold 5,733,411 shares and certain stockholders
sold 1,766,589 shares. Our net proceeds were approximately $502.9 million after
deducting underwriting discounts, commissions and offering expenses.
We believe that the net proceeds of our prior offerings of common stock and
Convertible Subordinated Notes, together with our existing cash and cash
equivalents and investments in marketable securities will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least the next 12 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
marketable securities in a variety of securities, including both government and
corporate obligations and money market funds. As of September 30, 2000, we held
cash and cash equivalents and investments in marketable securities with an
average time to maturity of 284 days.
The following table presents the amounts of our financial instruments that
are subject to interest rate risk by year of expected maturity and average
interest rates as of September 30, 2000.
<TABLE>
<CAPTION>
2001 2002 2003 2006 FAIR VALUE
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................. $198,838 -- -- -- $198,838
Average interest rate..................... 5.01%
Fixed-rate investments in marketable
securities.............................. $391,779 $302,994 -- -- $694,773
Average interest rate..................... 6.53% 6.92%
Convertible Subordinated Notes............ -- -- -- $250,000 $245,000
Average interest rate..................... 4.75%
</TABLE>
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We did not hold derivative financial instruments as of September 30, 2000
and have never held these instruments in the past.
FOREIGN CURRENCY RISK
We transact business in various foreign countries and are thus subject to
exposure from adverse movements in foreign currency exchange rates. This
exposure is primarily related to revenue and operating expenses in the United
Kingdom and other countries whose currency is the Euro. The effect of foreign
exchange rate fluctuations for the nine months ended September 30, 2000 was not
material. We do not use financial instruments to hedge operating activities
denominated in foreign currencies. We assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis. As of
September 30, 2000, we had $28.0 million in cash and cash equivalents
denominated in foreign currencies.
The introduction of the Euro has not had a material impact on how we conduct
business and we do not anticipate any changes in how we conduct business as a
result of increased price transparency.
Our international business is subject to risks typical of an international
business, including, but not limited to, differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, our future
results could be materially and adversely affected by changes in these or other
factors.
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RISK FACTORS
An investment in our company involves a high degree of risk. You should
carefully consider the risks below, together with the other information
contained in this report, before you decide to invest in our company. If any of
the following risks occur, our business, results of operations and financial
condition could be harmed, the trading price of our common stock could decline,
and you could lose all or part of your investment.
RISKS RELATING TO DOUBLECLICK AND ITS BUSINESS
DOUBLECLICK'S LIMITED OPERATING HISTORY MAKES EVALUATING ITS BUSINESS DIFFICULT.
DoubleClick was incorporated in January 1996 and has a limited operating
history. An investor in DoubleClick's common stock must consider the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving industries, including the Internet advertising industry. DoubleClick's
risks include:
ability to sustain historical revenue growth rates;
relying on the DoubleClick networks;
managing its expanding operations;
competition;
attracting, retaining and motivating qualified personnel;
maintaining its current, and developing new, strategic relationships with
Web publishers;
ability to anticipate and adapt to the changing Internet industry; and
attracting and retaining a large number of advertisers from a variety of
industries.
DoubleClick also depends on the growing use of the Internet for advertising,
commerce and communication, and on general economic conditions. DoubleClick
cannot assure you that its business strategy will be successful or that it will
successfully address these risks.
DOUBLECLICK HAS A HISTORY OF LOSSES AND ANTICIPATES CONTINUED LOSSES.
DoubleClick incurred net losses of $4.0 million for the year ended
December 31, 1996, $7.7 million for the year ended December 31, 1997, $18.0
million for the year ended December 31, 1998, and $55.8 million for the year
ended December 31, 1999. For the nine months ended September 30, 2000,
DoubleClick incurred a net loss of $51.2 million and, as of September 30, 2000,
its accumulated deficit was $161.1 million. DoubleClick has not achieved
profitability and expects to continue to incur operating losses in the future.
DoubleClick expects to continue to incur significant operating and capital
expenditures and, as a result, it will need to generate significant revenue to
achieve and maintain profitability. Although its revenue has grown in recent
quarters, DoubleClick cannot assure you that it will achieve sufficient revenue
to achieve or sustain profitability. Even if it does achieve profitability,
DoubleClick cannot assure you that it can sustain or increase profitability on a
quarterly or annual basis in the future. If revenue grows slower than
DoubleClick anticipates, or if operating expenses exceed its expectations or
cannot be adjusted accordingly, DoubleClick's business, results of operations
and financial condition will be materially and adversely affected.
DOUBLECLICK DERIVES A SUBSTANTIAL PORTION OF ITS REVENUE FROM WEB SITES OF A
LIMITED NUMBER OF WEB PUBLISHERS AND THE LOSS OF THESE WEB PUBLISHERS AS
CUSTOMERS COULD HARM ITS BUSINESS.
DoubleClick derives a substantial portion of its DoubleClick Media revenue
from ad impressions it delivers on the Web sites of a limited number of Web
publishers. For the nine months ended September 30, 2000, approximately 19% of
DoubleClick's revenue resulted from ads delivered on the Web sites of the top
five Web publishers on its DoubleClick networks. DoubleClick's business, results
of operations and financial condition could be materially and adversely affected
by the loss of one or more of the Web publishers that account for a significant
portion of the revenue from its DoubleClick networks or any significant
reduction in traffic on these Web publisher's Web sites.
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The loss of these Web publishers could also cause advertisers or other Web
publishers to leave DoubleClick's networks, which could materially and adversely
affect its business, results of operations and financial condition. Typically
DoubleClick enters into short-term contracts with Web publishers for inclusion
of their Web sites in DoubleClick's networks. Since these contracts are
short-term, DoubleClick will have to negotiate new contracts or renewals in the
future, which may have terms that are not as favorable to it as the terms of the
existing contracts. DoubleClick's business, results of operations and financial
condition could be materially and adversely affected by such new contracts or
renewals.
DOUBLECLICK RELIES ON ITS RELATIONSHIP WITH ALTAVISTA AND CHANGES IN THIS
RELATIONSHIP COULD HARM ITS BUSINESS.
DoubleClick's revenues have, in the past, significantly relied on revenues
generated from advertisements delivered on or through the AltaVista Web site. On
August 7, 2000, DoubleClick announced the restructuring of its Advertising
Services Agreement with AltaVista. CMGI, Inc. currently owns approximately 82%
of AltaVista. CMGI also owns several Internet advertising and marketing
companies either directly or indirectly through its majority owned subsidiary
Engage. These companies, including AdForce, AdKnowledge, Flycast Communications,
Adsmart and Engage, compete with DoubleClick's Internet advertising solutions.
Under the restructured agreement, AltaVista has extended its agreement to use
DoubleClick's DART for Publishers ad serving solution through 2004. In addition,
AltaVista will accelerate taking lead advertising sales responsibility for its
worldwide network of Web sites in the United Kingdom, France, Germany, Italy,
Sweden, and the Netherlands by January 1, 2001. The majority of advertising
served on AltaVista will use DART through 2002. In 2003, at least half of all of
AltaVista's ads will be served through DART. AltaVista will assume majority
responsibility for ad serving thereafter. In addition, DoubleClick's DART for
Advertisers solution will run the majority of AltaVista's online advertising
campaigns through 2004. The unexpected loss of AltaVista as a customer or any
significant reduction in traffic on or through the AltaVista Web site could
materially and adversely affect DoubleClick's business, results of operations
and financial condition.
DOUBLECLICK'S BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY LAWSUITS RELATED
TO PRIVACY AND DOUBLECLICK'S BUSINESS PRACTICES.
DoubleClick is a defendant in several pending class action lawsuits
alleging, among other things, that DoubleClick unlawfully obtains and uses
Internet users' personal information. DoubleClick is also the subject of a
Federal Trade Commission inquiry concerning its collection and maintenance of
information concerning Internet users, and inquiries involving the attorneys
general of several states relating to its collection, maintenance and sharing of
information concerning, and its disclosure of those practices to, Internet
users. DoubleClick may receive additional regulatory inquiries and intends to
cooperate fully. Class action litigation and regulatory inquiries of these types
are often expensive and time-consuming and their outcome is uncertain.
DoubleClick cannot quantify the amount of monetary or human resources that
it will be required to use to defend itself in these proceedings. DoubleClick
may need to spend significant amounts on its legal defense, senior management
may be required to divert their attention from other portions of its business,
new product launches may be deferred or canceled as a result of these
proceedings, and DoubleClick may be required to make changes to its present and
planned products or services, any of which could materially and adversely affect
its business, financial condition and results of operations. If, as a result of
any of these proceedings, a judgment is rendered or a decree is entered against
DoubleClick, it may materially and adversely affect its business, financial
condition and results of operations.
DOUBLECLICK DERIVES A SUBSTANTIAL PORTION OF ITS REVENUE FROM ADVERTISEMENTS IT
DELIVERS TO WEB SITES ON DOUBLECLICK NETWORKS, AND A DECREASE IN TRAFFIC LEVELS
COULD HARM ITS BUSINESS.
DoubleClick derives a large portion of its revenue from advertisements it
delivers to Web sites on its DoubleClick networks. DoubleClick expects that its
DoubleClick networks will continue to account
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for a substantial portion of its revenue for the foreseeable future.
DoubleClick's networks consist of Web sites of Web publishers with which it has
short-term contracts. DoubleClick cannot assure you that these Web publishers
will remain associated with DoubleClick's networks, that any DoubleClick network
Web site will maintain consistent or increasing levels of traffic over time, or
that DoubleClick will be able to replace in a timely or effective manner any
existing DoubleClick network Web site with other Web sites with comparable
traffic patterns and user demographics. DoubleClick's failure to successfully
market its DoubleClick networks, the loss of one or more of the Web publishers
that account for a significant portion of its revenue from its DoubleClick
networks, or the failure of the Web sites on its DoubleClick networks to
maintain consistent or increasing levels of traffic would materially and
adversely affect DoubleClick's business, results of operations and financial
condition.
DOUBLECLICK'S ADVERTISING CUSTOMERS AND THE COMPANIES WITH WHICH IT HAS
STRATEGIC BUSINESS RELATIONSHIPS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT
COULD ADVERSELY AFFECT ITS BUSINESS.
As a result of unfavorable conditions in the public equity markets, some of
DoubleClick's customers may have difficulty raising sufficient capital to
support their long-term operations. As a result, these customers may reduce
their spending on Internet advertising, which could materially and adversely
affect DoubleClick's business, financial condition and results of operations. In
addition, from time to time, DoubleClick has entered into strategic business
relationships with other companies, the nature of which varies, but generally in
the context of customer relationships. These companies may experience adverse
business conditions that may render them unable to meet DoubleClick's
expectations for the strategic business relationship or to fulfill their
contractual obligations to DoubleClick. Such an event could have a material
adverse impact on DoubleClick's business, financial condition and results of
operations.
DOUBLECLICK'S QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS AND YOU SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE
OPERATING PERFORMANCE.
DoubleClick's revenue and results of operations may fluctuate significantly
in the future as a result of a variety of factors, many of which are beyond
DoubleClick's control. These factors include:
advertiser, Web publisher and direct marketer demand for DoubleClick's
solutions;
Internet user traffic levels;
changes in fees paid by advertisers;
changes in service fees payable by DoubleClick to Web publishers in its
networks;
the introduction of new Internet advertising services by DoubleClick or its
competitors;
variations in the levels of capital or operating expenditures and other
costs relating to the expansion of DoubleClick's operations; and
general economic conditions.
For the foreseeable future, DoubleClick's revenue from DoubleClick
TechSolutions and DoubleClick Media will also remain dependent on advertising
activity on DoubleClick's networks. This future revenue is difficult to
forecast. In addition, DoubleClick plans to significantly increase its operating
expenses so that it can continue its international expansion, upgrade and
enhance its DART technology and expand its product and service offerings,
market and support its solutions and increase its sales and marketing
operations. DoubleClick may be unable to adjust spending quickly enough to
offset any unexpected revenue shortfall. If DoubleClick has a shortfall in
revenue in relation to its expenses, or if its expenses exceed increased
revenue, then DoubleClick's business, results of operations and financial
condition could be materially and adversely affected. These results would
likely affect the market price of DoubleClick's common stock in a manner
which may be unrelated to its long term operating performance.
As a result, DoubleClick believes that period-to-period comparisons of its
results of operations may not be meaningful. You should not rely on past periods
as indicators of future performance.
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RAPID GROWTH IN DOUBLECLICK'S BUSINESS COULD STRAIN ITS MANAGERIAL, OPERATIONAL,
FINANCIAL AND INFORMATION SYSTEM RESOURCES.
In recent years, DoubleClick has experienced significant growth, both
internally and through acquisitions, that has placed considerable demands on its
managerial, operational and financial resources. To continue to successfully
implement DoubleClick's business plan in its rapidly evolving industry requires
an effective planning and management process. DoubleClick continues to increase
the scope of its operations both domestically and internationally, and it has
grown its workforce substantially. The anticipated future growth in the scope of
its operations will continue to place a significant strain on its management
systems and resources. DoubleClick expects that it will need to continue to
improve its financial and managerial controls and reporting systems and
procedures, and will need to continue to expand, train and manage its workforce.
DoubleClick cannot assure you that if it continues to grow, management will be
effective in attracting and retaining additional qualified personnel, expanding
its physical facilities, integrating acquired businesses or otherwise managing
growth. As of September 30, 1999, DoubleClick had a total of 1,162 employees
and, as of September 30, 2000, it had a total of 2,104 employees. DoubleClick
also cannot assure you that its information systems, procedures or controls will
be adequate to support its operations or that its management will be able to
achieve the rapid execution necessary to successfully offer its services and
implement its business plan. DoubleClick's future performance may also depend on
its effective integration of acquired businesses. Even if successful, this
integration may take a significant period of time and expense, and may place a
significant strain on DoubleClick's resources. DoubleClick's inability to
effectively manage its growth could materially and adversely affect its
business, financial condition and results of operations.
DOUBLECLICK'S BUSINESS MAY SUFFER IF IT IS UNABLE TO SUCCESSFULLY IMPLEMENT ITS
BUSINESS MODEL.
A significant part of DoubleClick's business model is to generate revenue by
providing interactive marketing solutions to advertisers, ad agencies and Web
publishers. The profit potential for this business model is unproven. To be
successful, both Internet advertising and DoubleClick's solutions will need to
achieve broad market acceptance by advertisers, ad agencies and Web publishers.
DoubleClick's ability to generate significant revenue from advertisers will
depend, in part, on its ability to contract with Web publishers that have Web
sites with adequate available ad space inventory. Further, these Web sites must
generate sufficient user traffic with demographic characteristics attractive to
DoubleClick's advertisers. The intense competition among Internet advertising
sellers has led to the creation of a number of pricing alternatives for Internet
advertising. These alternatives make it difficult for DoubleClick to project
future levels of advertising revenue and applicable gross margin that can be
sustained by DoubleClick or the Internet advertising industry in general.
Intensive marketing and sales efforts may be necessary to educate
prospective advertisers regarding the uses and benefits of, and to generate
demand for, DoubleClick's products and services, including its new products and
services such as the Sonar Network, Abacus Online Alliance and the DARTmail
Services. Enterprises may be reluctant or slow to adopt a new approach that may
replace, limit or compete with their existing direct marketing systems. In
addition, since online direct marketing is emerging as a new and distinct
business apart from online advertising, potential adopters of online direct
marketing services will increasingly demand functionality tailored to their
specific requirements. DoubleClick may be unable to meet the demands of these
clients.
Acceptance of DoubleClick's new solutions will depend on the continued
emergence of Internet commerce, communication and advertising, and demand for
its solutions. DoubleClick cannot assure you that demand for its new solutions
will emerge or become sustainable.
DISRUPTION OF DOUBLECLICK'S SERVICES DUE TO UNANTICIPATED PROBLEMS OR FAILURES
COULD HARM ITS BUSINESS.
DoubleClick's DART technology resides on a computer system located in
DoubleClick's New York City offices and in its data centers in New Jersey and
California and in Europe, Asia and Latin
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America. This system's continuing and uninterrupted performance is critical to
DoubleClick's success. Customers may become dissatisfied by any system failure
that interrupts DoubleClick's ability to provide its services to them, including
failures affecting DoubleClick's ability to deliver advertisements without
significant delay to the viewer. Sustained or repeated system failures would
reduce the attractiveness of DoubleClick's solutions to advertisers, ad agencies
and Web publishers and result in contract terminations, fee rebates and
makegoods, thereby reducing revenue. Slower response time or system failures may
also result from straining the capacity of DoubleClick's deployed software or
hardware due to an increase in the volume of advertising delivered through its
servers. To the extent that DoubleClick does not effectively address any
capacity constraints or system failures, DoubleClick's business, results of
operations and financial condition could be materially and adversely affected.
DoubleClick's operations are dependent on its ability to protect its
computer systems against damage from fire, power loss, water damage,
telecommunications failures, vandalism and other malicious acts, and similar
unexpected adverse events. In addition, interruptions in DoubleClick's solutions
could result from the failure of its telecommunications providers to provide the
necessary data communications capacity in the time frame it requires. Despite
precautions DoubleClick has taken, unanticipated problems affecting its systems
have from time to time in the past caused, and in the future could cause,
interruptions in the delivery of DoubleClick's solutions. DoubleClick's
business, results of operations and financial condition could be materially and
adversely affected by any damage or failure that interrupts or delays its
operations.
COMPETITION IN INTERNET ADVERTISING AND RELATED PRODUCTS AND SERVICES IS INTENSE
AND LIKELY TO INCREASE IN THE FUTURE, AND DOUBLECLICK MAY NOT BE ABLE TO COMPETE
SUCCESSFULLY.
The business of Internet advertising and related products and services is
intensely competitive. DoubleClick expects competition to continue to increase
because this business has no substantial barriers to entry. Competition may also
increase as a result of industry consolidation. DoubleClick believes that its
ability to compete depends upon many factors both within and beyond its control,
including the following:
the timing and acceptance of new solutions and enhancements to existing
solutions developed either by DoubleClick or its competitors;
customer service and support efforts;
sales and marketing efforts; and
the ease of use, performance, price and reliability of solutions developed
either by DoubleClick or its competitors.
DoubleClick competes for Internet advertising revenue with large Web
publishers and Web portals, such as America Online, Excite@Home, Microsoft,
GO.com and Yahoo!. Further, its DoubleClick networks compete with a variety of
Internet advertising networks, including 24/7 Media. In marketing its
DoubleClick networks and DART Service to Web publishers, DoubleClick also
competes with providers of ad servers and related services. CMGI also now owns
several Internet advertising and marketing companies either directly or
indirectly through its majority owned subsidiary Engage. These companies,
including AdForce, AdKnowledge, Flycast Communications, Adsmart and Engage,
compete with DoubleClick's Internet advertising solutions. DoubleClick also
encounters competition from a number of other sources, including content
aggregation companies, companies engaged in advertising sales networks,
advertising agencies, and other companies that facilitate Internet advertising.
Many of DoubleClick's existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than DoubleClick. These factors may allow them to respond
more quickly than DoubleClick can to new or emerging technologies and changes in
customer requirements. It may also allow them to devote greater resources than
DoubleClick can to the development, promotion and sale of their products and
services. These competitors may also engage in more extensive research and
development, undertake more far-reaching marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to existing and
potential employees, strategic partners, advertisers and Web publishers.
DoubleClick cannot assure you that its competitors
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will not develop products or services that are equal or superior to its
solutions or that achieve greater acceptance than its solutions. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of DoubleClick's prospective
advertising, ad agency and Web publisher customers. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. DoubleClick cannot assure you that it will be
able to compete successfully or that competitive pressures will not materially
and adversely affect its business, results of operations or financial condition.
DOUBLECLICK MAY NOT COMPETE SUCCESSFULLY WITH TRADITIONAL ADVERTISING MEDIA FOR
ADVERTISING DOLLARS.
Companies doing business on the Internet, including DoubleClick, must also
compete with television, radio, cable and print (traditional advertising media)
for a share of advertisers' total advertising budgets. Advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising if they perceive the Internet to be a limited or
ineffective advertising medium.
DOUBLECLICK'S REVENUE IS SUBJECT TO SEASONAL AND CYCLICAL FLUCTUATIONS.
DoubleClick believes that its business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects DoubleClick's DoubleClick
Media and DoubleClick TechSolutions businesses, and the direct marketing
industry generally mails substantially more marketing materials in the third
calendar quarter, which directly affects DoubleClick's DoubleClick Data Services
business. Further, Internet user traffic typically drops during the summer
months, which reduces the amount of advertising to sell and deliver.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
DoubleClick's revenue could be materially reduced by a decline in the economic
prospects of advertisers and direct marketers or in the economy in general,
which could alter current or prospective advertisers' and direct marketers'
spending priorities or budget cycles or extend DoubleClick's sales cycle.
Due to the risks discussed in this section, you should not rely on
quarter-to-quarter comparisons of DoubleClick's results of operations as an
indication of future performance. It is possible that in some future periods
DoubleClick's results of operations may be below the expectations of public
market analysts and investors. In this event, the price of DoubleClick's common
stock may fall.
DOUBLECLICK MAY NOT BE ABLE SUCCESSFULLY TO MAKE ACQUISITIONS OF OR INVESTMENTS
IN OTHER COMPANIES.
DoubleClick may acquire or make investments in other complementary
businesses, products, services or technologies. From time to time DoubleClick
has had discussions with other companies regarding its acquiring, or investing
in, their businesses, products, services or technologies. DoubleClick cannot
assure you that it will be able to identify other suitable acquisition or
investment candidates. Even if DoubleClick does identify suitable candidates,
DoubleClick cannot assure you that it will be able to make other acquisitions or
investments on commercially acceptable terms. If DoubleClick buys a company,
DoubleClick could have difficulty in integrating that company's personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for DoubleClick. If DoubleClick acquires different types of
businesses, it could have difficulty in integrating the acquired products,
services or technologies into its operations. These difficulties could disrupt
its ongoing business, distract its management and employees, increase its
expenses and adversely affect its results of operations due to accounting
requirements such as amortization of goodwill. Furthermore, DoubleClick may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to DoubleClick's existing
stockholders.
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DOUBLECLICK IS DEPENDENT ON KEY PERSONNEL AND ON EMPLOYEE RETENTION AND
RECRUITING FOR ITS FUTURE SUCCESS.
DoubleClick's future success depends to a significant extent on the
continued service of its key technical, sales and senior management personnel.
DoubleClick does not have employment agreements with most of these executives.
The loss of the services of one or more of DoubleClick's key employees would
likely materially and adversely affect its business, results of operations and
financial condition. DoubleClick's future success also depends on its continuing
to attract, retain and motivate highly skilled employees. Competition for
employees in its industry is intense. DoubleClick may be unable to retain its
key employees or attract, assimilate or retain other highly qualified employees
in the future. DoubleClick has from time to time in the past experienced, and it
expects to continue to experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications.
IF DOUBLECLICK FAILS TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY OR FACES A
CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, IT COULD LOSE ITS
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR DAMAGES.
DoubleClick's success and ability to effectively compete are substantially
dependent on the protection of its internally developed technologies and its
trademarks, which it protects through a combination of patent, copyright, trade
secret, unfair competition and trademark law as well as contractual agreements.
In September 1999, the U.S. Patent Office issued to DoubleClick a patent that
covers the DART technology. DoubleClick has also filed patent applications for
some of its other technology.
DoubleClick also has rights in the trademarks that it uses to market its
solutions. These trademarks include DoubleClick, Dart and Abacus. DoubleClick
has applied to register its trademarks in the United States and internationally.
DoubleClick has received registrations for the marks DoubleClick, Dart and
Abacus, among others. DoubleClick cannot assure you that any of its current or
future patent applications or trademark applications will be approved. Even if
they are approved, these patents or trademarks may be successfully challenged by
others or invalidated. If DoubleClick's trademark registrations are not approved
because third parties own these trademarks, DoubleClick's use of these
trademarks will be restricted unless it enters into arrangements with these
parties which may be unavailable on commercially reasonable terms, if at all. In
addition, DoubleClick has licensed, and may license in the future, DoubleClick's
trademarks, trade dress and similar proprietary rights to third parties. While
it endeavors to ensure that the quality of its brands are maintained by its
licensees, its licensees may take actions that could materially and adversely
affect the value of its proprietary rights and reputation.
In order to secure and protect its proprietary rights, DoubleClick generally
enters into confidentiality, proprietary rights and license agreements, as
appropriate, with its employees, consultants and business partners, and
generally controls access to and distribution of its technologies, documentation
and other proprietary information. Despite these efforts, DoubleClick cannot be
certain that the steps it takes to prevent unauthorized use of its proprietary
rights are sufficient to prevent misappropriation of its solutions or
technologies, particularly in foreign countries where laws or law enforcement
practices may not protect its proprietary rights as fully as in the United
States. In addition, DoubleClick cannot assure you that the courts will
adequately enforce contractual arrangements which it has entered into to protect
its proprietary technologies.
DoubleClick cannot assure you that any of its proprietary rights will be
viable or of value in the future since the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and still evolving. Furthermore, third parties may assert infringement
claims against it. From time to time DoubleClick has been, and it expects to
continue to be, subject to claims in the ordinary course of its business,
including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by it or the Web publishers with
Web sites in its DoubleClick networks. Such claims and any resultant litigation,
should it occur, could subject DoubleClick to significant liability for damages,
and it could be restricted from using its ad delivery technology or other
intellectual property. Any claims or litigation from third parties may also
result in limitations on its ability to use the intellectual property, including
its ad delivery technology, which are
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the subject of such claims or litigation unless it enters into arrangements with
the third parties responsible for such claims or litigation which may be
unavailable on commercially reasonable terms, if at all. In addition, even if
DoubleClick prevails, such litigation could be time-consuming and expensive to
defend, and could result in the diversion of DoubleClick's time and attention,
any of which could materially and adversely affect its business, results of
operations and financial condition.
DoubleClick has filed a patent infringement suit against each of Sabela
Media, Inc. and L90, Inc. in order to enforce its patent that covers the DART
technology. 24/7 Media has acquired Sabela Media. In May 2000, 24/7 Media filed
a patent infringement litigation suit against DoubleClick which alleged that
DoubleClick infringes, and is inducing and contributing to the infringement of a
patent owned by 24/7 Media. 24/7 Media sought damages in an unspecified amount,
an injunction against infringement of the patent, and its attorneys fees and
costs. In October 2000, DoubleClick, 24/7 Media and Sabela Media settled the
patent litigation 24/7 Media initiated against DoubleClick and the patent
litigation previously initiated against Sabela Media by DoubleClick.
Consequently, both of these lawsuits will be dismissed with prejudice. As part
of the settlement, 24/7 Media and DoubleClick granted each other certain rights
in certain of their respective patents. Under the settlement agreement, no other
terms of the settlement are permitted to be disclosed. Separately, L90 and
DoubleClick have entered into an agreement pursuant to which the parties will
enter into definitive documents to settle the patent infringement lawsuit,
including L90's related counterclaims, pending in federal district court in
Manhattan. Under the definitive documents, the parties will dismiss the pending
lawsuit with prejudice, and grant each other certain rights in certain of their
respective patents. No other terms of the settlement were disclosed.
DOUBLECLICK'S RIGHT TO KEEP AND USE INFORMATION COLLECTED IN ITS DATABASES MAY
BE CHALLENGED IN THE FUTURE, WHICH COULD ADVERSELY AFFECT DOUBLECLICK'S BUSINESS
AND RESULTS OF OPERATIONS.
DoubleClick collects and compiles information in databases for the product
offerings of all its businesses. Individuals have claimed, and may claim in the
future, that DoubleClick's collection of this information is illegal. Although
DoubleClick believes that it has the right to use and compile the information in
these databases, it cannot assure you that its ability to do so will remain
lawful, that any trade secret, copyright or other intellectual property
protection will be available for its databases, or that statutory protection
that is or becomes available for databases will enhance its rights. In addition,
others may claim rights to the information in DoubleClick's databases. Further,
pursuant to its contracts with Web publishers using its solutions, DoubleClick
is obligated to keep certain information regarding each Web publisher
confidential and, therefore, may be restricted from further using that
information in its businesses.
DOUBLECLICK MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS OR
IT WILL NOT BE COMPETITIVE.
The Internet and Internet advertising businesses are characterized by
rapidly changing technologies, evolving industry standards, frequent new product
and service introductions, and changing customer demands. DoubleClick's future
success will depend on its ability to adapt to rapidly changing technologies and
to enhance existing solutions and develop and introduce a variety of new
solutions and services to address its customers' changing demands. DoubleClick
may experience difficulties that could delay or prevent the successful design,
development, introduction or marketing of its solutions and services. In
addition, DoubleClick's new solutions or enhancements must meet the requirements
of its current and prospective customers and must achieve significant
acceptance. Material delays in introducing new solutions and enhancements may
cause customers to forego purchases of DoubleClick's solutions and purchase
those of its competitors. DoubleClick's failure to successfully design, develop,
test and introduce new services, or the failure of its recently introduced
services to achieve acceptance, could prevent DoubleClick from maintaining
existing client relationships, gaining new clients or expanding its business and
could materially and adversely affect its business, financial condition and
results of operations.
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DOUBLECLICK'S BUSINESS COULD BE ADVERSELY AFFECTED IF IT FAILS SUCCESSFULLY TO
EXPAND ITS INTERNATIONAL OPERATIONS AND SALES AND MARKETING EFFORTS.
DoubleClick has operations in a number of countries. It intends to continue
to expand its international operations and international sales and marketing
efforts. To date, DoubleClick has limited experience in developing localized
versions of its solutions and in marketing, selling and distributing its
solutions internationally. DoubleClick has established its DoubleClick networks
in Argentina, Australia, Brazil, Canada, France, Germany, Benelux (Belgium, the
Netherlands and Luxembourg), Scandinavia (Sweden, Norway, Finland, and Denmark),
Spain, the United Kingdom and Italy. In Asia (Taiwan, Singapore, Hong Kong and
China), and under separate agreements in Japan and Korea, DoubleClick is working
with its business partners to conduct operations, establish local networks,
aggregate Web publishers and coordinate sales and marketing efforts. Its success
in these markets is directly dependent on the success of its business partners
and their dedication of sufficient resources to DoubleClick's relationship.
DoubleClick's international operations are subject to other inherent risks,
including:
the impact of recessions in economies outside the United States;
changes in regulatory requirements;
more restrictive privacy regulation;
reduced protection for intellectual property rights in some countries;
potentially adverse tax consequences;
difficulties and costs of staffing and managing foreign operations;
political and economic instability;
fluctuations in currency exchange rates; and
seasonal fluctuations in Internet usage.
These risks may materially and adversely affect DoubleClick's business,
results of operations or financial condition.
DOUBLECLICK HAS INCURRED SIGNIFICANT DEBT OBLIGATIONS WHICH COULD HARM ITS
BUSINESS.
DoubleClick incurred $250 million of indebtedness in March 1999 from the
sale of its 4.75% Convertible Subordinated Notes due 2006. DoubleClick's ratio
of long-term debt to total equity was approximately 28.1% as of September 30,
2000. As a result of the sale of the notes, DoubleClick has substantially
increased its principal and interest obligations. The degree to which
DoubleClick is leveraged could materially and adversely affect its ability to
obtain additional financing and could make it more vulnerable to industry
downturns and competitive pressures. DoubleClick's ability to meet its debt
service obligations will depend on its future performance, which will be subject
to financial, business, and other factors affecting its operations, many of
which are beyond its control.
IF DOUBLECLICK DOES NOT SUCCESSFULLY INTEGRATE ABACUS AND NETGRAVITY OR THE
MERGERS' BENEFITS DO NOT MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY
ANALYSTS, THE MARKET PRICE FOR DOUBLECLICK'S COMMON STOCK MAY DECLINE.
Last year, DoubleClick consummated mergers with Abacus and NetGravity with
the expectations that these mergers would result in significant benefits. Prior
to these acquisitions, DoubleClick had virtually no experience in Abacus'
business and little direct experience with NetGravity's primary business model.
Furthermore, Abacus' principal offices are located in Broomfield, Colorado while
DoubleClick's principal offices are located in New York, New York; managing the
business in a coordinated fashion, therefore, has required additional management
resources. DoubleClick will need to continue to overcome these significant
issues in order to realize any benefits or synergies from the mergers.
DoubleClick's successful execution of these events involves considerable risk
and may not be successful. The market price of DoubleClick common stock may be
negatively impacted, and it may lose key personnel and customers as a result of
its mergers if:
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DoubleClick does not successfully integrate operations and personnel of the
businesses;
DoubleClick does not achieve the perceived benefits of the mergers as
rapidly or to the extent anticipated by financial or industry analysts; or
the effect of the mergers on DoubleClick's financial results is not
consistent with the expectations of financial or industry analysts.
IF DOUBLECLICK FAILS TO SUCCESSFULLY CROSS-MARKET THE PRODUCTS OF DOUBLECLICK
MEDIA, DOUBLECLICK TECHSOLUTIONS AND DOUBLECLICK DATA SERVICES OR TO DEVELOP NEW
PRODUCTS, DOUBLECLICK MAY NOT INCREASE OR MAINTAIN ITS CUSTOMER BASE OR ITS
REVENUE.
DoubleClick offers the respective products and services historically offered
by DoubleClick, Abacus and NetGravity to its collective customers. DoubleClick
cannot assure you that any company's customers will have any interest in the
other companies' products and services. The failure of DoubleClick's
cross-marketing efforts may diminish the benefits it realizes from these
mergers. In addition, DoubleClick intends to develop new products and services
that combine the knowledge and resources of DoubleClick Media, DoubleClick
TechSolutions and DoubleClick Data Services. DoubleClick cannot assure you that
these products or services will be developed or, if developed, will be
successful or that it can successfully integrate or realize the anticipated
benefits of these mergers. As a result, DoubleClick may not be able to increase
or maintain its customer base. It cannot assure you that the transactions or
other data in Abacus' database will be predictive or useful in other sales
channels, including Internet advertising. DoubleClick cannot assure you that it
will be able to overcome the obstacles in developing new products and services,
or that there will be a demand for the new products or services developed by it
after the mergers. An inability to overcome such obstacles or a failure of such
demand to develop could materially and adversely affect DoubleClick's business,
financial condition and results of operations or could result in loss of key
personnel. In addition, the attention and effort devoted to the integration of
the acquired companies will significantly divert management's attention from
other important issues, and could seriously harm its business, financial
condition and results of operations.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF
DOUBLECLICK.
Some of the provisions of DoubleClick's certificate of incorporation, its
bylaws and Delaware law could, together or separately:
discourage potential acquisition proposals;
delay or prevent a change in control;
impede the ability of DoubleClick stockholders to change the composition of
DoubleClick's board of directors in any one year; and
limit the price that investors might be willing to pay in the future for
shares of DoubleClick common stock.
DOUBLECLICK'S STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
The market price of DoubleClick's common stock has fluctuated in the past
and is likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. Investors may be unable to resell their
shares of DoubleClick common stock at or above the purchase price.
IF DOUBLECLICK'S STOCK PRICE IS VOLATILE, DOUBLECLICK MAY BECOME SUBJECT TO
SECURITIES LITIGATION WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF
RESOURCES.
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in DoubleClick's industry have
been subject to this type of litigation in the past. DoubleClick may also
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become involved in this type of litigation. Litigation is often expensive and
diverts management's attention and resources, which could materially and
adversely affect DoubleClick's business, financial condition and results of
operations.
FUTURE SALES OF DOUBLECLICK COMMON STOCK MAY AFFECT THE MARKET PRICE OF ITS
COMMON STOCK.
As of September 30, 2000, DoubleClick had 122,866,435 shares of common stock
outstanding, excluding 22,690,836 shares subject to options outstanding as of
such date under its stock option plans that are exercisable at prices ranging
from $0.03 to $184.35 per share. Additionally, certain holders of DoubleClick's
common stock have registration rights with respect to their shares. DoubleClick
intends to file one or more registration statements in compliance with these
registration rights. DoubleClick cannot predict the effect, if any, that future
sales of common stock or the availability of shares of common stock for future
sale, will have on the market price of its common stock prevailing from time to
time. Sales of substantial amounts of common stock (including shares included in
such registration statements, issued upon the exercise of stock options or
issued upon the conversion of DoubleClick's convertible subordinated notes), or
the perception that such sales could occur, may materially and adversely affect
prevailing market prices for its common stock.
RISKS RELATED TO DOUBLECLICK'S INDUSTRY
DOUBLECLICK'S BUSINESS MAY BE ADVERSELY AFFECTED IF DEMAND FOR INTERNET
ADVERTISING FAILS TO GROW AS PREDICTED OR DIMINISHES.
DoubleClick's future success is highly dependent on an increase in the use
of the Internet as an advertising medium. The Internet advertising industry is
new and rapidly evolving, and it cannot yet be compared with traditional
advertising media to gauge its effectiveness. As a result, demand and market
acceptance for Internet advertising solutions is uncertain. Most of
DoubleClick's current or potential advertising customers have little or no
experience using the Internet for advertising purposes and they have allocated
only a limited portion of their advertising budgets to Internet advertising. The
adoption of Internet advertising, particularly by those entities that have
historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. These customers may find Internet advertising
to be less effective for promoting their products and services relative to
traditional advertising media. In addition, most of DoubleClick's current and
potential Web publisher customers have little experience in generating revenue
from the sale of advertising space on their Web sites. DoubleClick cannot assure
you that current or potential advertising customers will continue to allocate a
portion of their advertising budget to Internet advertising or that the demand
for Internet advertising will continue to develop to sufficiently support
Internet advertising as a significant advertising medium. If the demand for
Internet advertising develops more slowly than we expect, then DoubleClick's
business, results of operations and financial condition could be materially and
adversely affected.
There are currently no standards for the measurement of the effectiveness of
Internet advertising, and standard measurements may need to be developed to
support and promote Internet advertising as a significant advertising medium.
DoubleClick's advertising customers may challenge or refuse to accept its or
third-party measurements of advertisement delivery results, and its customers
may not accept any errors in such measurements. In addition, the accuracy of
database information used to target advertisements is essential to the
effectiveness of Internet advertising that may be developed in the future. The
information in DoubleClick's database, like any database, may contain
inaccuracies which its customers may not accept.
A significant portion of DoubleClick's revenue is derived from the delivery
of advertisements placed on Web sites which are designed to contain the features
and measuring capabilities requested by advertisers. If advertisers determine
that those ads are ineffective or unattractive as an advertising medium or if
DoubleClick is unable to deliver the features or measuring capabilities
requested by advertisers, the long-term growth of its online advertising
business could be limited and its revenue levels could decline. Also, there are
'filter' software programs that limit or prevent advertising from
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being delivered to a user's computer. The commercial viability of Internet
advertising, and DoubleClick's business, results of operations and financial
condition, would be materially and adversely affected by Web users' widespread
adoption of this software.
CHANGES IN GOVERNMENT REGULATION COULD DECREASE DOUBLECLICK'S REVENUE AND
INCREASE ITS COSTS.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, and new laws and
regulations are under consideration by the United States Congress and state
legislatures. Any legislation enacted or restrictions arising from current or
future government investigations or policy could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. State governments or
governments of foreign countries might attempt to regulate DoubleClick's
transmissions or levy sales or other taxes relating to DoubleClick's activities.
The European Union has enacted its own privacy regulations that may result in
limits on the collection and use of certain user information by DoubleClick. The
laws governing the Internet, however, remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel and taxation apply to the Internet and Internet advertising. In
addition, the growth and development of Internet commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business over the
Internet. DoubleClick's business, results of operations and financial condition
could be materially and adversely affected by the adoption or modification of
laws or regulations relating to the Internet.
CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND OTHER INDIVIDUALS COULD HARM DOUBLECLICK'S BUSINESS.
The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In October 1998, the European Union adopted a directive that may limit
DoubleClick's collection and use of information regarding Internet users in
Europe. At this stage, Double Click's DART technology targets advertising to
users through the use of 'cookies' and other non-personally-identifying
information, with the exception of advertising delivered to Web sites in Germany
where DoubleClick does not currently set cookies. DoubleClick is developing new
capabilities that would permit its DART technology to target users using
anonymous online preference marketing techniques. The effectiveness of
DoubleClick's DART technology could be limited by any regulation limiting the
collection or use of information regarding Internet users. Since many of the
proposed laws or regulations are just being developed, DoubleClick cannot yet
determine the impact these regulations may have on its business.
In addition, growing public concern about privacy and the collection,
distribution and use of information about individuals has led to self-regulation
of these practices by the Internet advertising and direct marketing industry and
to increased federal and state regulation. The Network Advertising Initiative,
or NAI, of which DoubleClick is a member along with other Internet advertising
companies, has developed self-regulatory principles for online preference
marketing. These principles were recently endorsed by the Federal Trade
Commission and the Clinton Administration, and are in the process of being
adopted by the NAI companies. The Direct Marketing Association, or DMA, the
leading trade association of direct marketers, has adopted guidelines regarding
the fair use of this information which it recommends participants, such as
DoubleClick, through DoubleClick Data Services, in the direct marketing industry
follow. DoubleClick is also subject to various federal and state regulations
concerning the collection, distribution and use of information regarding
individuals. These laws include the Federal Drivers Privacy Protection Act of
1994 and state laws which limit or preclude the use of voter registration and
driver's license information, as well as laws which govern the collection and
release of consumer credit information. Although DoubleClick's compliance with
the DMA's guidelines and applicable federal and state laws and regulations has
not had a material adverse effect on it, DoubleClick cannot assure you that the
DMA will not adopt additional, more burdensome guidelines or that additional,
more burdensome federal or state laws or regulations, including antitrust and
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consumer privacy laws, will not be enacted or applied to it or its clients,
which could materially and adversely affect the business, financial condition
and results of operations of DoubleClick Data Services.
CHANGING REQUIREMENTS FOR FAIR INFORMATION COLLECTION PRACTICES AND HEIGHTENED
SCRUTINY OF DOUBLECLICK'S PRODUCTS OR SERVICES COULD REQUIRE OR CAUSE CHANGES IN
THE WAY IT CONDUCTS OR PLANS TO CONDUCT ITS BUSINESS.
There has been public debate about how fair information collection practices
should be formulated for the online and offline collection, distribution and use
of information about a consumer. Some of the discussion has focused on the fair
information collection practices that should apply when information about an
individual that is collected in the offline environment is associated with
information that is collected over the Internet about that individual. Following
DoubleClick's announcement of the Abacus merger, DoubleClick has seen a
heightened public discussion and speculation about the information collection
practices that will be employed in the industry generally, and specifically by
it.
DoubleClick is working with industry groups, such as the NAI and the Online
Privacy Alliance, to establish such standards with the U.S. government.
Nonetheless, DoubleClick cannot assure you that it will be successful in
establishing industry standards acceptable to the U.S. government or the various
state governments, or that the standards it establishes will not require
material changes to its business plans. DoubleClick also cannot assure you that
its business plans, or any U.S. industry standards that are established, will
either be acceptable to any non-U.S. government or conform to foreign legal and
business practices. As a consequence of governmental legislation or regulation
or enforcement efforts or evolving standards of fair information collection
practices, DoubleClick may be required to make changes to its products or
services in ways that could diminish the effectiveness of the product or service
or its attractiveness to potential customers. In addition, given the heightened
public discussion about consumer online privacy, DoubleClick cannot assure you
that its products and business practices will gain market acceptance, even if
they do conform to industry standards. Separately, computer users may also use
software designed to filter or prevent the delivery of advertising to their
computers. DoubleClick cannot assure you that the number of computer users who
employ filtering software will not increase. In the case that one or more of
these scenarios occur, DoubleClick's business, financial condition and results
of operations could be materially and adversely affected.
DOUBLECLICK'S BUSINESS MAY SUFFER IF THE WEB INFRASTRUCTURE IS UNABLE TO
EFFECTIVELY SUPPORT THE GROWTH IN DEMAND PLACED ON IT.
DoubleClick's success will depend, in large part, upon the maintenance of
the Web infrastructure, such as a reliable network backbone with the necessary
speed, data capacity and security, and timely development of enabling products
such as high speed modems, for providing reliable Web access and services and
improved content. DoubleClick cannot assure you that the Web infrastructure will
continue to effectively support the demands placed on it as the Web continues to
experience increased numbers of users, frequency of use or increased bandwidth
requirements of users. Even if the necessary infrastructure or technologies are
developed, DoubleClick may have to spend considerable amounts to adapt its
solutions accordingly. Furthermore, the Web has experienced a variety of outages
and other delays due to damage to portions of its infrastructure. These outages
and delays could impact the Web sites of Web publishers using our solutions and
the level of user traffic on Web sites on its DoubleClick networks.
DOUBLECLICK DATA SERVICES IS DEPENDENT ON THE SUCCESS OF THE DIRECT MARKETING
INDUSTRY FOR ITS FUTURE SUCCESS.
The future success of DoubleClick Data Services is dependent in large part
on the continued demand for its services from the direct marketing industry,
including the catalog industry, as well as the continued willingness of catalog
operators to contribute their data to DoubleClick. Most of its Data Services
clients are large consumer merchandise catalogs operators in the United States.
A significant downturn in the direct marketing industry generally, including the
catalog industry, or withdrawal by a substantial number of catalog operators
from the Abacus Alliance, would have a material adverse effect
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on DoubleClick's business, financial condition and results of operations. Many
industry experts predict that electronic commerce, including the purchase of
merchandise and the exchange of information via the Internet or other media,
will increase significantly in the future. To the extent this increase occurs,
companies which now rely on catalogs or other direct marketing avenues to market
their products may reallocate resources toward these new direct marketing
channels and away from catalog-related marketing or other direct marketing
avenues, which could adversely affect demand for DoubleClick's Data Services. In
addition, the effectiveness of direct mail as a marketing tool may decrease as a
result of consumer saturation and increased consumer resistance to direct mail
in general.
INCREASES IN POSTAL RATES AND PAPER PRICES COULD HARM DOUBLECLICK DATA SERVICES.
The direct marketing activities of DoubleClick's Abacus Alliance clients are
adversely affected by postal rate increases, especially increases that are
imposed without sufficient advance notice to allow adjustments to be made to
marketing budgets. Higher postal rates may result in fewer mailings of direct
marketing materials, with a corresponding decline in the need for some of the
direct marketing services offered by DoubleClick. Increased postal rates can
also lead to pressure from DoubleClick's clients to reduce its prices for its
services in order to offset any postal rate increase. Higher paper prices may
also cause catalog companies to conduct fewer or smaller mailings which could
cause a corresponding decline in the need for DoubleClick's services.
DoubleClick's clients may aggressively seek price reductions for its services to
offset any increased materials cost. Any of these occurrences could materially
and adversely affect the business, financial condition and results of operations
of DoubleClick's Abacus business.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Following the announcement of the proposed merger between DoubleClick and
NetGravity, complaints were filed in the San Mateo County, California, Superior
Court and the Chancery Court of the State of Delaware against NetGravity and
several of its directors. DoubleClick was also named as a defendant in the
Delaware action. The complaints allege that the directors of NetGravity breached
their fiduciary duties to NetGravity's stockholders in connection with the
negotiation of the proposed merger. The Delaware complaint asks the court to
invalidate the termination fee provision of the merger agreement by and between
NetGravity and DoubleClick. This action was dismissed without prejudice in
January 2000. The California complaint asks the court to enjoin the consummation
of the merger or, alternatively, seeks to rescind the merger or an award of
unspecified damages from the defendants in the event the merger is consummated.
The Company believes the claims asserted in this complaint are without merit and
vigorously contests them.
In November 1999, we filed suit in the U.S. District Court for the Eastern
District of Virginia against L90, Inc. for infringement of our DART patent. In
December 1999, we filed suit in the U.S. District Court for the Southern
District of New York against Sabela Media, Inc., also for infringement of our
patent. 24/7 Media, Inc. has since acquired Sabela Media.
On May 4, 2000, 24/7 Media filed a patent infringement litigation suit
against DoubleClick in the United States District Court for the Southern
District of New York. The suit alleged that DoubleClick infringes, and is
inducing and contributing to the infringement of, a patent owned by 24/7 Media.
24/7 Media sought damages in an unspecified amount, an injunction against
infringement of the patent, and its attorneys fees and costs.
In October 2000, DoubleClick, 24/7 Media and Sabela Media settled the patent
litigation 24/7 Media initiated against DoubleClick and the patent litigation
previously initiated against Sabela Media by DoubleClick. Consequently, both of
these lawsuits, including Sabela Media's related counterclaims, will be
dismissed with prejudice. As part of the settlement, 24/7 Media and DoubleClick
granted each other certain rights in certain of their respective patents. Under
the settlement agreement, no other terms of the settlement are permitted to be
disclosed. Separately, L90 and DoubleClick have entered into an agreement
pursuant to which the parties will enter into definitive documents to settle the
patent infringement lawsuit, including L90's related counterclaims, pending in
federal district court in Manhattan. Under the definitive documents, the parties
will dismiss the pending lawsuit with prejudice, and grant each other certain
rights in certain of their respective patents. No other terms of the settlement
were disclosed.
DoubleClick is a defendant in nineteen lawsuits concerning Internet user
privacy and DoubleClick's data collection and other business practices. Eighteen
of these actions are styled as class actions, and one action is brought on
behalf of the general public of the State of California. The actions seek, among
other things, injunctive relief and unspecified damages.
Five of the actions were filed in California state court, ten in federal
court in New York, one in federal court in Louisiana and one in Texas state
court. On March 31, 2000, the plaintiff in one of the California state court
proceedings filed a petition, ordered by the court on May 11, 2000, to
coordinate the four actions currently pending in the California state courts.
The Judicial Panel on Multidistrict Litigation has granted DoubleClick's motions
to transfer, coordinate and consolidate all thirteen federal actions before
Judge Buchwald in the Southern District of New York. DoubleClick believes that
these lawsuits are without merit and is vigorously defending itself against
them.
Additionally, we received a letter from the Federal Trade Commission
('FTC'), dated February 8, 2000, in which the FTC notified us that they were
conducting an inquiry into our business practices to determine whether, in
collecting and maintaining information concerning Internet users, we have
engaged in unfair or deceptive practices. We are cooperating fully with the
FTC's inquiry.
In addition, DoubleClick's ad serving and data collection practices are also
the subject of inquiries by the attorneys general of several states. DoubleClick
is cooperating fully with all such inquiries by the various states. We may
receive additional regulatory inquiries and intend to cooperate fully.
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ITEM 5. OTHER INFORMATION
CHIEF EXECUTIVE OFFICER
On July 25, 2000, we announced that our President and Chief Operating
Officer Kevin Ryan was named Chief Executive Officer and appointed to the Board
of Directors. Kevin O'Connor, formerly our Chief Executive Officer, remains as
Chairman. In his new role, Mr. Ryan continues to run the day-to-day operations
while Mr. O'Connor will continue to focus on new market development and long
term strategic planning for DoubleClick.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) The following Exhibit is filed as part of this report
3.01 -- Certificate of Amendment of our Amended and Restated
Certificate of Incorporation
27.01 -- Financial Data Schedule
(b) Reports on Form 8-K
We filed a Report on Form 8-K, Item 5, on August 10, 2000, announcing the
restructuring of our Advertising Services Agreement with AltaVista Company.
We filed a Report on Form 8-K, Item 5, on September 27, 2000, announcing
that we entered into an Agreement and Plan of Merger and Reorganization, dated
as of September 24, 2000, with a @plan.inc.
We filed a Report on Form 8-K, Item 5, on October 4, 2000, announcing that
we entered into an Agreement and Plan of Merger and Reorganization, dated as of
October 2, 2000, with NetCreations, Inc.
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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.
Date: November 14, 2000 DOUBLECLICK INC.
By: /s/ STEPHEN COLLINS
.................................
STEPHEN COLLINS
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER
AND DULY AUTHORIZED SIGNATORY)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.01 -- Certificate of Amendment of our Amended and Restated
Certificate of Incorporation
27.01 -- Financial Data Schedule
</TABLE>
