<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 MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 000-23709
DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 13-3870996
(STATE OF JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER, INCLUDING AREA CODE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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 APRIL 30, 2000, THERE WERE 122,495,632 SHARES OF THE REGISTRANT'S
COMMON STOCK OUTSTANDING.
<PAGE>
DOUBLECLICK INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Consolidated Financial Statements
Consolidated Balance Sheet as of March 31, 2000 and
December 31, 1999.......................................... 1
Consolidated Statement of Operations for the three
months ended March 31, 2000 and 1999....................... 2
Consolidated Statement of Cash Flows for the three
months ended March 31, 2000 and 1999........................ 3
Notes to Consolidated Financial Statements.................. 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7
Quantitative and Qualitative Disclosures about
Market Risk................................................. 11
PART II: OTHER INFORMATION
Item 1: Legal Proceedings................................... 24
Item 2: Changes in Securities and Use of Proceeds........... 24
Item 3: Defaults Upon Senior Securities..................... 25
Item 4: Submission of Matters to a Vote of
Security Holders.................................... 25
Item 5: Other Information................................... 25
Item 6: Exhibits and Report on Form 8-K..................... 25
</TABLE>
ii
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 322,033 $119,238
Investments in marketable securities................ 260,721 179,776
Accounts receivable, less allowances of $19,929
and $15,004 as of March 31, 2000 and
December 31, 1999, respectively................. 109,358 89,177
Prepaid expenses and other current assets........... 41,346 34,089
---------- ---------
Total current assets........................ 733,458 422,280
Investments in marketable securities................ 355,131 145,789
Property and equipment, net......................... 92,840 61,980
Intangible assets, net.............................. 92,453 94,475
Investment in affiliates............................ 77,992 --
Other assets........................................ 4,536 4,883
---------- ---------
Total assets................................ $1,356,410 $729,407
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 37,647 $ 32,846
Accrued expenses and other current liabilities...... 79,488 49,768
Deferred revenue.................................... 27,802 29,783
---------- ---------
Total current liabilities................... 144,937 112,397
Long-term obligations and notes..................... 5,354 5,348
Convertible subordinated notes...................... 250,000 250,000
STOCKHOLDERS' EQUITY:
Common stock, par value $0.001; 400,000,000
shares authorized, 122,290,203 and 112,453,892
shares outstanding at March 31, 2000 and
December 31, 1999, respectively................. 122 112
Treasury stock, 206,813 shares at March 31, 2000.... (23,766) --
Additional paid-in capital.......................... 1,112,571 475,565
Deferred compensation............................... (670) (1,106)
Accumulated deficit................................. (128,205) (109,831)
Other accumulated comprehensive loss................ (3,933) (3,078)
---------- ---------
Total stockholders' equity.................. 956,119 361,662
Total liabilities and
stockholders' equity.................... $1,356,410 $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 MARCH 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Revenue........ ..................................... $110,056 $ 39,412
Cost of revenue. .................................... 52,477 15,361
-------- --------
Gross profit..................................... 57,579 24,051
-------- --------
Operating expenses:
Sales and marketing (exclusive of non-cash
compensation of $3,235 in 2000).............. 45,928 18,334
General and administrative (exclusive of
non-cash compensation of $1,387 and $391 in
2000 and 1999, respectively)................. 20,839 6,347
Product development (exclusive of non-cash
compensation of $163 in 1999)................ 9,699 5,789
Amortization of intangible assets................ 8,405 303
Non-cash compensation............................ 4,622 554
Direct transaction, integration and facility
relocation charges........................... -- 1,644
-------- --------
Total operating expenses......................... 89,493 32,971
-------- --------
Loss from operations................................. (31,914) (8,920)
Other income (expense):
Equity in losses of affiliates................... (1,428) (138)
Gain on issuance of stock by affiliate........... 8,949 --
Interest and other, net.......................... 6,950 2,128
-------- --------
Total other income (expense)..................... 14,471 1,990
Loss before provision for income taxes............... (17,443) (6,930)
Provision for income taxes........................... 931 1,475
-------- --------
Net loss............................................. (18,374) (8,405)
======== ========
Basic and diluted net loss per share................. $ (0.16) $ (0.08)
======== ========
Weighted average shares used in basic and diluted
net loss per share calculation................... 116,839 106,877
======== ========
</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>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................. $(18,374) $ (8,405)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and leasehold amortization...... 5,539 2,027
Equity in losses of affiliates............... 1,428 138
Gain on issuance of stock by affiliate....... (8,949) --
Integration and facility relocation.......... -- 1,363
Non-cash compensation........................ 4,622 554
Amortization of intangible assets............ 8,405 303
Provision for bad debts and advertiser
discounts................................ 12,003 368
Changes in operating assets and liabilities:
Accounts receivable.......................... (32,739) 7,265
Prepaid expenses and other current assets.... (7,257) (2,267)
Accounts payable............................. 6,485 (11,027)
Accrued expenses............................. 25,734 (2,452)
Income taxes receivable...................... -- 1,386
Deferred revenue............................. (1,981) 3,113
-------- --------
Net cash used in operating activities........ (5,084) (7,634)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments in marketable
securities, net.............................. (290,827) (26,181)
Purchases of property and equipment.............. (36,047) (4,350)
Investments in affiliates and other.............. (10,380) 28
Acquisition of intangible assets................. (5,567) --
-------- --------
Net cash used in investing activities........ (342,821) (30,503)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuances of common stock, net of
issuance costs............................... 504,254 (570)
Proceeds from exercise of stock options and
issuance of warrants......................... 46,851 1,384
Proceeds from issuance of Convertible
Subordinated Notes, net of deferred offering
costs of $5,253.............................. -- 244,747
Payments of notes and capital lease obligations.. (90) (200)
-------- --------
Net cash provided by financing activities.... 551,015 245,361
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS.......................................... (315) (307)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS............ 202,795 206,917
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 119,238 161,670
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $322,033 $368,587
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 consolidated financial statements include the accounts of DoubleClick
and its majority and wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. Investments in less than
majority-owned entities 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 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 and 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 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 Loss Per Share
Basic net loss per share is computed by dividing the net loss by the sum of
the weighted average number of shares of common stock outstanding.
At March 31, 2000 and 1999, outstanding options of 22.7 million and 15.0
million, respectively, to purchase shares of 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. Similarly, the computation of
diluted net loss per share excludes the effect of 6,060,604 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 all periods
presented.
Issuance of Stock by Affiliates
Changes in DoubleClick's interest in its affiliates from the affiliates'
issuance of stock are recorded as a gain or loss 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.
4
<PAGE>
NOTE 2 - INVESTMENT IN VALUECLICK, INC.
Effective February 28, 2000, DoubleClick acquired an interest in
ValueClick, Inc. ("ValueClick") of approximately 33% and a warrant to purchase
additional ValueClick common stock for 732,860 shares of DoubleClick common
stock and $10 million in cash. The shares of DoubleClick common stock were
valued at approximately $84.2 million based on a price of $114.89 per share. The
share price represents the average price on the announcement date of January 13,
2000 and one trading day before and after. ValueClick is a provider of cost-per
click Internet advertising solutions.
DoubleClick's equity investment in ValueClick was recorded based on the
fair value of the consideration paid, less approximately $27.7 million that was
recorded as treasury stock, representing DoubleClick's approximate 33% interest
in DoubleClick common stock held by ValueClick. DoubleClick's investment in
ValueClick includes approximately $18.7 million representing the fair value of
the warrant on February 28, 2000. The warrant permits DoubleClick to purchase
additional common stock up to a 45% interest in ValueClick on a fully diluted
basis and is exercisable through May 31, 2001.
The investment is being accounted for under the equity method.
DoubleClick's proportionate share of ValueClick's net income or loss and
amortization of DoubleClick's net excess investment over its equity in
ValueClick's net assets and the value of the warrant is included in equity in
losses of affiliates in the accompanying consolidated statement of operations.
Amortization of the excess of DoubleClick's cost over its proportionate share of
ValueClick's net assets is recorded on a straight-line basis over three years.
On March 30, 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 its
proportionate share of ValueClick's net assets increased. DoubleClick recorded
an increase in its investment in ValueClick 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.
NOTE 3 - NON-CASH COMPENSATION
Non-cash compensation primarily consists of expected additional
consideration payable to certain former shareholders of DoubleClick Scandinavia
AB in connection with DoubleClick's acquisition. Additional shares of
DoubleClick common stock are contingently issuable based on continued employment
of the former shareholders and the attainment of specific revenue objectives for
the years ending December 31, 2000 and 2001. DoubleClick will continually assess
the probability and amount of the shares payable related to the achievement of
the revenue objectives and will record non-cash compensation expense over the
two-year term of employment. The maximum total value of the contingently
issuable shares is approximately $60.0 million.
NOTE 4 - 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 $503.8 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 affecting net loss per share,
weighted average number of common stock outstanding, common stock issued and
outstanding, additional paid-in capital and all other stock transactions
presented in these consolidated financial statements and related notes have been
restated to reflect the stock splits.
NOTE 5 - 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 in three segments: Media (DoubleClick Media),
Technology (DoubleClick TechSolutions) and Data (DoubleClick Data Services)
based on types of service provided. DoubleClick Media is represented by 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 and anonymous
targeting solutions for internet advertising.
5
<PAGE>
Revenue from external customers, intersegment revenue and gross profit by
segment are as follows:
<TABLE>
<CAPTION>
Three Months ended March 31, 2000
Media Technology Data Total
----- ---------- ---- -----
<S> <C> <C> <C> <C>
Revenue ............................. $60,190 $39,778 $14,727 $114,695
Intersegment elimination............. -- (4,639) -- (4,639)
------- ------- ------- --------
Revenue from external customers...... $60,190 $35,139 $14,727 $110,056
======= ======= ======= ========
Gross profit......................... $20,571 $27,492 $ 9,516 $ 57,579
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months ended March 31, 1999
Media Technology Data Total
----- ---------- ---- -----
<S> <C> <C> <C> <C>
Revenue.............................. $16,373 $11,693 $12,753 $ 40,819
Intersegment elimination............. -- (1,407) -- (1,407)
------- ------- ------- --------
Revenue from external customers...... $16,373 $10,286 $12,753 $ 39,412
======= ======= ======= ========
Gross profit......................... $ 6,801 $ 7,554 $ 9,696 $ 24,051
======= ======= ======= ========
</TABLE>
NOTE 6 - COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss, unrealized gains and losses on
marketable securities and foreign currency translation adjustments.
Comprehensive loss was $19.2 million and $8.7 million for the three months ended
March 31, 2000 and 1999, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Several civil litigations related to DoubleClick's online data collection
practices are 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 the financial condition and results of operations
could be materially adversely affected by the ultimate outcome of the pending
litigation. As of March 31, 2000, no provision has been made for any damages
which may result upon the resolution of these uncertainties.
6
<PAGE>
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 MADE FROM TIME TO TIME 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
ad 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 TechSolutions (Technology); and
- DoubleClick Data Services (Data).
BUSINESS COMBINATIONS
We consummated mergers with NetGravity, Abacus and Opt-In Email.com during
1999, which have been accounted for under the pooling of interests method and
accordingly, the financial results for the three months ended March 31, 1999
have been restated. 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 under the purchase
method.
REVENUE AND COST OF REVENUE
<TABLE>
<CAPTION>
Three Months ended March 31, 2000
Media Technology Data Total
----- ---------- ---- -----
<S> <C> <C> <C> <C>
Revenue ............................. $60,190 $39,778 $14,727 $114,695
Intersegment elimination............. -- (4,639) -- (4,639)
------- ------- ------- --------
Revenue from external customers...... $60,190 $35,139 $14,727 $110,056
======= ======= ======= ========
Gross profit......................... $20,571 $27,492 $ 9,516 $ 57,579
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months ended March 31, 1999
Media Technology Data Total
----- ---------- ---- -----
<S> <C> <C> <C> <C>
Revenue.............................. $16,373 $11,693 $12,753 $ 40,819
Intersegment elimination............. -- (1,407) -- (1,407)
------- ------- ------- --------
Revenue from external customers...... $16,373 $10,286 $12,753 $ 39,412
======= ======= ======= ========
Gross profit......................... $ 6,801 $ 7,554 $ 9,696 $ 24,051
======= ======= ======= ========
</TABLE>
7
<PAGE>
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 revenue 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 267.6% to $60.2 million for the
three months ended March 31, 2000 from $16.4 million for the three months ended
March 31, 1999. DoubleClick Media gross margin was 34.2% for the three months
ended March 31, 2000 and 41.5% for the three months ended March 31, 1999. The
increase in DoubleClick Media revenue was due primarily to an increase in the
number of advertisers and ad impressions delivered on the worldwide DoubleClick
Media networks coupled with higher average prices of advertising impressions.
Gross margin is down due to a less favorable site mix resulting in higher
average site service fees and the decline in the proportion of revenue from
AltaVista Company ("AltaVista").
DoubleClick Media revenue derived from advertising impressions delivered to
the users of the AltaVista Web site was $7.5 million, or 12.5% of DoubleClick
Media revenue for the three months ended March 31, 2000 compared to $3.5
million, or 21.3% of DoubleClick Media revenue for the three months ended March
31, 1999. Because we have specific contractual terms unique to AltaVista, we
recognize revenue from DART service fees, sales commissions and billing and
collection fees derived from the sale and delivery of ads on the AltaVista Web
site and associated services. "Systems revenue" reflects the gross value of
Media services invoiced on behalf of AltaVista. AltaVista systems revenue was
$27.5 million or 34.3% of Media systems revenue of $80.2 million for the three
months ended March 31, 2000 compared to $12.5 million or 49.2% of $25.4 million
for the three months ended March 31, 1999.
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, and
personnel related costs incurred to operate our ad delivery system.
DoubleClick TechSolutions revenue increased 240.2% to $39.8 million for the
three months ended March 31, 2000 from $11.7 million for the three months ended
March 31, 1999. DoubleClick TechSolutions gross margin was 69.1% for the three
months ended March 31, 2000 and 64.6% for the three months ended March 31, 1999.
The increase in DoubleClick TechSolutions revenue was due primarily to an
increase in the number of DART and AdServer clients, as well as the volume of
impressions delivered for existing clients, offset in part by lower average
pricing for the delivery of advertising impressions. The increase in gross
margin is due to increased efficiencies from the growth of our DART-based
service bureau offering and our consulting and support of the AdServer product,
in addition to a higher margin product mix during the three months ended March
31, 2000.
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 15.5% to $14.7 million for the
three months ended March 31, 2000 from $12.8 million for the three months ended
March 31, 1999. Gross margin declined from 76.0% in 1999 to 64.6% in 2000. The
increase in revenue was due primarily to an increase in sales to existing and
new clients and, to a lesser extent, revenue from direct marketing clients
outside the catalog industry. The decline in gross margin was due primarily to
increases in personnel related costs resulting from higher employment levels,
and facilities, depreciation and processing costs associated with supporting new
product initiatives and higher revenue.
8
<PAGE>
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, commissions,
advertising, trade show expenses, seminars and costs of marketing materials.
Sales and marketing expenses were $45.9 million, or 41.7% of revenue for the
three months ended March 31, 2000 and $18.3 million, or 46.5% of revenue for the
three months ended March 31, 1999. Approximately $6.0 million of the increase
was attributable to the increase in sales personnel and costs associated with
growth and the expansion of our international operations. In addition to
increases in other costs associated with our personnel growth, significant
increases are attributable to commissions associated with the increase in
revenue of approximately $3.5 million, costs related to the continued
development and implementation of our marketing and branding campaigns of
approximately $2.0 million, and an increase in the provision for doubtful
accounts by approximately $2.8 million. The increase in sales and marketing
expenses as a percentage of revenue resulted from our continuing effort to build
our sales and marketing infrastructure. We expect sales and marketing expenses
to increase in absolute dollars as we hire additional personnel, expand into new
markets and continue to promote the DoubleClick brand, but decrease as a
percentage of revenue.
General and Administrative
General and administrative expenses consist primarily of compensation and
professional services fees. General and administrative expenses were $20.8
million, or 18.9% of revenue for the three months ended March 31, 2000 and $6.3
million, or 16.1% of revenue for the three months ended March 31, 1999. The
increase was primarily the result of increased personnel and related expenses of
approximately $4.3 million, in addition to increases in other costs associated
with our personnel growth, and increased professional services fees of $3.2
million. Increased professional services fees related largely to consulting fees
and legal services incurred as we continue to integrate and convert our systems
and address privacy concerns. We expect general and administrative expenses to
continue to increase in absolute dollars, but decrease as a percentage of
revenue as we hire additional personnel and incur additional costs related to
the growth of our business and operations.
Product Development
Product development expenses consist primarily of compensation and
consulting expenses and enhancements to our DART and AdServer product offerings.
To date, all product development costs have been expensed as incurred. Product
development expenses were $9.7 million, or 8.8% of revenue for the three months
ended March 31, 2000 and $5.8 million, or 14.7% of revenue for the three months
ended March 31, 1999. The increase in absolute dollars was due primarily to
increases in product development personnel and related expenses of approximately
$1.8 million, in addition to increases in other costs associated with our
personnel growth, and consulting expenses of approximately $500,000. We believe
that continued investment in product development is critical to attaining our
strategic objectives and, as a result, expect product development expenses to
increase in absolute dollars.
Direct Transaction, Integration and Facility Relocation Charges
For the three months ended March 31, 1999, we incurred approximately $1.6
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 on assets with a carrying value of $2.1 million (primarily leasehold
improvements). These assets were abandoned and not relocated to our new
headquarters building. 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
amount over their remaining useful life to the abandonment date using their
initial cost recovery rate. Depreciation and amortization of approximately
$200,000 associated with assets disposed of is presented outside of direct
transaction, integration and facility relocation and other in the consolidated
statements of operations. In addition, duplicative equipment and rental costs of
approximately $200,000 were incurred.
Amortization of Intangible Assets
Amortization of intangible assets relates primarily to the goodwill
associated with our acquisitions of DoubleClick Scandinavia AB in December 1999
and DoubleClick Iberoamerica S.L. in November 1999. Goodwill amortization will
continue to impact our results from operations.
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Non-cash Compensation
The increase in non-cash compensation in the current period primarily
relates to the expected additional consideration payable to certain former
shareholders of DoubleClick Scandinavia AB. Additional shares of DoubleClick
common stock are contingently issuable based on continued employment of the
former shareholders and the attainment of specific revenue 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 during
2000 and 2001.
Loss from Operations
Loss from operations was $31.9 million for the three months ended March
31, 2000 and $8.9 million for the three months ended March 31, 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 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 $7.0 million for the three months ended March
31, 2000 and $2.1 million for the three months ended March 31, 1999. Interest
and other, net included $10.7 million of interest income for the three months
ended March 31, 2000 partially offset by $3.0 million of interest expense, and
$2.6 million of interest income for the three months ended March 31, 1999
partially offset by $400,000 of interest expense. The increase in interest
income was attributable to interest earned on cash and cash equivalents and
investments in marketable securities primarily from the net proceeds from our
common stock offering in February 2000. In addition, our average yield increased
due to holdings in investments with longer-term maturities. The increase in
interest expense is largely attributable to interest due on our Convertible
Subordinated Notes. Interest and other, net in future periods may fluctuate as a
result of the average cash and future debt balances we maintain and 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 March 31, 1999 relates to the standalone results of Abacus
prior to our merger on November 23, 1999. The provision for the three months
ended March 31, 2000 principally relates to a change in estimated tax refunds
receivable.
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 used in operating activities was $5.1 million for the three months
ended March 31, 2000 and $7.6 million for three months ended March 31, 1999.
Cash used in operating activities resulted primarily from net losses and
increases in accounts receivable, which were partially offset by increases in
accounts payable and accrued expenses. Net cash used in investing activities was
$342.8 million for the three months ended March 31, 2000, and $30.5 million for
the three months ended March 31, 1999. During the three months ended March 31,
2000, we continued to acquire equipment and invest in affiliates to support
growth and expansion, and we invested the proceeds from our common stock
issuance in marketable securities. Net cash provided by financing activities was
$551.0 million for the three months ended March 31, 2000 and $245.4 million for
the three months ended March 31, 1999. Cash provided by financing activities
consisted primarily of net proceeds from our public offering of common stock
during the three months ended March 31, 2000 and our Convertible Subordinated
Notes offering in 1999.
As of March 31, 2000, we had $322.0 million of cash and cash equivalents
and $615.9 million in investments in marketable securities. As of March 31,
2000, our principal commitments consisted of our Convertible Subordinated Notes
and obligations under operating leases. Although we have no material commitments
for capital expenditures, we anticipate that we will experience a substantial
increase in our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel, and the
continued build-out of our newly leased New York headquarters facility. We
currently anticipate that we will continue to experience significant growth in
our operating expenses for the foreseeable future and that our operating
expenses will be a material use of our cash resources.
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Pursuant to an underwriting agreement dated February 17, 2000, we completed
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 $503.8 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.
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
investments in marketable securities in a variety of securities, including both
government and corporate obligations and money market funds. As of March 31,
2000, we held cash and cash equivalents and investments in marketable securities
with an average days to maturity of 265 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 March 31, 2000.
<TABLE>
<CAPTION>
March 31,
------------------------------------------------------
2001 2002 2003 2006 Fair Value
---- ---- ---- ---- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $322,033 -- -- -- $322,033
Average interest rate................. 5.6% -- -- -- --
Fixed rate investments in marketable
securities....................... $260,721 $345,490 $9,641 -- $615,852
Average interest rate................. 6.0% 6.8% 7.1% -- --
Convertible Subordinated Notes $250,000 $581,250
Average interest rate................. -- -- -- 4.75% --
</TABLE>
We did not hold derivative financial instruments as of March 31, 2000, and
have never held these instruments in the past.
Foreign Currency Risk
We transact business in various foreign countries. Accordingly, we are
subject to exposure from adverse movements in foreign currency exchange rates.
This exposure is primarily related to revenue and operating expenses in the U.K.
and other countries whose currency is the Euro. The effect of foreign exchange
rate fluctuations for the three months ended March 31, 2000 was not material. We
do not use financial instruments to hedge operating activities denominated in
the local currency. We assess the need to utilize financial instruments to hedge
currency exposures on an ongoing basis. As of March 31, 2000 we had $9.2 million
in cash and cash equivalents denominated in foreign functional 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 Our Company and Our Business
Our limited operating history makes evaluating our business difficult
We were incorporated in January 1996 and have a limited operating history.
An investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, including the Internet advertising market. Our risks include:
- ability to sustain historical revenue growth rates;
- relying on our DoubleClick networks;
- managing our expanding operations;
- competition;
- attracting, retaining and motivating qualified personnel;
- maintaining our current, and developing new, strategic relationships with
Web publishers;
- dependence on a continuing relationship with AltaVista;
- ability to anticipate and adapt to the changing Internet market; and
- attracting and retaining a large number of advertisers from a variety
of industries.
We also depend on the growing use of the Internet for advertising, commerce
and communication, and on general economic conditions. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks.
We have a history of losses and anticipate continued losses
We 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 three months ended March 31, 2000, we incurred a net loss of $18.4
million and, as of March 31, 2000, our accumulated deficit was $128.2 million.
We have not achieved profitability and expect to continue to incur operating
losses in the future. We expect to continue to incur significant operating and
capital expenditures and, as a result, we will need to generate significant
revenue to achieve and maintain profitability. Although our revenue has grown in
recent quarters, we cannot assure you that we will achieve sufficient revenue
for profitability. Even if we do achieve profitability, we cannot assure you
that we can sustain or increase profitability on a quarterly or annual basis in
the future. If revenue grows slower than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, our business, results
of operations and financial condition will be materially and adversely affected.
We derive a substantial portion of our revenue from Web sites of a limited
number of Web publishers and the loss of these Web publishers as customers could
harm our business
We derive a substantial portion of our DoubleClick Media revenue from ad
impressions we deliver on the Web sites of a limited number of Web publishers.
For the three months ended March 31, 2000, approximately 20% of our revenue
resulted from ads delivered on the Web sites of the top five Web publishers on
our DoubleClick networks. Our 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
our DoubleClick networks or any significant reduction in traffic on these Web
publisher's Web sites.
The loss of these Web publishers could also cause advertisers or other Web
publishers to leave our networks, which could materially and adversely affect
our business, results of operations and financial condition. Typically we enter
into short-term contracts with Web publishers for inclusion of their Web sites
in our DoubleClick networks. Since these contracts are short-term, we will have
to negotiate new contracts or renewals in the future, which may have terms that
are not as favorable to us as the terms of the existing contracts. Our business,
results of operations and financial condition could be materially and adversely
affected by such new contracts or renewals.
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We rely on our relationship with AltaVista and any change in this
relationship could harm our business
Approximately 8.7% of revenue for the three months ended March 31, 2000 and
11.6% of revenue for the three months ended March 31, 1999 resulted from
advertisements delivered on or through the AltaVista Web site. On June 29, 1999,
CMGI, Inc. acquired a controlling interest in AltaVista from Compaq. Compaq and
its wholly owned subsidiary, Digital Equipment Corporation, contributed the
assets and liabilities comprising AltaVista's business, including the
Advertising Services Agreement, which governed our relationship with AltaVista,
to AltaVista Company, a new company of which CMGI owns approximately 83%, with
the remainder owned by Compaq. CMGI also now owns several Internet advertising
and marketing companies either directly or indirectly through its majority owned
subsidiary Engage, Inc. These companies, including AdForce, AdKnowledge, Flycast
Communications, Adsmart and Engage, Inc., compete with our Internet advertising
solutions. In November 1999, we entered into an Interim Advertising Services
Agreement with AltaVista, as successor to Compaq, which temporarily suspends
until January 2001 the Advertising Services Agreement we entered into with
Compaq in January 1999. The Interim Advertising Services Agreement allows for us
to continue to sell advertisements throughout AltaVista's network and provides
for AltaVista to maintain and service some advertising accounts previously
serviced by us. The loss of AltaVista as a customer or any significant reduction
in traffic on or through the AltaVista Web site would materially and adversely
affect our business, results of operations and financial condition.
Our business may be materially adversely affected by recently filed
lawsuites related to privacy and our business practices
As explained in detail in the "Legal Proceedings" section of this report,
we are a defendant in several pending class action lawsuits alleging, among
other things, that we unlawfully obtain and use Internet users' personal
information. We are also the subject of a Federal Trade Commission inquiry
concerning our collection and maintenance of information concerning Internet
users, and inquiries involving the attorneys general of several states relating
to our collection, maintenance and sharing of information concerning, and our
disclosure of those practices to, Internet users. We may receive additional
regulatory inquiries and intend to cooperate fully. Class action litigation and
regulatory inquiries of these types are often expensive and time-consuming and
their outcome is uncertain. We cannot quantify the amount of monetary or human
resources that we will be required to use to defend ourselves in these
proceedings. We may need to spend significant amounts on our legal defense,
senior management may be required to divert their attention from other portions
of our business, new product launches may be deferred or canceled as a result of
these proceedings, and we may be required to make changes to our present and
planned products or services, any of which could materially and adversely affect
our 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
us, it may materially and adversely affect our business, financial condition and
results of operations.
We derive a substantial portion of our revenue from advertisements we
deliver to Web sites on our DoubleClick networks and a decrease in traffic
levels could harm our business
We derive a large portion of our revenue from advertisements we deliver to
Web sites on our DoubleClick networks. We expect that our DoubleClick networks
will continue to account for a substantial portion of our revenue for the
foreseeable future. Our DoubleClick networks consist of Web sites of Web
publishers with which we have short-term contracts. We cannot assure you that
these Web publishers will remain associated with our DoubleClick networks, that
any DoubleClick network Web site will maintain consistent or increasing levels
of traffic over time, or that we will be able to timely or effectively replace
any existing DoubleClick network Web site with other Web sites with comparable
traffic patterns and user demographics. Our failure to successfully market our
DoubleClick networks, the loss of one or more of the Web publishers that account
for a significant portion of our revenue from our DoubleClick networks, or the
failure of the Web sites on our DoubleClick networks to maintain consistent or
increasing levels of traffic would materially and adversely affect our business,
results of operations and financial condition.
Our advertising customers and the companies with which we have strategic
business relationships may experience adverse business conditions that could
adversely affect our business
As a result of unfavorable conditions in the public equity markets, some of
our 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 our business,
financial condition and results of operations. In addition, from time to time,
we have 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 our expectations for the strategic business relationship or to
fulfill their contractual obligations to us. Such an event could have a material
adverse impact on our business, financial condition and results of operations.
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Our quarterly operating results are subject to significant fluctuations and
you should not rely on them as an indication of future operating performance
Our revenue and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. These factors include:
- advertiser, Web publisher and direct marketer demand for our solutions;
- changes in fees paid by advertisers;
- changes in service fees payable by us to Web publishers in our networks;
- the introduction of new Internet advertising services by us or our
competitors;
- variations in the levels of capital or operating expenditures and other
costs relating to the expansion of our operations; and
- general economic conditions.
For the foreseeable future, our revenue from DoubleClick TechSolutions and
DoubleClick Media will also remain dependent on user traffic levels and
advertising activity on our DoubleClick networks. This future revenue is
difficult to forecast. In addition, we plan to significantly increase our
operating expenses so that we can increase our sales and marketing operations,
continue our international expansion, upgrade and enhance our DART technology
and expand our product and service offerings, and market and support our
solutions. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenue in relation to
our expenses, or if our expenses precede increased revenue, then our business,
results of operations and financial condition could be materially and adversely
affected. These results would likely affect the market price of our common stock
in a manner which may be unrelated to our long term operating performance.
As a result, we believe that period-to-period comparisons of our results of
operations may not be meaningful. You should not rely on past periods as
indicators of future performance.
Rapid growth in our business could strain our managerial, operational,
financial and information system resources
In recent years, we have experienced significant growth, both internally
and through acquisitions, that has placed considerable demands on our
managerial, operational and financial resources. To continue to successfully
implement our business plan in our rapidly evolving markets requires an
effective planning and management process. We continue to increase the scope of
our operations both domestically and internationally, and we have grown our
workforce substantially. As of March 31, 1999, we had a total of 579 employees
(without giving effect to our acquisitions) and, as of March 31, 2000, we had a
total of 1,806 employees. In addition, we plan to continue to expand our sales
and marketing and customer support organizations both domestically and
internationally. The anticipated future growth in our operations will continue
to place a significant strain on our management systems and resources. We expect
that we will need to continue to improve our financial and managerial controls
and reporting systems and procedures, and will need to continue to expand, train
and manage our workforce. We cannot assure you that if we continue to grow,
management will be effective in attracting and retaining additional qualified
personnel, expanding our physical facilities, integrating acquired businesses or
otherwise managing growth. We also cannot assure you that our information
systems, procedures or controls will be adequate to support our operations or
that our management will be able to achieve the rapid execution necessary to
successfully offer our services and implement our business plan. Our future
performance may also depend on our 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 our resources. Our inability to
effectively manage our growth could materially and adversely affect our
business, financial condition and results of operations.
Our business may suffer if we are unable to successfully implement our
business model
A significant part of our 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 our solutions will need to achieve
broad market acceptance by advertisers, ad agencies and Web publishers. Our
ability to generate significant revenue from advertisers will depend, in part,
on our 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 our 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 us to project future levels of advertising revenue and
applicable gross margin that can be sustained by us or the Internet advertising
industry in general.
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Intensive marketing and sales efforts may be necessary to educate
prospective advertisers regarding the uses and benefits of, and to generate
demand for, our products and services, including our 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 market apart
from online advertising, potential adopters of online direct marketing services
will increasingly demand functionality tailored to their specific requirements.
We may be unable to meet the demands of these clients.
Market acceptance of our new solutions will depend on the continued
emergence of Internet commerce, communication and advertising, and market demand
for our solutions. We cannot assure you that the market for our new solutions
will develop or that demand for our new solutions will emerge or become
sustainable.
Disruption of our services due to unanticipated problems or failures could
harm our business
Our DART technology resides on a computer system located in our New York
City offices and in our data centers in New Jersey and California and in Europe,
Asia and Latin America. This system's continuing and uninterrupted performance
is critical to our success. Customers may become dissatisfied by any system
failure that interrupts our ability to provide our services to them, including
failures affecting our ability to deliver advertisements without significant
delay to the viewer. Sustained or repeated system failures would reduce the
attractiveness of our solutions to advertisers, ad agencies and Web publishers.
Slower response time or system failures may also result from straining the
capacity of our deployed software or hardware due to an increase in the volume
of advertising delivered through our servers. To the extent that we do not
effectively address any capacity constraints or system failures, our business,
results of operations and financial condition could be materially and adversely
affected.
Our operations are dependent on our ability to protect our 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 our solutions could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Despite precautions we have taken,
unanticipated problems affecting our systems have from time to time in the past
caused, and in the future could cause, interruptions in the delivery of our
solutions. Our business, results of operations and financial condition could be
materially and adversely affected by any damage or failure that interrupts or
delays our operations.
Competition in the markets for Internet advertising and related products
and services is intense and likely to increase in the future, and we may not be
able to successfully compete
The market for Internet advertising and related products and services is
intensely competitive. We expect competition to continue to increase because
this market poses no substantial barriers to entry. Competition may also
increase as a result of industry consolidation. We believe that our ability to
compete depends upon many factors both within and beyond our control, including
the following:
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed either by us or our competitors;
- customer service and support efforts;
- sales and marketing efforts; and
- the ease of use, performance, price and reliability of solutions
developed either by us or our competitors.
We compete for Internet advertising revenue with large Web publishers and
Web portals, such as America Online, Excite@Home, Microsoft, GO.com and Yahoo!.
Further, our DoubleClick networks compete with a variety of Internet advertising
networks, including 24/7 Media. In marketing our DoubleClick networks and DART
Service to Web publishers, we also compete 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, Inc. These companies, including AdForce, AdKnowledge, Flycast
Communications, Adsmart and Engage, Inc., compete with our Internet advertising
solutions. We also encounter 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.
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Many of our 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 we do. These factors may allow them to respond more quickly than
we can to new or emerging technologies and changes in customer requirements. It
may also allow them to devote greater resources than we 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. We cannot assure you that our competitors will
not develop products or services that are equal or superior to our solutions or
that achieve greater market acceptance than our 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 our 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. We cannot assure you that we will be able to compete
successfully or that competitive pressures will not materially and adversely
affect our business, results of operations or financial condition.
We may not compete successfully with traditional advertising media for
advertising dollars
Companies doing business on the Internet, including ours,
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.
Our revenue is subject to seasonal fluctuations
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our 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 our DoubleClick Data Services business.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
Further, Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver. Our 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 our sales cycle.
Due to the risks discussed in this section, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future periods our results of
operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock may fall.
We may not be able to successfully make acquisitions of or investments in
other companies
We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding our acquiring, or investing in, their businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms. If we buy a company, we 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 us. If we
make other types of acquisitions, we could have difficulty in integrating the
acquired products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations
due to accounting requirements such as amortization of goodwill. Furthermore, we
may incur debt or issue equity securities to pay for any future acquisitions.
The issuance of equity securities could be dilutive to our existing
stockholders.
We are dependent on key personnel and on employee retention and recruiting
for our future success
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Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel, in particular,
Kevin O'Connor, our Chief Executive Officer and Chairman of the Board of
Directors, Kevin Ryan, our President and Chief Operating Officer, and Dwight
Merriman, our Chief Technical Officer. We have no employment agreements with any
of these executives. The loss of the services of Messrs. O'Connor, Ryan or
Merriman, or certain other key employees, would likely materially and adversely
affect our business, results of operations and financial condition. Our future
success also depends on our continuing to attract, retain and motivate highly
skilled employees. Competition for employees in our industry is intense. We may
be unable to retain our key employees or attract, assimilate or retain other
highly qualified employees in the future. We have from time to time in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications.
If we fail to adequately protect our intellectual property or face a claim
of intellectual property infringement by a third party, we could lose our
intellectual property rights or be liable for damages
Our success and ability to effectively compete are substantially dependent
on the protection of our internally developed technologies and our trademarks,
which we protect 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 us a patent that covers the
DART technology. We have filed a patent infringement suit against each of L90,
Inc. and Sabela Media, Inc. in order to enforce our patent. 24/7 Media has
recently acquired Sabela Media. We have also filed patent applications for some
of our other technology.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK, DART and ABACUS. We have applied to
register our trademarks in the U.S. and internationally. We have received
registrations for the marks DOUBLECLICK and ABACUS, among others. We cannot
assure you that any of our 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 our
trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks will be restricted unless we enter into
arrangements with these parties which may be unavailable on commercially
reasonable terms, if at all. In addition, we have licensed, and may license in
the future, our trademarks, trade dress and similar proprietary rights to third
parties. While we endeavor to ensure that the quality of our brands are
maintained by our licensees, our licensees may take actions that could
materially and adversely affect the value of our proprietary rights and
reputation.
In order to secure and protect our proprietary rights, we generally enter
into confidentiality, proprietary rights and license agreements, as appropriate,
with our employees, consultants and business partners, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, we cannot be certain that the
steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that the courts will adequately enforce
contractual arrangements which we have entered into to protect our proprietary
technologies.
We cannot assure you that any of our 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 is
uncertain and still evolving. Furthermore, third parties may assert infringement
claims against us. From time to time we have been, and we expect to continue to
be, subject to claims in the ordinary course of our business, including claims
of alleged infringement of the trademarks and other intellectual property rights
of third parties by us or the Web publishers with Web sites in our DoubleClick
networks. Such claims and any resultant litigation, should it occur, could
subject us to significant liability for damages, and we could be restricted from
using our ad delivery technology or other intellectual property. Any claims or
litigation from third parties may also result in limitations on our ability to
use the intellectual property, including our ad delivery technology, which are
the subject of such claims or litigation unless we enter 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 we
prevail, such litigation could be time-consuming and expensive to defend, and
could result in the diversion of our time and attention, any of which could
materially and adversely affect our business, results of operations and
financial condition.
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In May 2000, 24/7 Media filed a patent infringement litigation suit against
us, which alleges that we infringe, and are inducing and contributing to the
infringement of a patent owned by 24/7 Media. 24/7 Media is seeking damages in
an unspecified amount, an injunction against infringement of the patent, and its
attorneys fees and costs. We deny infringement and intend to vigorously defend
against these claims. We cannot quantify the amount of monetary or human
resources that we will be required to use to defend ourselves in this
proceeding. We may need to spend significant amounts on our legal defense,
senior management may be required to divert their attention from other portions
of our business, new product launches may be deferred or canceled as a result of
this proceeding, and we may be required to make changes to our present and
planned products or services, any of which could materially and adversely affect
our business, financial condition and results of operations. If, as a result of
this proceeding, a judgment is rendered or a decree is entered against us, it
may materially and adversely affect our business, financial condition and
results of operations.
Our right to keep information collected in our databases may be challenged
in the future, which could adversely affect our business and results of
operations
We collect and compile information in databases for the product offerings
of all our businesses. Individuals have claimed, and may claim in the future,
that our collection of this information is illegal. Although we believe that we
have the right to use and compile the information in these databases, we cannot
assure you that our ability to do so will remain lawful, that any trade secret,
copyright or other intellectual property protection will be available for our
databases, or that statutory protection that is or becomes available for
databases will enhance our rights. In addition, others may claim rights to the
information in our databases. Further, pursuant to our contracts with Web
publishers using our solutions, we are obligated to keep certain information
regarding each Web publisher confidential and, therefore, may be restricted from
further using that information in our business.
We must adapt to technology trends and evolving industry standards or we
will not be competitive
The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing customer demands. Our future success will
depend on our 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 our customers' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our solutions and services. In addition, our new
solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors. Our
failure to successfully design, develop, test and introduce new services, or the
failure of our recently introduced services to achieve market acceptance, could
prevent us from maintaining existing client relationships, gaining new clients
or expanding our markets and could materially and adversely affect our business,
financial condition and results of operations.
Our business could be adversely affected if we fail to successfully expand
our international operations and sales and marketing efforts
We have operations in a number of international markets. We intend to
continue to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in developing localized
versions of our solutions and in marketing, selling and distributing our
solutions internationally. We have established our DoubleClick networks in
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, and Hong Kong), and under
separate agreements, Japan and Korea, we are working with our business partners
to conduct operations, establish local networks, aggregate Web publishers and
coordinate sales and marketing efforts. Our success in these markets is directly
dependent on the success of our business partners and their dedication of
sufficient resources to our relationship.
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Our 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 our business, results of
operations or financial condition.
We have incurred significant debt obligations which could harm our business
We incurred $250 million of indebtedness in March 1999 from the sale of our
4.75% Convertible Subordinated Notes due 2006. Our ratio of long-term debt to
total equity was approximately 27% as of March 31, 2000. As a result of the sale
of the notes, we have substantially increased our principal and interest
obligations. The degree to which we are leveraged could materially and adversely
affect our ability to obtain additional financing and could make us more
vulnerable to industry downturns and competitive pressures. Our ability to meet
our debt service obligations will depend on our future performance, which will
be subject to financial, business, and other factors affecting our operations,
many of which are beyond our control.
If we do not successfully integrate Abacus and NetGravity or the mergers'
benefits do not meet the expectations of financial or industry analysts, the
market price for our common stock may decline
We entered into merger agreements with Abacus and NetGravity with the
expectations that these mergers will result in significant benefits. We have
virtually no experience in Abacus's business and little direct experience with
NetGravity's primary business model. Furthermore, Abacus's principal offices are
located in Broomfield, Colorado, and NetGravity's principal offices are located
in San Mateo, California, while our principal offices are located in New York,
New York. There are currently no plans to relocate any of these principal
offices. We will need to overcome these significant issues in order to realize
any benefits or synergies from the mergers. Our successful execution of these
post-merger events will involve considerable risk and may not be successful. The
market price of our common stock may decline, and we may lose key personnel and
customers as a result of our mergers if:
- we do not successfully integrate operations and personnel of the
businesses;
- we do 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 our financial results is not consistent with
the expectations of financial or industry analysts.
If we fail to successfully cross-market the products of DoubleClick Media,
DoubleClick TechSolutions and DoubleClick Data Services or to develop new
products, we may not increase or maintain our customer base or our revenue
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We intend to initially offer the respective products and services
historically offered by DoubleClick, Abacus and NetGravity to our collective
customers. We cannot assure you that any company's customers will have any
interest in the other company's products and services. The failure of our
cross-marketing efforts may diminish the benefits we realize from the mergers.
In addition, we intend to develop new products and services that combine the
knowledge and resources of DoubleClick Media, DoubleClick TechSolutions and
DoubleClick Data Services. We cannot assure you that these products or services
will be developed or, if developed, will be successful or that we can
successfully integrate or realize the anticipated benefits of the mergers. As a
result, we may not be able to increase or maintain our customer base. We cannot
assure you that the transactions or other data in Abacus's database will be
predictive or useful in other sales channels, including Internet advertising. To
date, we have not thoroughly investigated the obstacles, technological,
market-driven or otherwise, to developing and marketing these new products and
services in a timely and efficient way. We cannot assure you that we will be
able to overcome the obstacles in developing new products and services, or that
there will be a market for the new products or services developed by us after
the mergers. An inability to overcome such obstacles or a failure of such a
market to develop could materially and adversely affect our 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 our business, financial condition and results
of operations.
If the costs associated with the mergers exceed the benefits realized, we
may experience increased losses
We have incurred one-time charges related to the Abacus and NetGravity
mergers. If the benefits of the mergers do not exceed the costs associated with
them, including any dilution to our stockholders resulting from the issuance of
shares in connection with the mergers, our financial results could be adversely
affected.
If the Abacus or NetGravity merger fails to qualify as a pooling of
interests, we would be required to take charges against earnings in future
periods, which would increase the amount of our losses
If we cannot account for one or both of the mergers as a pooling of
interests, a significant portion of the purchase price for the merger will be
allocated to goodwill and other intangible assets, which we would amortize over
their estimated useful lives. The availability of pooling of interests
accounting treatment for the mergers depends upon circumstances and events
occurring both before and after each merger's completion. For example, no
significant changes in the business of the combined company may occur, including
significant dispositions of assets, for a period of two years following the
effective time of the merger. If pooling is not available, we would take charges
against our earnings in the future, which could materially and adversely affect
our reported financial results and, likely, the price of our common stock.
Effects of anti-takeover provisions could inhibit the acquisition of our
company
Some of the provisions of our certificate of incorporation, our by-laws and
Delaware law could, together or separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control;
- impede the ability of our stockholders to change the composition of our
board of directors in any one year; and
- limit the price that investors might be willing to pay in the future for
shares of our common stock.
Our stock price may experience extreme price and volume fluctuations
The market price of our 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 our common stock at or above the purchase price.
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If our stock price is volatile, we 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 our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could materially and adversely affect our
business, financial condition and results of operations.
Future sales of our common stock may affect the market price of our common stock
As of March 31, 2000, we had 122,290,203 shares of common stock
outstanding, excluding 22,680,809 shares subject to options outstanding as of
such date under our stock option plans that are exercisable at prices ranging
from $0.03 to $184.35 per share. Additionally, certain holders of our common
stock have registration rights with respect to their shares. We intend to file
one or more registration statements in compliance with these registration
rights. We 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 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 our Convertible Subordinated Notes), or the perception that such
sales could occur, may materially and adversely affect prevailing market prices
for common stock.
RISKS RELATED TO OUR INDUSTRY
Our business may be adversely affected if the market for internet advertising
fails to grow as predicted or diminishes
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising market 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 our 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 our current and potential Web publisher customers have
little experience in generating revenue from the sale of advertising space on
their Web sites. We 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 market for Internet advertising will continue
to develop to sufficiently support Internet advertising as a significant
advertising medium. If the market for Internet advertising develops more slowly
than we expect, then our 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.
Our advertising customers may challenge or refuse to accept our or third-party
measurements of advertisement delivery results, and our 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 our
database, like any database, may contain inaccuracies which our customers may
not accept.
A significant portion of our revenue are 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 we
are unable to deliver the features or measuring capabilities requested by
advertisers, the long-term growth of our online advertising business could be
limited and our revenue levels could decline. Also, there are 'filter' software
programs that limit or prevent advertising from being delivered to a user's
computer. The commercial viability of Internet advertising, and our business,
results of operations and financial condition, would be materially and adversely
affected by Web users' widespread adoption of this software.
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Changes in government regulation could decrease our revenue and increase
our 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. The governments of other
states or foreign countries might attempt to regulate our transmissions or levy
sales or other taxes relating to our activities. The European Union has enacted
its own privacy regulations that may result in limits on the collection and use
of certain user information. 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
the market for 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. Our
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 our 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 our
collection and use of information regarding Internet users in Europe. At this
stage, our DART technology targets advertising to users through the use of
'cookies' and other non-personally-identifying information, with the exception
of advertising delivered to German Web sites where we do not currently use
cookies. We are developing new capabilities that would permit our DART
technology to target users through the use of personally identifiable
information collected with prior notice and the opportunity for a user to
opt-out of such targeting and collection. The effectiveness of our 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, we cannot yet determine the impact these
regulations may have on our 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 direct marketing industry and to increased federal and
state regulation. 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 us, through
DoubleClick Data Services, in the direct marketing industry follow. We are 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 drivers license information, as well
as laws which govern the collection and release of consumer credit information.
Although our compliance with the DMA's guidelines and applicable federal and
state laws and regulations has not had a material adverse effect on us, we
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 consumer privacy laws, will not be enacted
or applied to us or our 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 our products or services could require or cause changes
in the way we conduct or plan to conduct our 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 our announcement of the Abacus merger, we have seen a
heightened public discussion and speculation about the information collection
practices that will be employed in the industry generally, and specifically by
us.
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We have publicly committed that no personally identifiable offline
information about a consumer will be associated with online information about
that consumer for the delivery of personally-targeted Internet advertising until
there is agreement on standards between industry and the U.S. government. We are
working with industry groups, such as the Network Advertising Initiative and the
Online Privacy Alliance, to establish such standards with the U.S. government.
We cannot assure you that we will be successful in establishing industry
standards acceptable to the U.S. government, or that the standards we establish
will not require material changes to our business plans. We also cannot assure
you that our 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, we may be required to make changes to our
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, we cannot
assure you that our 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. We 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, our business, financial condition and results of
operations could be materially and adversely affected.
Our business may suffer if the Web infrastructure is unable to effectively
support the growth in demand placed on it
Our 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. We 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, we
may have to spend considerable amounts to adapt our 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 our 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 our services from the direct marketing industry,
including the catalog industry, as well as the continued willingness of catalog
operators to contribute their data to us. Most of our 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 catalogs operators
from the Abacus Alliance, would have a material adverse effect on our 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 our 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 our 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 us. Increased postal rates can also lead to
pressure from our clients to reduce our prices for our 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 our services. Our clients may aggressively seek price
reductions for our 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 our 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. In April 2000, the L90 case was transferred to the U.S. District Court
for the Southern District of New York. The L90 and Sabela lawsuits have been
consolidated for pre-trial purposes.
On May 4, 2000, 24/7 Media, Inc. filed a patent infringement litigation
suit against DoubleClick in the United States District Court for the Southern
District of New York. The suit alleges that DoubleClick infringes, and is
inducing and contributing to the infringement of, a patent owned by 24/7 Media.
24/7 Media is seeking damages in an unspecified amount, an injunction against
infringement of the patent, and its attorneys fees and costs. DoubleClick denies
infringement and intends to vigorously defend against these claims.
DoubleClick is a defendant in sixteen recently filed lawsuits concerning
Internet user privacy and DoubleClick's data collection and other business
practices. Fifteen 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.
Four of the actions were filed in California state court, ten in federal
court in New York, one in federal court in California, and one in Texas state
court. On March 31, 2000, the plaintiff in one of the California state court
proceedings filed a petition to coordinate the four actions currently pending in
the California state courts. The Texas state action was removed by DoubleClick
on April 11, 2000 to the federal district court for the Southern District of
Texas, Brownsville Division. On April 26, 2000, DoubleClick filed a Motion for
Transfer, Coordination and Consolidation before the Judicial Panel on
Multidistrict Litigation, seeking to transfer, coordinate and consolidate all
twelve federal actions before Judge Buchwald in the Southern District of New
York. The ten actions currently pending in the Southern District of New York
already have been consolidated into one action before Judge Buchwald. These
lawsuits have only recently been filed. 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.
Item 2. Changes in securities and use of proceeds
(a) NONE
(b) NONE
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(c) Recent Sales of Unregistered Securities
During the three month period ended March 31, 2000, we issued an
aggregate of 905,388 shares of our common stock in connection with our
acquisition of the outstanding shares of DoubleClick Scandinavia AB
that we did not previously own and our acquisition of approximately a
33% interest in ValueClick, Inc. Of these shares, an aggregate of
172,528 shares were issued on March 15, 2000 to the stockholders of
DoubleClick Scandinavia AB and an aggregate of 732,860 shares were
issued on February 28, 2000 to ValueClick, Inc. In connection with the
DoubleClick Scandinavia transaction, additional shares of our common
stock may be issued in the future. No underwriters were involved in
connection with the issuances of these shares and there were no
underwriting discounts or commissions. The securities were issued in
reliance upon the exemption from registration provided under Section
4(2) of the Securities Act based on the fact that we issued the shares
of common stock in a sale not involving a public offering. These sales
were made without general solicitation or advertising. A registration
statement on Form S-3 covering the resale of the ValueClick shares was
declared effective by the Securities and Exchange Commission on April
12, 2000. A registration statement on Form S-3 has not been filed
covering the shares issued on March 15, 2000.
(d) NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) The following Exhibit is filed as part of this report
27.01 -- Financial Data Schedule
(b) Reports on Form 8-K
We filed two Reports on Form 8-K/A on January 10, 2000 to amend filings on
November 10, 1999 and December 8, 1999 to include Item 7(a) the Financial
Statements of Business Acquired and Item 7(b), the ProForma Financial
Information, for our NetGravity and Abacus Direct mergers, respectively.
We filed a Report on Form 8-K, Item 2, on January 13, 2000, announcing the
consummation of our acquisition of DoubleClick Scandinavia AB under the terms of
the Agreement on the Sale and Purchase of shares dated as of December 17, 1999.
We amended this report with the Report on Form 8-K/A filed on March 10, 2000 to
include Item 7(a) the Financial Statements of Business Acquired and Item 7(b),
the ProForma Financial Information.
We filed a Report on Form 8-K, Items 5 and 7, on January 27, 2000,
announcing an Interim Amended and Restated Advertising and Services Agreement
effective as of November 1, 1999 by and between DoubleClick, Alta Vista Company
and AV Internet Solutions Ltd.
We filed a Report on Form 8-K, Item 5, on January 27, 2000, announcing a
strategic agreement to invest $85 million in ValueClick, Inc. effective January
11, 2000, and filing our press release on our earnings for the quarter and year
ended December 31, 1999.
We filed a Report on Form 8-K, Items 5 and 7, on February 16, 2000, filing
our prospectus on Form S-3 relating to the proposed sale by the Company and
certain selling stockholders of an aggregate of 7,500,000 shares of Company
common stock.
We filed a Report on Form 8-K, Items 5 and 7, on March 17, 2000, announcing
the resignation of M. Anthony White from our Board of Directors.
25
<PAGE>
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.
DOUBLECLICK INC.
Date: May 12, 2000 By: /s/ STEPHEN COLLINS
-------------------
Stephen Collins
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER
AND DULY AUTHORIZED SIGNATORY)
26
<PAGE>
EXHIBIT INDEX
Number Description
27.01 Financial Data Schedule
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001049480
<NAME> DOUBLECLICK INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 322,033
<SECURITIES> 615,852
<RECEIVABLES> 129,287
<ALLOWANCES> 19,929
<INVENTORY> 0
<CURRENT-ASSETS> 733,458
<PP&E> 92,840
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,356,410
<CURRENT-LIABILITIES> 144,937
<BONDS> 250,000
0
0
<COMMON> 122
<OTHER-SE> 955,997
<TOTAL-LIABILITY-AND-EQUITY> 1,356,410
<SALES> 110,056
<TOTAL-REVENUES> 110,056
<CGS> 52,477
<TOTAL-COSTS> 52,477
<OTHER-EXPENSES> 89,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (17,443)
<INCOME-TAX> 931
<INCOME-CONTINUING> (18,374)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,374)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
