<PAGE> 1
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 JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25741
PROXICOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1770631
--------------------------------------------------------------------------------
(State of Organization) (I.R.S. Employer Identification Number)
11600 Sunrise Valley Drive, Reston, VA 20191
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 262-3200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
As of August 10, 2000, the issuer had 56,429,982 shares of common stock
outstanding.
<PAGE> 2
PROXICOM, INC.
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
as of December 31, 1999 and June 30, 2000........................................................... 1
Consolidated Statements of Operations
for the Three-Month and Six-Month Periods Ended
June 30, 1999 and June 30, 2000..................................................................... 2
Consolidated Statements of Cash Flows
for the Six-Month Periods Ended June 30, 1999
and June 30, 2000................................................................................... 3
Notes to Consolidated Financial Statements.......................................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 18
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders................................................. 19
Item 6. Exhibits and Reports on Form 8-K.................................................................... 20
</TABLE>
<PAGE> 3
PART I.
CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
PROXICOM, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
(UNAUDITED)
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 113,819 $ 70,348
Investments.................................................................. 5,819 38,449
Accounts receivable, net of allowance of $655 and $909, respectively......... 24,043 40,776
Unbilled services............................................................ 1,865 2,197
Prepaid income taxes......................................................... 173 -
Prepaid expenses............................................................. 1,886 2,172
Deferred tax and other current assets........................................ 1,295 3,517
--------- ---------
Total current assets....................................................... 148,900 157,459
Property and equipment, net..................................................... 5,063 11,185
Goodwill and other intangibles.................................................. - 46,129
Deferred tax assets and other................................................... 6,151 11,354
--------- ---------
Total assets............................................................... $ 160,114 $226,127
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable....................................................... $ 1,345 $ 5,702
Accrued compensation......................................................... 8,298 13,927
Employee withholdings, stock purchase plan................................... 2,140 2,471
Deferred revenue............................................................. 3,533 3,845
Other accrued liabilities.................................................... 1,539 6,086
--------- ---------
Total current liabilities.................................................. 16,855 32,031
Long term deferred tax liability................................................ - 2,320
--------- ---------
Total liabilities.......................................................... 16,855 34,351
Commitments and contingencies (Note 6) Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares
issued and outstanding at December 31, 1999 and
June 30, 2000............................................................. -- --
Common stock, $0.01 par value; 100,000,000 shares authorized,
52,642,482 shares issued and 52,536,224 outstanding at December 31,
1999; 56,192,239 shares issued and outstanding at June 30, 2000............ 526 561
Additional paid-in capital................................................... 162,715 226,899
Retained deficit............................................................. (19,884) (19,250)
Accumulated other comprehensive income....................................... 124 214
Deferred compensation........................................................ - (16,648)
Treasury stock............................................................... (222) -
--------- ---------
Total stockholders' equity................................................. 143,259 191,776
--------- ---------
Total liabilities and stockholders' equity...................................... $ 160,114 $ 226,127
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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PROXICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 2000 1999 2000
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue................................................ $ 16,221 $ 50,923 $ 29,475 $ 89,090
Cost of revenue (inclusive of non-cash compensation
expense of $108, $67, $225 and $102, respectively).. 9,019 23,965 16,928 42,382
-------- --------- --------- ---------
Gross profit........................................... 7,202 26,958 12,547 46,708
-------- --------- --------- ---------
Operating expenses:
General and administrative (exclusive of non-cash
compensation expense of $0, $1.827, $0 and $1.827,
respectively).................................... 5,596 18,611 10,158 31,708
Selling and marketing............................... 787 4,201 1,437 7,795
Stock-based compensation............................ - 1,827 - 1,827
Amortization of intangible assets................... - 3,486 - 3,486
Acquisition and merger costs........................ - - 300 -
-------- --------- -------- ---------
Total............................................. 6,383 28,125 11,895 44,816
-------- --------- ------ ---------
Income (loss) from operations.......................... 819 (1,167) 652 1,892
Interest income, net................................... 476 1,455 411 3,144
-------- --------- --------- ---------
Income before income taxes............................. 1,295 288 1,063 5,036
Income tax provision................................... 531 2,346 447 4,402
-------- --------- --------- ---------
Net income (loss)...................................... 764 (2,058) 616 634
Non-cash dividend on beneficial conversion of
convertible preferred stock......................... - - (4,873) -
-------- --------- --------- ----------
Net income (loss) available to common stockholders..... $ 764 $ (2,058) $ (4,257) $ 634
======== ========== ========= =========
Basic net income (loss) per common share............... $ 0.02 $ (0.04) $ (0.11) $ 0.01
======== ========= ========= ==========
Diluted net income (loss) per common share............. $ 0.01 $ (0.04) $ (0.11) $ 0.01
======== ========= ========= ==========
Weighted average shares used in computing basic
income (loss) per share amount...................... 46,032 55,095 38,234 54,399
======== ========= ========= =========
Weighted average shares used in computing diluted
income (loss) per share amount...................... 53,230 55,095 38,234 63,665
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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PROXICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1999 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net income.................................................................... $ 616 $ 634
Adjustments to reconcile net income
to net cash used in operating activities:
Non-cash stock compensation................................................. 223 1,895
Non-cash warrant expense.................................................... - 1,038
Depreciation ............................................................... 740 1,208
Amortization of intangible assets........................................... - 3,486
Provision for doubtful accounts............................................. (74) 254
Income tax benefit from stock-based award................................... - 9,670
Increase in deferred income taxes........................................... (68) (6,108)
Changes in assets and liabilities:
Increase in accounts receivable........................................... (5,051) (15,267)
Increase in unbilled services............................................. (2,422) (332)
Increase in prepaid expenses.............................................. (1,005) (98)
Decrease in prepaid income taxes.......................................... - 173
Increase in other assets.................................................. (151) (1,437)
Increase in trade accounts payable........................................ 1,060 4,357
(Decrease) increase in accrued compensation............................... (217) 5,449
Decrease in note payable.................................................. (1,400) -
Increase in employee withholdings......................................... - 331
Increase in deferred revenue.............................................. 21 312
(Decrease) increase in other accrued liabilities.......................... (548) 1,373
---------- ---------
Net cash (used in) provided by operating activities..................... (8,276) 6,938
--------- ---------
Cash flows used in investing activities:
Investment in subsidiary, net of cash......................................... - (18,977)
Purchases of property and equipment........................................... (1,365) (6,828)
Purchases of investments...................................................... (414,538) (69,400)
Sales of investments.......................................................... 358,410 36,861
--------- ---------
Net cash used in investing activities .................................. (57,493) (58,344)
--------- ---------
Cash flows from financing activities:
Issuance of convertible preferred stock, Series D............................. 7,279 -
Proceeds from initial public offering......................................... 54,310 -
Exercise of stock warrants.................................................... 8,000 -
Issuance of shares through ESPP............................................... - 2,129
Exercise of stock options..................................................... 1,921 5,807
Borrowings on lines of credit................................................. 4,550 4,900
Payments on lines of credit................................................... (10,104) (4,900)
Subchapter S Corporation distributions........................................ (130) -
---------- ---------
Net cash provided by financing activities............................... 65,826 7,936
--------- ---------
Effect of exchange rate change................................................ - (1)
--------- ---------
Net increase (decrease) in cash and cash equivalents............................ 57 (43,471)
Cash and cash equivalents at beginning of period................................ 2,586 113,819
--------- ---------
Cash and cash equivalents at end of period...................................... $ 2,643 $ 70,348
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE> 6
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 2000
----------------- -----------
<S> <C> <C>
Supplemental disclosure of non-cash investing activities:
Common stock issued for acquisition of Subsidiary.............................. - 27,254
Common Stock issued for future services related to
acquisition of subsidiary...................................................... 18,475
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE> 7
PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Proxicom, Inc.
("Proxicom" or the "Company") include the accounts of Proxicom and all of its
wholly owned subsidiaries. All material intercompany transactions and balances
have been eliminated in consolidation.
In the opinion of management, the consolidated financial statements for the
three-month and six-month periods ended June 30, 1999 and 2000 reflect all
normal and recurring adjustments, which are necessary for a fair presentation of
Proxicom's financial position, results of operations and of cash flows as of the
dates and for the periods presented. The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Consequently, these consolidated statements do
not include all the disclosures normally required by generally accepted
accounting principles for annual financial statements. Accordingly, these
unaudited consolidated financial statements should be read in conjunction with
Proxicom's audited consolidated financial statements and notes thereto for the
period ended December 31, 1999, included in the Form 10-K filed by Proxicom with
the Securities and Exchange Commission (SEC File No. 0-25741). The consolidated
results of operations for the three and six-month periods ended June 30, 2000
are not necessarily indicative of results that may be expected for the year
ending December 31, 2000.
On January 24, 2000, the Board of Directors approved a two-for-one stock
split, effective February 24, 2000, for common shareholders of record as of
February 9, 2000. The financial statements of the Company, including references
to all common stock shares and per share data, have been retroactively restated
to reflect the stock split.
2. ACQUISITION OF SUBSIDIARY
On April 19, 2000, Proxicom completed its acquisition of Clarity IBD
Limited, a United Kingdom e-business development consultancy company
("Clarity") for approximately $46.7 million (including direct acquisition costs
of $3.5 million) consisting of $16.0 million in cash and 769,440 shares of
Proxicom common stock with a value of $27.2 million. The Company announced the
acquisition on April 11, 2000. The common stock was valued at $35.42 per share,
which was determined as the average of the Company's closing stock price for the
week ended April 14, 2000.
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<PAGE> 8
In addition to the 769,440 shares of common stock, 521,606 shares were
issued to principal owners/employees of Clarity. These shares are held in escrow
and will be released on the first and second anniversary date of the
acquisition. The value of these shares is $18.5 million, which is included in
stockholders' equity as deferred compensation and is being amortized on a
straight line basis over the two-year vesting period. The Company recognized
stock compensation amortization expense of $1.8 million during the three-months
ended June 30, 2000. Remaining unamortized deferred compensation as of June 30,
2000 is $16.7 million.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the purchase price was allocated to the assets acquired and
the liabilities assumed based on their respective fair values. Management
obtained an independent valuation for the allocation of the excess purchase
price over net tangible assets acquired. Based on this allocation, management
has attributed the excess purchase price to acquired service agreements,
customer relationships, assembled workforce and goodwill. The Company recorded
a deferred tax liability of $2.4 million for nondeductible expenses associated
with these intangible assets. This amount has been included as part of
goodwill. The cost of these intangible assets will be amortized on a straight
line basis over three years. The Company recognized amortization expense on
intangible assets (including goodwill) of $3.5 million during the three-months
ended June 30, 2000. Remaining unamortized intangible assets as of June 30,
2000 is $46.1 million.
The results of operations of Clarity have been reflected in the financial
statements as of the acquisition date. The following table reflects unaudited
pro forma combined results of the Company and Clarity as if the acquisition had
taken place at the beginning of the fiscal year for each of the periods
presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 2000
--------- ----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenues .................................. $ 32,179 $ 91,644
========= ========
Net Loss .................................. $ (16,028) $ (5,324)
========= ========
Net Loss per basis share .................. $ (0.41) $ (0.10)
========= ========
Net Loss per diluted share ................ $ (0.41) $ (0.10)
========= ========
</TABLE>
These unaudited pro forma results of operations include adjustments to reflect
(1) additional amortization expense relating to intangible assets which result
from the purchase method of accounting; (2) additional compensation expense
related to the shares issued to the former Clarity owners and held in escrow;
(3) a net reduction in interest income; and (4) additional tax benefit relating
to conforming Clarity to the Company's tax position.
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<PAGE> 9
The unaudited pro forma combined results of operations may not be
comparable to and may not be indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of 1999 or at the
beginning of 2000 or of future operations of the combined companies because the
operating companies were not under common control of management and had
different tax and capital structures during the periods presented.
3. SUPPLEMENTAL CASHFLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1999 2000
----------------- ------------
<S> <C> <C>
Business acquisition:
Cash paid for business acquisition............................................ $ - $ 19,467
Less: cash acquired........................................................... - (489)
--------- ------
Cash paid for business acquisition, net....................................... - 18,978
Issuance of common stock for business acquisition............................. - 27,254
--------- ------
Total purchase price.......................................................... - 46,232
Fair value of net liabilities assumed, net of cash............................ - (944)
--------- ------
Excess of fair value over net assets acquired................................... $ - $ 47,176
========= ======
</TABLE>
4. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
The following is a reconciliation of the numerator and denominator of the basic
and diluted earnings per common share computations.
Basic Net Income (Loss) Per Common Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 2000
--------------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income (loss) available to common stockholders $ 764 $ (2,058)
============== ========
Weighted average shares of common stock outstanding 46,032 55,095
============== =========
Basic net income (loss)
per common share .................................. $ 0.02 $ (0.04)
============== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 2000
--------- --------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net income (loss) available to common stockholders $ (4,257) $ 634
======== ========
Weighted average shares of common stock
</TABLE>
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<TABLE>
<S> <C> <C>
outstanding ................................... 38,234 54,399
======== ========
Basic net income (loss) per common share ...... $ (0.11) $ 0.01
======== ========
</TABLE>
Basic net income per share is computed using the weighted average number of
common shares outstanding and excludes the effect of common stock equivalents.
Diluted Net Income (Loss) Per Common Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1999 2000
------------ -------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income (loss) available to common stockholders .......................... $ 764 $ (2,058)
======== ==========
Weighted average shares of common stock outstanding ......................... 46,032 55,095
Incremental shares for rights to receive shares and options assumed exercised
under common stock option plans ............................................. 7,198 --
-------- ----------
Adjusted shares of common stock equivalents for computation ................. 53,230 55,095
======== ==========
Diluted net income (loss) per common share .................................. $ 0.01 $ (0.04)
======== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 2000
--------------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income (loss) available to common stockholders .......................... $ (4,257) $ 634
============ =======
Weighted average shares of common stock outstanding ......................... 38,234 54,399
Incremental shares for rights to receive shares and options assumed exercised
under common stock option plans ............................................. -- 9,266
------------ -------
Adjusted shares of common stock equivalents for computation ................. 38,234 63,665
============ =======
Diluted net income (loss) per common share .................................. $ (0.11) $ 0.01
============ =======
</TABLE>
Diluted net income per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
would share in the earnings of the entity.
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<PAGE> 11
Diluted net income per share is computed using the weighted average number
of common shares outstanding, dilutive stock options and warrants using the
treasury stock method.
5. CAPITAL STOCK
In February 1999, the Company issued a total of 1,218,333 shares of Series
D convertible preferred stock (the "Series D Preferred Stock") at a price of
$6.00 per share for an aggregate purchase price of approximately $7.3 million.
In connection with this transaction, 1,517,334 shares of common stock were
purchased by the investors from selling stockholders in amounts proportionate to
the investors participation in the Series D Preferred Stock issuance. The Series
D Preferred Stock had essentially the same rights and privileges as the
Company's other three then outstanding series of convertible preferred stock
(Series A, B and C). Because the Series D Preferred Stock was sold at a price of
$6.00, the securities were accounted for giving effect to their beneficial
conversion features. Under such accounting, the Company recorded a charge of
$4.9 million against additional paid-in-capital to reflect the difference
between the conversion feature and the fair value of the underlying common
stock.
On April 23, 1999, the Company completed its initial public offering of
securities and issued 8,000,000 shares of common stock at $6.50 per share. An
additional 1,000,000 shares were sold by the existing stockholders at $6.50 per
share. Automatically upon the initial public offering of securities, all
4,231,194 of the then outstanding shares of convertible preferred stock were
converted to 8,462,388 shares of common stock. At the same time, Proxicom
amended its Certificate of Incorporation to increase the number of authorized
common shares from 20,000,000 to 100,000,000 shares and to increase the number
of authorized shares of preferred stock from 5,000,000 to 10,000,000 shares.
In connection with the initial public offering, Proxicom offered the
underwriters of the offering an option to purchase an additional 1,350,000
shares of common stock at the offering's $6.50 per share offering price. This
was exercised on May 21, 1999. Proceeds to the Company from its initial public
offering, net of underwriting discounts and costs of the offering, were
approximately $54.3 million.
On October 14, 1999, the Company completed a follow-on public offering of
its securities, which resulted in the issuance of 2,000,000 shares of common
stock at $26.19 per share. An additional 5,200,000 shares were sold by certain
existing shareholders at $26.19 per share. In connection with the follow-on
offering, the selling shareholders offered the underwriters an option to
purchase 1,080,000
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<PAGE> 12
additional shares of common stock ("Underwriters Over-allotment") at the
offering's $26.19 per share offering price.
Proceeds to the Company from the follow-on offering, net of underwriting
discounts and costs of the offering, were approximately $49.0 million. The
Company did not receive any proceeds from the sale of the common stock of the
related Underwriters Over-allotment by the selling stockholders.
In January 2000, employee participants in the Company's Employee Stock
Purchase Plan ("ESPP") were distributed 385,388 shares of common stock at $5.53
per share for the semi-annual participation period ended December 31, 1999. A
total of 2,000,000 shares are available for purchase under the ESPP. For the
semi-annual period ended June 30, 2000, participants purchased 58,157 shares at
$40.69 per share under the ESPP. These shares were distributed to participants
in July 2000.
On September 24, 1999, Proxicom and General Electric Company entered into a
Master Services Agreement. Under this agreement, General Electric has agreed to
have Proxicom perform Internet services for fees totaling no less than $6.0
million during the 12-month period ending September 24, 2000. As part of the
agreement, Proxicom issued General Electric a warrant to purchase 300,000 shares
of common stock at an exercise price of $24.94 per share, the closing price of
the common stock on the date of the agreement. The fair value of the warrant has
been reflected as a reduction to the related contract revenue over the service
period of the agreement. In February 2000, General Electric exercised this
warrant and received net 156,122 shares of common stock of the Company.
On April 19, 2000, Proxicom completed its acquisition of Clarity IBD
Limited for approximately $46.7 million (including direct acquisition costs of
$3.5 million), consisting of $16.0 million in cash and 769,440 shares of
Proxicom common stock with a value of $27.2 million. The common stock was valued
at $35.42 per share, which was determined as the average of the Company's
closing stock price for the week ended April 14, 2000. In addition to the
769,440 shares of common stock, 521,606 shares were issued to principal
owners/employees of Clarity. These shares are held in escrow and will be
released on the first and second anniversary date of the acquisition. The value
of these shares is $18.5 million.
The Company's treasury stock was re-issued to employees through the ESPP
and the 1996 Stock Option Plan during the three-months ended March 31, 2000.
6. CONTINGENCIES
The Company has certain contingent liabilities that arise in the ordinary
course of its business activities. The Company accrues liabilities when it is
probable that future expenditures will be made and such expenditures can be
reasonably estimated. The Company doesn't believe that such liabilities,
individually or in the aggregate, will have a materially adverse effect on the
Company's consolidated financial position or results of operations.
7. COMPREHENSIVE INCOME
Comprehensive income includes net income, foreign currency translation
adjustments and unrealized gains and losses on investments of the period. For
the three-month and six-month periods ended June 30, 2000, comprehensive income
was $(1,967) and $724, respectively.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The matters discussed in this Form 10-Q include forward-looking statements
that involve risks or uncertainties. While forward-looking statements are
sometimes presented with numerical specificity, they are based on various
assumptions made by management regarding future circumstances over many of which
Proxicom has little or no control. A number of important factors, including
those identified under the caption "Risk Factors" in Proxicom's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 (SEC File No. 000-25741)
(the "Form 10-K") which hereby is incorporated by reference, as well as factors
discussed elsewhere in this Form 10-Q, could cause Proxicom's actual results to
differ materially from those in forward-looking statements or financial
information. Actual results may differ from forward-looking results for a number
of reasons, including the following: (a) changes in the demand for professional
Internet services; (b) Proxicom's ability to manage growth and hire and retain
skilled employees; (c) Proxicom's loss of a major client or significant project;
(d) competitive factors; (e) lack of growth or decline in Internet usage; (f)
Proxicom's failure to keep pace with changing technologies and protect its
intellectual property; and (g) future acquisitions or international expansion
(including the ability to integrate acquired businesses into Proxicom's
operations and the ability of acquired business to achieve satisfactory
operating results). Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected.
OVERVIEW
Proxicom is a leading provider of Internet solutions to Global 1000
companies and other large organizations. Our Internet solutions include business
to consumer electronic commerce Internet sites, business to business electronic
commerce extranets, and company-specific intranets. We apply our proprietary
methodology, the Proxicom Process, in all of our client engagements. Using the
Proxicom Process, we integrate strategy, technology and creative design to help
our clients transform their businesses with Internet solutions.
Our revenue generally consists of fees generated from professional
services. We provide our services on a time and material basis and fixed-price,
fixed-timeframe basis. When we provide services on a time and materials basis,
we recognize revenue as we incur costs. In time and materials service
situations, we also use our estimation process and a Proxicom senior management
member approves these proposals. When we provide services on a fixed-price,
fixed-timeframe basis, we use an internally developed process to estimate and
propose fixed prices for such projects. The estimation process accounts for
standard billing rates particular to each project, the technology environment
and application type to be applied, and the project's timetable and overall
technical complexity. A Proxicom management member must approve all of our
fixed-price proposals. For these contracts, we recognize revenue using a
percentage-of-completion method primarily
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<PAGE> 14
based on costs incurred. We make provisions for estimated losses on uncompleted
contracts on a contract by contract basis and recognize such provisions in the
period in which the losses are determined.
Our financial results may fluctuate from quarter to quarter based on such
factors as the number, complexity, size, scope and lead time of projects in
which we are engaged. More specifically, these fluctuations can result from the
contractual terms and degree of completion of such projects, any delays incurred
in connection with projects, employee utilization rates, the adequacy of
provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects and general economic conditions. In addition, revenue
from a large client may constitute a significant portion of our total revenue in
a particular quarter.
In April 2000, Proxicom completed its acquisition of Clarity IBD Limited, a
United Kingdom e-business development consultancy company for approximately
$65.2 million (including direct acquisition costs of $3.5 million). Proxicom
acquired all of the issued ordinary shares of Clarity in exchange for 1,291,046
shares of Proxicom common stock, par value $0.01 per share, and approximately
$16.0 million in cash. In addition, options outstanding under Clarity's share
option plan converted into options to acquire an aggregate of 43,558 shares of
Proxicom common stock. A portion of the shares issued in this transaction have
been retained in escrow as security for the performance of the indemnity
obligations of the Clarity shareholders and a portion of the shares issued have
been retained subject to issuance upon the continued employment of certain
management shareholders of Clarity.
- 12 -
<PAGE> 15
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
1999 2000 1999 2000
-------- --------- ---------- -------
<S> <C> <C> <C> <C>
Revenue ............................ 100.0% 100.0% 100.0% 100.0%
Cost of revenue .................... 55.6 47.0 56.4 47.6
----- ----- ----- -----
Gross profit ....................... 44.4 53.0 42.6 52.4
----- ----- ----- -----
Operating expenses:
General and administrative ........ 34.5 36.5 34.5 35.6
Selling and marketing ............. 4.8 8.3 4.9 8.7
Stock-based compensation .......... 0.0 3.6 0.0 2.1
Amortization of intangible assets . 0.0 6.8 0.0 3.9
Acquisition and merger costs ...... 0.0 0.0 1.0 0.0
----- ----- ----- -----
Total .............................. 39.3 55.2 40.4 50.3
----- ----- ----- -----
Income (loss) from operations ...... 5.1 (2.2) 2.2 2.1
Interest income, net ............... 2.9 2.8 1.4 3.5
----- ----- ----- -----
Income (loss) before income taxes .. 8.0 0.6 3.6 5.6
Income tax (benefit) provision ..... 3.3 4.6 1.5 4.9
----- ----- ----- -----
Net income (loss) .................. 4.7% (4.0)% 2.1% 0.7%
===== ===== ===== =====
</TABLE>
THREE-MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE THREE-MONTH PERIOD
ENDED JUNE 30, 1999 AND SIX-MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO
THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
Revenue. For the three-month period ended June 30, 2000, revenue increased
$34.7 million, or 214.2%, to $50.9 million from $16.2 million for the
three-month period ended June 30, 1999. This increase was primarily attributable
to the increase in both the average size and number of our engagements. No
individual client contributed 10% or more of our revenue for the three-month and
six-month periods ended June 30, 2000 or 1999.
For the six-month period ended June 30, 2000, revenue increased $59.6
million, or 202.0%, to $89.1 million from $29.5 million for the six-month period
ended June 30, 1999. This increase was primarily attributable to the increase in
both the average size and number of our engagements. We believe that
period-to-period comparisons of our revenue and operating results are not
necessarily meaningful and that you should not rely on these comparisons as
indicators of future performance.
- 13 -
<PAGE> 16
Cost of Revenue. Cost of revenue consists primarily of compensation and
associated employee benefits for personnel directly assigned to client projects,
and non-reimbursed direct expenses incurred to complete projects, such as
technical consulting fees. Cost of revenue increased $15.0 million, or 166.7%,
to $24.0 million for the three-month period ended June 30, 2000, from $9.0
million for the three-month period ended June 30, 1999. These costs increased
$25.5 million, or 150.9%, to $42.4 million for the six-month period ended June
30, 2000 from $16.9 million for the six-month period ended June 30, 1999. These
increases were due primarily to increases in the number of personnel needed to
service our client engagements. Service project personnel increased from 392 at
June 30, 1999 to 853 at June 30, 2000. As a percentage of revenue, cost of
revenue decreased from 55.6% to 47.0% for the three-month period ended June 30,
2000, as compared to the three-month period ended June 30, 1999, and from 56.4%
to 47.6% for the six-month period ended June 30, 2000, as compared to the
six-month period ended June 30, 1999.
Gross Profit. For the three-month period ended June 30, 2000, gross profit
increased $19.8 million, or 275.0%, to $27.0 million from $7.2 million for the
three-month period ended June 30, 1999. For the six-month period ended June 30,
2000, gross profit increased $34.2 million, or 273.6%, to $46.7 million from
$12.5 million for the six-month period ended June 30, 1999. These increases
reflect the increase in revenue during the periods in 2000. As a percentage of
revenue, gross profit increased from 44.4% to 53.0% for the three-month period
ended June 30, 2000, as compared to the three-month period ended June 30, 1999.
As a percentage of revenue, gross profit increased from 42.6% to 52.4% for the
six-month period ended June 30, 2000, as compared to the six-month period ended
June 30, 1999. These percentage increases primarily reflect increased overall
utilization of consulting and delivery personnel.
General and Administrative. General and administrative costs consist of
salaries for executive and selected senior management, finance, recruiting,
administrative groups and associated employee benefits, facilities costs
including depreciation and amortization, computer and office equipment operating
leases, training, travel and all other branch and corporate costs. These costs
increased $13.0 million, or 232.1%, to $18.6 million for the three-month period
ended June 30, 2000 from $5.6 million for the three-month period ended June 30,
1999. These costs increased $21.5 million, or 210.8%, to $31.7 million for the
six-month period ended June 30, 2000 from $10.2 million for the six-month period
ended June 30, 1999. These increases were due primarily to increased facilities
and related expenses to support our growth. As a percentage of revenue, general
and administrative expenses increased from 34.5% to 36.5% for the three-month
period ended June 30, 2000, as compared to the three-month period ended June 30,
1999, and from 34.5% to 35.6% for the six-month period ended June 30, 2000, as
compared to the six-month period ended June 30, 1999. In the three-month period
ending June 30, 2000, bad debt expenses increased approximately $1.4 million
over the three month period ending June 30, 1999. This increase was attributable
to higher bad debt reserve requirements resulting from the growth of the
company's revenues and insolvency issues with two customers during the
three-month period ending June 30, 2000. We believe the currect allowance for
doubtful accounts balance of $909,000 is sufficient for other potential doubtful
accounts.
- 14 -
<PAGE> 17
Selling and Marketing. Selling and marketing costs consist primarily of
salaries, benefits, and travel expenses of selling and marketing personnel and
promotional expenses. Selling and marketing costs increased $3.4 million, or
432.0%, to $4.2 million for the three-month period ended June 30, 2000 from
$787,000 for the three-month period ended June 30, 1999. Selling and marketing
costs increased $6.4 million, or 457.1%, to $7.8 million for the six-month
period ended June 30, 2000 from $1.4 million for the six-month period ended
June 30, 1999. Approximately 85.4% and 82.8% of these increases were
attributable to increased marketing and promotion initiatives for the
three-month and six-month periods ended June 30, 2000, respectively. The
remainder was primarily due to increases in the number of sales and marketing
personnel. As a percentage of revenue, selling and marketing costs increased
from 4.8% to 8.3% for the three-month period ended June 30, 2000, as compared
to the three-month period ended June 30, 1999, and from 4.9% to 8.7% for the
six-month period ended June 30, 2000, as compared to the six-month period ended
June 30, 1999.
Amortization of Intangibles. Amortization of intangible assets consists
primarily of amortization of service agreements, customer list, assembled
workforce and goodwill resulting from the acquisition of Clarity in April 2000.
Amortization of these costs for the three and six-month periods ended June 30,
2000 was $3.5 million. The Company did not have any amortization cost related to
intangible assets for the three and six-month periods ended June 30, 1999.
Intangible assets related to the Clarity acquisition will be amortized over
three years.
Acquisition and Merger Costs. Acquisition costs incurred in the
three-month and six-month periods ended June 30, 2000 were in connection with
the acquisition of Clarity and reflected in purchase price accounting. We
incurred charges of approximately $300,000 for the six-month period ended June
30, 1999 for the costs associated with the ad hoc Interactive transaction. All
transaction costs were related to investment banking fees, professional fees
and other direct expenses.
Stock-Based Compensation. We incurred charges of $1.8 million in
stock-based and other compensation in the three and six-month periods ended
June 30, 2000 for costs associated with the Clarity acquisition. In connection
with the Clarity acquisition, certain employees/owners of Clarity were issued
521,606 shares of common stock of the Company. These shares are held in escrow
and will be released on the first and second anniversary date of the
acquisition. Included in cost of revenue are stock based compensation charges
of $67,000 and $102,000 for the three and six-month periods ended June 30,
2000.
Interest Income, Net. Interest income, net increased $979,000 to interest
income of $1.5 million for the three-month period ended June 30, 2000 from
interest income of $476,000 for the three-month period ended June 30, 1999.
Interest income, net increased $2.7 million to interest income of $3.1 million
for the six-month period
- 15 -
<PAGE> 18
ended September 30, 1999 from interest income of $411,000 for the six-month
period ended June 30, 1999. These increases were due primarily to interest
income earned on proceeds raised in our initial and follow-on public offerings
during 1999. We generally invest in highly rated commercial paper, U.S. Treasury
bills and money market accounts. The amount of interest income fluctuates based
upon the amount of funds available for investment and prevailing interest rates.
Income Tax (Benefit) Provision. The $531,000 and $447,000 income tax
provision in the three and six-month periods ended June 30, 1999 represents
combined federal, state and foreign income taxes at an effective rate of 41.0%
and 42.1%, respectively. The combined $2.3 million income tax provision for the
three-month period ended June 30, 2000 is an effective rate of 814.6%, or 41.9%
excluding the $5.3 million non-deductible amortization and stock compensation
charges. The $4.4 million income tax provision in the six-month period ended
June 30, 2000 represents combined federal, state and foreign income taxes at an
effective rate of 87.4%, or 42.5% excluding the $5.3 million non-deductible
amortization and stock compensation charges. We have recorded our income tax
provision based on estimates of the effective tax rate expected to be applicable
for the full fiscal year. Estimated effective rates recorded during interim
periods may be periodically revised if necessary to reflect current estimates.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $10.0 million revolving credit facility with Bank of
America, N.A. to be used for working capital purposes and permitted
acquisitions. The interest rate on the amounts borrowed under the credit
agreement is the Eurodollar Daily Floating Rate plus 1.25%. The credit facility
expires on August 31, 2000 and will renew automatically for one additional year
at the sole discretion of Bank of America, N.A. The credit facility requires the
Company to maintain liquid assets of at least $10.0 million. As of June 30,
2000, the Company had no outstanding borrowings under the credit facility.
Additionally, the Company has an Uncommitted Standby Letter of Credit
("Standby Letter of Credit") with Bank of America, N.A. for $15.0 million. This
credit facility expires on March 31, 2002. The letter of credit fee is 1%
annually of the outstanding letters of credit written on this facility. As of
June 30, 2000, the entire $15.0 million Standby Letter of Credit was fully
committed. The Company also has an additional $2.2 million committed under
separate outstanding letters of credit with Bank of America which reduces the
amounts available for borrowing under the aforementioned $10.0 million line of
credit with Bank of America.
As of June 30, 2000, the Company had approximately $70.3 million in cash
and cash equivalents and $38.4 million in short-term investments. Net cash
provided by (used in) operating activities was $6.9 million and ($8.3) million
for the six-months ended June 30, 2000 and 1999, respectively. Net cash used in
investing activities remained consistent at $58.3 million and $57.5 million for
the six-months ended June 30, 2000 and 1999, respectively. Net cash provided by
financing activities decreased $57.9 million to $7.9 million for the six-months
ended June 30,
- 16 -
<PAGE> 19
2000 from $65.8 million for the six-months ended June 30, 1999. This decrease
was primarily attributable to $54.3 million of cash received in 1999 from the
Company's initial public offering.
On April 23, 1999, the Company completed its initial public offering of
securities. After deducting expenses, Proxicom received approximately $46.9
million in proceeds from this transaction. In connection with the initial public
offering, Proxicom offered the underwriters of the offering an option to
purchase an additional 1,350,000 shares of common stock at the offering's $6.50
per share offering price. Proxicom received approximately $8.2 million in
proceeds from this option, which was exercised on May 21, 1999.
On October 14, 1999, the Company completed a follow-on public offering of
its securities. After deducting expenses, Proxicom received approximately $49.0
million in proceeds from this transaction.
In connection with the issuance of Series A convertible preferred stock in
August 1996, Proxicom issued warrants to purchase shares of Series A convertible
preferred stock that were exercised on April 13, 1999. Upon the exercise of the
warrants, the Company received proceeds of $8.0 million. The shares of Series A
convertible preferred stock received upon the exercise of the warrants were
converted into 1,011,378 shares of common stock upon the closing of our initial
public offering of securities on April 23, 1999.
During the six-month period ended June 30, 2000, the Company issued
2,195,901 shares of common stock through the exercise of stock options and the
sale of stock through the Company's Stock Option Plan and Employee Stock
Purchase Plan, respectively. The Company received net proceeds of approximately
$8.0 million from these issuances.
Proxicom anticipates the existing sources of liquidity and funds generated
from operations should provide adequate cash to fund its current anticipated
cash needs through at least the next 18 months. To the extent Proxicom is unable
to fund its operations from cash flows, it may need to obtain financing from
external sources in the form of either additional equity or indebtedness. There
can be no assurance that additional financing will be available at all, or that,
if available, such financing will be obtainable on terms favorable to the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin ("SAB") No.101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. Subsequently,
the SEC released SAB 101B, which delayed the implementation date of SAB 101 for
registrants with fiscal years that begin between December 16, 1999 and March 15,
2000. We are required to be in conformity with the provisions of SAB 101, as
amended by SAB 101B, no later than October 1, 2000. We believe the adoption of
- 17 -
<PAGE> 20
SAB 101, as amended by SAB 101B, has not had a material adverse effect on our
financial position, results of operations or cash flows.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for our fiscal year
2001. This statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. We believe the adoption of SFAS Nos. 133 and
137 will not have a material effect on our financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, and Interpretation of APB
Opinion No. 25" (FIN. 44). The Interpretation is intended to clarify certain
problems that have arisen in practice since the issuance of APB No. 25
"Accounting for Stock Issued to Employees." The effective date of the
interpretation is July 1, 2000. The provisions of the interpretation will apply
prospectively, but it will also cover certain events occurring after December
15, 1998 and after January 12, 2000. The Company believes the adoption of FIN.
44 will not have an effect on the current or historical consolidated financial
statements, but may impact its future accounting regarding stock option
transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Proxicom is exposed to interest rate risk related to its borrowings under
the credit facility with Bank of America, N.A. There were no borrowings
outstanding under the credit facility as of June 30, 2000.
The Company is exposed to interest rate risk primarily through its
investments in short-term marketable securities and cash equivalents and debt
agreements. The Company's investment policy calls for investment in short-term,
low risk instruments. At June 30, 2000, the Company had $108.8 million invested
in commercial paper and money market accounts. A rise in interest rates would
have an adverse impact on the fair market value of fixed rate securities. If
interest rates fall, floating rate securities may generate less interest
income. The Company manages its exposure to interest rate risk through
investing in securities with maturities of one year or less.
The Company's international operations are subject to foreign exchange
rate fluctuations. The Company derived 12.6% of its revenues for period ended
June 30, 2000 from services performed in Germany, Italy, Spain, France and the
United Kingdom. Since the revenue and expenses of the Company's international
operations generally are denominated in local currencies, exchange rate
fluctuations between such local currencies and the United States dollar will
subject the Company to currency translation risk with respect to the reported
results of its foreign operations as well as to risk sometimes associated with
international operations. In addition, the Company may be subject to currency
risk when the Company's service contracts are denominated in a currency other
than the currency in which the Company incurs expenses related to such
contracts. Germany, the United Kingdom and Spain have traditionally had
relatively stable currencies. The Company does not hedge its foreign currency
exposure. Management does not believe that the Company's exposure to foreign
currency rate fluctuations is material.
- 18 -
<PAGE> 21
PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On April 19, 2000, Proxicom issued 1,291,046 shares of its common stock
valued at approximately $45.7 million to the former stockholders of Clarity IBD
Limited, a a United Kingdom e-business development consultancy company, in
consideration of Proxicom's acquisition of that company. In connection with this
issuance, Proxicom relied on the exemptions from registration under the
Securities Act of 1933 provided in Regulation D and Regulation S thereunder. Of
the shares sold, 76,569 shares, valued at approximately $2.7 million, were sold
in reliance upon Regulation D and 1,214,477 shares, valued at approximately
$43.0 million, were sold in reliance upon Regulation S.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Proxicom held its 2000 annual meeting of stockholders on May 16, 2000. All
of the proposals presented for stockholder consideration at the annual meeting
were approved. The following sets forth information regarding each matter voted
upon at the 2000 annual meeting. There were 53,971,664 shares of common stock
outstanding as of the record date for, and entitled to vote at, the 2000 annual
meeting. Each share of common stock voted on the proposals set forth below had
one vote per share.
Proposal 1. The stockholders approved a proposal to elect each of the
nominees to the board of directors for a three-year term which will expire at
the annual meeting of stockholders in 2003. The tabulation of votes on this
proposal is as follows:
<TABLE>
<CAPTION>
Nominees
(Three-Year Term): For Withhold Authority
------------------ ---------- ------------------
<S> <C> <C>
Jack Kemp 39,257,749 25,466
John A. McKinley, Jr. 39,258,749 24,466
Mario M. Morino 39,257,749 25,466
</TABLE>
- 19 -
<PAGE> 22
Proposal 2. The stockholders approved a proposal to approve the
Company's Amended and Restated 1996 Stock Option Plan as amended to permit
awards under the plan to qualify as performance-based compensation under Section
162(m) of the Internal Revenue Code. The tabulation of votes on this proposal is
as follows:
<TABLE>
<S> <C>
Votes For 37,805,499
Votes Against 1,394,866
Abstentions 82,850
Broker Non-Votes 0
</TABLE>
Proposal 3. The stockholders approved the proposal to amend the Company's
1997 Stock Option Plan for Non-Employee Directors (a) to increase the total
number of shares available for issuance under the plan from 700,000 to 1,200,000
and (b) to revise the number of shares subject to options granted when a
non-employee director is first elected to the Board from 35,000 shares to 45,000
shares and to revise the number of shares subject to additional options granted
to each non-employee director upon reelection to the Board from 35,000 shares to
45,000 shares. The tabulation of votes on this proposal is as follows:
<TABLE>
<S> <C>
Votes For 34,781,670
Votes Against 4,418,565
Abstentions 82,890
Broker Non-Votes 0
</TABLE>
Proposal 4. The stockholders ratified the appointment by the Board of
Directors of PricewaterhouseCoopers LLP as the Company's independent public
accountants for the fiscal year ending December 31, 2000. The tabulation of
votes on this proposal is as follows:
<TABLE>
<S> <C>
Votes For 39,165,475
Votes Against 110,110
Abstentions 7,630
Broker Non-Votes 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits:
<TABLE>
<S> <C>
10.1 1996 Amended and Restated 1996 Stock Option Plan
10.2 1997 Stock Option Plan for Non-Employee Directors, as amended
10.3 Uncommitted Standby Letter of Credit dated March 27, 2000 with Bank of America, N.A.
27.1 Financial Data Schedule
</TABLE>
- 20 -
<PAGE> 23
b. Reports on Form 8-K:
On April 20, 2000, Proxicom filed a current report on Form 8-K announcing
its acquisition of Clarity IBD Limited, a United Kingdom e-business development
consultancy company, pursuant to a Share Exchange Agreement, dated as of April
11, 2000, by and among Proxicom and Clarity's shareholders.
- 21 -
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
PROXICOM, INC.
Date: August 14, 2000 /s/ Kenneth J. Tarpey
---------------------------------------
Kenneth J. Tarpey
Executive Vice President,
Chief Financial Officer and
Treasurer (duly authorized
to sign on behalf of the
Registrant)
