<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
(Mark One)
[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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File Number 0-25215
WEBTRENDS CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-1123283
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
851 SW SIXTH AVENUE, SUITE 1200
PORTLAND, OREGON 97204
(Address of principal executive offices)
(503) 294-7025
(Registrant's telephone number)
Check whether the registrant (1) 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 [ ]
The number of shares of common stock, no par value, outstanding on April
30, 2000, was 26,038,874.
<PAGE> 2
WEBTRENDS CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------ --------------------- --------
<S> <C> <C>
Item 1. Condensed Financial Statements
Balance Sheets at March 31, 2000 and December 31, 1999.................3
Statements of Operations for the three months ended
March 31, 2000 and 1999...........................................4
Statements of Cash Flows for the three months
ended March 31, 2000 and 1999.....................................5
Notes to condensed financial statements................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................12
Item 2. Changes in Securities and Use of Proceeds....................................12
Item 6. Exhibits and Reports on Form 8-K.............................................12
Signatures .............................................................................13
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
2
<PAGE> 4
WEBTRENDS CORPORATION
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31,794,669 $ 29,397,650
Short-term investments 49,049,172 49,885,523
Accounts receivable, net 7,742,926 4,968,544
Inventories 96,830 63,889
Prepaid expenses 2,041,860 980,730
Deferred taxes 502,500 502,500
------------ ------------
TOTAL CURRENT ASSETS 91,227,957 85,798,836
Property and equipment, net 4,032,324 2,375,750
Other assets 1,027,983 2,060,662
------------ ------------
TOTAL ASSETS $ 96,288,264 $ 90,235,248
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,015,799 $ 1,161,679
Accrued liabilities 2,210,420 1,481,225
Accrued compensation 1,912,153 2,552,863
Accrued sales tax 125,371 83,427
Accrued income taxes 1,346,314 297,397
Deferred revenue 7,101,730 4,122,882
------------ ------------
TOTAL LIABILITIES 13,711,787 9,699,473
============ ============
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value. Authorized, 15,000,000
shares; no shares outstanding -- --
Common stock, no par value. Authorized 60,000,000
shares; issued and outstanding, 26,007,119
and 25,817,568 78,153,944 77,661,491
Deferred compensation, net (368,855) (405,391)
Retained earnings 4,791,388 3,279,675
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 82,576,477 80,535,775
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 96,288,264 $ 90,235,248
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 5
WEBTRENDS CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Software licenses $ 8,403,554 $ 2,586,973
Support services 1,976,216 419,353
------------ ------------
Total revenue 10,379,770 3,006,326
Cost of revenue 1,068,660 290,310
------------ ------------
Gross margin 9,311,110 2,716,016
------------ ------------
Operating expenses:
Research and development 1,896,425 639,133
Sales and marketing 4,967,021 1,505,538
General and administrative 1,264,509 455,465
------------ ------------
Total operating expenses 8,127,955 2,600,136
------------ ------------
Income from operations 1,183,155 115,880
------------ ------------
Other income (expense):
Interest income 1,232,864 170,917
Interest expense -- (1,866)
------------ ------------
Other income, net 1,232,864 169,051
------------ ------------
Income before income taxes 2,416,019 284,931
Income taxes 904,306 106,850
------------ ------------
Net income $ 1,511,713 $ 178,081
============ ============
Net income per share:
Basic $ 0.06 $ 0.01
============ ============
Diluted $ 0.05 $ 0.01
============ ============
Weighted average shares:
Basic 25,917,740 19,163,052
============ ============
Diluted 28,318,999 21,864,418
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 6
WEBTRENDS CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,511,713 $ 178,081
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 240,714 82,296
Provision for doubtful accounts 183,000 40,000
Amortization of deferred compensation 36,536 36,536
Gain on marketable securities -- (91)
Changes in assets and liabilities:
Accounts receivable (2,957,382) (1,112,836)
Inventories (32,941) (12,882)
Prepaid expenses (1,061,130) 306,421
Other assets 1,032,679 4,572
Accounts payable (145,880) (22,613)
Accrued liabilities 729,195 (98,417)
Accrued compensation (640,709) 66,036
Accrued sales tax 41,944 51,477
Accrued income taxes 1,048,917 70,750
Accrued interest -- (1,103)
Deferred revenue 2,978,848 842,016
------------ ------------
Net cash provided by operating
activities 2,965,504 430,243
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,897,288) (353,107)
Proceeds from (purchase of) investments 836,350 (6,195,415)
------------ ------------
Net cash used for investing
activities (1,060,938) (6,548,522)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 35,685,590
Stock issued pursuant to benefit plans 492,453 52,081
Principal payments on borrowings from
shareholders -- (150,000)
------------ ------------
Net cash provided by financing
activities 492,453 35,587,671
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,397,019 29,469,392
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 29,397,650 1,098,847
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,794,669 $ 30,568,239
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ -- $ 2,490
Income taxes $ -- $ 7,000
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 7
WEBTRENDS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
statements include all adjustments necessary (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. These financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 1999.
2. Net Income Per Common and Common Equivalent Share
Basic and diluted net income per share are computed using the weighted
average number of common shares outstanding during the period, with diluted
net income per share including the effect of potentially dilutive common
stock equivalents. Dilutive common equivalent shares consist of stock
options. Basic and diluted net income per share have been calculated using
the treasury stock method in accordance with SEC Staff Accounting Bulletin
No. 98.
3. Research and Development Costs
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed. Under the
standard, capitalization of software development costs begins upon the
establishment of technological feasibility, subject to net realizable value
considerations. To date, the period between the achievement of technological
feasibility and the general availability of such software has been short;
therefore, software development costs qualifying for capitalization have
been immaterial and have been charged to research and development expense.
4. Cash, Cash Equivalents, and Short-term Investments
The Company classifies highly liquid investments purchased with an original
maturity of three months or less as cash equivalents. Short-term investments
consist of certificates of deposit, commercial paper and other highly liquid
investments with original maturities in excess of three months, and
primarily less than one year. All investments are classified assuming they
will be held to maturity and are recorded at amortized cost, which
approximates market value.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q contain "forward-looking" information
(as defined in Section 27A of the Securities Act of 1933, as amended) that
involve risks and uncertainties which may cause actual results to differ
materially from those predicted in the forward-looking statements. In
particular, there are forward-looking statements concerning the Company's
expectations for expense levels in both absolute and relative dollars during
future periods. Forward-looking statements can be identified by their use of
such verbs as expects, anticipates, believes or similar verbs or conjugations of
such verbs. If any of the Company's assumptions on which the statements are
based prove incorrect or should unanticipated circumstances arise, the Company's
actual results could materially differ from those anticipated by such
forward-looking statements. The differences could be caused by a number of
factors or combination of factors including but not limited to, the risks
detailed in the "Business - Risk Factors" section of the Company's Annual Report
on Form 10-K filed on March 30, 2000.
OVERVIEW
WebTrends is a leading provider of enterprise class software and eServices
solutions for Visitor Relationship Management(TM), eBusiness Intelligence and
Management. WebTrends' solutions deliver essential information to key
departments across an enterprise, including marketing, sales, executive
management, information services, security, customer service, finance and human
resources. Our solutions are used by thousands of customers such as Internet
service providers (ISPs), government entities, educational institutions and
corporate clients.
WebTrends was incorporated in Delaware in 1993 and reorganized in Oregon in
1997. An initial public offering was completed in February 1999, a follow-on
offering was completed in May 1999, and our common stock is listed on the Nasdaq
National Market under the symbol "WEBT."
WebTrends, WebTrends Commerce Trends, WebTrends Enterprise Reporting Server
and Visitor Relationship Management are either registered trademarks or
trademarks of WebTrends Corporation. All other names mentioned herein may be
trademarks of their respective owners.
RESULTS OF OPERATIONS
REVENUE
Software license revenue consists of fees for licenses of WebTrends'
software products while support services revenue consists of annual
subscriptions for upgrades, post-sale customer support services, and
professional services.
Total revenue increased 245.3% to $10.4 million for the first quarter of
2000 from $3.0 million for the first quarter of 1999. Primary contributing
factors for these changes are discussed below.
7
<PAGE> 9
Software Licenses
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
2000 Change 1999
------- ------ -------
<S> <C> <C> <C>
Software Licenses $ 8,404 224.9% $ 2,587
Percent of Revenues 81.0% 86.1%
Dollar amounts in thousands
</TABLE>
We continue to benefit from a very strong market for Internet infrastructure
products and the strategic contribution of our solutions to our customers'
eBusiness success. Software license revenue increased as a result of continued
strong growth across each of our product categories as new releases of existing
products in late 1999 gained increasing customer acceptance. The large
investment we made in more than doubling our sales force to more than 50 as of
March 31, 2000 also paid dividends in increased sales for the three months ended
March 31, 2000. Despite the fast growth in software license revenue, the pace of
growth in support services was even more rapid and, as a consequence, software
license revenue decreased as a percentage of total revenue in the three months
ended March 31, 2000 compared to the prior year period.
Support Services
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 Change 1999
------- ------- -----
<S> <C> <C> <C>
Support Services $ 1,976 371.6% $ 419
Percent of Revenues 19.0% 13.9%
Dollar amounts in thousands
</TABLE>
The increase in support services revenue resulted primarily from increased
subscription revenue derived from continued growth in the installed base of
customers, as well as the sale of consulting, training and support services
associated with the sale of our new Enterprise Reporting Server and Commerce
Trends products. To support these new products we grew our support services
staff to more than 40 as of March 31, 2000.
Cost of Revenue
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 Change 1999
------ ------ ------
<S> <C> <C> <C>
Cost of Revenue $ 1,069 268.6% $ 290
Percent of Revenues 10.3% 9.6%
Dollar amounts in thousands
</TABLE>
Cost of revenue includes product packaging, software documentation,
duplication, labor, and other costs associated with product fulfillment,
royalties associated with the sale of WebTrends' products, and costs associated
with providing technical support and consulting services to customers. The
increase in cost of revenue resulted primarily from the hiring of customer
support and professional services personnel to meet the demands of a larger
customer base and to manage and perform consulting and training services.
8
<PAGE> 10
OPERATING EXPENSES
We continue to believe that strategic investment in all areas of our
business is required, and we anticipate that expenses will increase in absolute
dollars in future periods. Expenses in each category may vary as a percent of
revenues and relative to one another as we continue to take advantage of
strategic hiring and investing opportunities.
Research and Development
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 Change 1999
------ ------ -------
<S> <C> <C> <C>
Research and Development $ 1,896 196.7% $ 639
Percent of Revenues 18.3% 21.3%
Dollar amounts in thousands
</TABLE>
Research and development expenses consist primarily of salaries and related
costs associated with developing new products, enhancing existing products, and
performing quality assurance and documentation activities. The increase in
research and development expenses in absolute dollars is primarily attributable
to increasing the number of research and development employees to more than 70
as of March 31, 2000. Research and development expenses decreased as a
percentage of total revenue primarily due to the rapid growth in total revenue.
We continue to believe that significant investment in research and development
is required to remain competitive in our markets, and anticipate that research
and development expenses will increase in absolute dollars in future periods,
but may vary as a percent of total revenue.
Sales and Marketing
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 Change 1999
------- ------ -------
<S> <C> <C> <C>
Sales and Marketing $ 4,967 229.8% $ 1,506
Percent of Revenues 47.9% 50.1%
Dollar amounts in thousands
</TABLE>
The increase in sales and marketing expense is primarily attributable to the
cost of hiring and maintaining additional sales and marketing personnel,
including employees to expand the direct sales force and to support indirect
distribution channels. Sales and marketing expenses decreased as a percentage of
sales as the increased costs associated with building the sales force were more
than offset by the increases in sales resulting from the headcount increase. We
expect sales and marketing expenses will continue to increase in absolute
dollars as we continue to expand our marketing programs and sales force to
increase brand awareness, but they may vary as a percent of total revenue.
9
<PAGE> 11
General and Administrative
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 Change 1999
------- ------ ------
<S> <C> <C> <C>
General and $ 1,265 178.0% $ 455
Administrative
Percent of Revenues 12.2% 15.1%
Dollar amounts in thousands
</TABLE>
General and administrative expenses consist primarily of salaries and other
employee-related costs for executive, financial, human resources, and
infrastructure personnel. General legal and accounting services, insurance and
general facility costs are also included within general and administrative
expenses. The increase in absolute dollars is primarily attributable to our
growth and expansion, which included adding 10 accounting and administrative
personnel since March 31, 1999 as well as expanding infrastructure and
facilities. We expect general and administrative expenses will continue to
increase in absolute dollars to support the anticipated expansion of sales and
operations, but they may vary as a percent of total revenue.
INCOME TAXES
Income tax provisions for the three months ended March 31, 2000 and March
31, 1999 reflect an effective tax rate of 37.4% and 37.5%, respectively. The
effective tax rate is subject to change in future periods as circumstances
affecting the tax rate change.
LIQUIDITY AND CAPITAL RESOURCES
WebTrends had cash and cash equivalents and short-term investments of $80.8
million at March 31, 2000, which represents the Company's primary source of
liquidity, and working capital of approximately $77.5 million.
Our primary market risk exposure is the impact of interest rate fluctuations
on interest income earned on our investment portfolio. The risks associated with
market, liquidity and principal are mitigated by investing in high-credit
quality securities and limiting concentrations of issuers and maturity dates.
Derivative financial instruments are not part of our investment portfolio. We
currently have no debt instruments or credit facilities.
Cash and cash equivalents and short-term investments increased by $1.6
million during the three months ended March 31 2000, primarily as a result of
cash generated by financing and operating activities. Net cash provided by
operating activities was approximately $3.0 million for the three months ended
March 31 2000, and resulted primarily from profitable operations, increased
deferred revenues, accrued income taxes, partially offset by increased accounts
receivable and prepaid expenses. Cash used by investing activities, net of the
purchases of short-term investments, was approximately $1.1 million for the
three months ended March 31, 2000, consisting primarily of purchased computer
equipment and furniture and fixtures related to increased personnel.
While increasing in absolute dollars, for the three month period ended March
31, 2000, operating expenses decreased as a percentage of total revenue to 78.3%
from 86.5% for the same period in 1999. Since inception, we have continued to
increase our operating expenses in terms of absolute dollars. We anticipate that
we will continue to reinvest revenues in operating expenses for the foreseeable
future, and that these expenses plus capital expenditures will constitute a
material use of cash resources. Additionally, we may utilize cash resources to
fund acquisitions or investments in businesses, technologies, or product lines
that are complementary to its business. We believe our current cash and cash
equivalents, short-term investments, and funds expected to be generated from
operations will satisfy our anticipated working capital and other cash
requirements for at least the next 12 months.
10
<PAGE> 12
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board, or FASB, issued
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25, (FIN 44). FIN 44 applies
prospectively to new awards, exchanges of awards in a business combination,
modifications to outstanding awards, and changes in grantee status that occur on
or after July 1, 2000, except for the provisions related to repricings and the
definition of an employee, which apply to awards issued after December 15, 1998.
The provisions related to modifications to fixed stock options awards to add a
reload feature are effective for awards modified after January 12, 2000. We do
not expect that this statement will have a significant impact on our financial
condition or results of operations.
11
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1999, WebSideStory, Inc. filed a lawsuit in the United States
District Court for the Southern District of California against WebTrends,
alleging that our introduction of our WebTrends Live service constituted
copyright infringement, trade dress infringement and unfair competition. In
November 1999, the court granted a temporary restraining order that resulted in
WebTrends withdrawing the WebTrends Live service from the Internet. The parties
reached a settlement, which was not material to our operations or financial
position, in January 2000 and the case was dismissed. The WebTrends Live service
was relaunched in March 2000.
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently involved in
any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) USE OF PROCEEDS
On February 18, 1999 WebTrends' registration statement on form S-1, file
number 333-69171, became effective. Proceeds to WebTrends were $35,156,421. The
proceeds are being applied in part to working capital with the remainder in
temporary investments consisting of money market accounts available on a daily
basis and short-term commercial paper.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See Exhibit Index.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter covered by
this Form 10-Q.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBTRENDS CORPORATION
(Registrant)
Date: May 15, 2000 By /s/ JAMES T. RICHARDSON
------------------------------
James T. Richardson
Senior Vice President and Chief Financial Officer
(principal financial and chief accounting officer)
13
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 31,794,669
<SECURITIES> 49,049,172
<RECEIVABLES> 8,155,926
<ALLOWANCES> 413,000
<INVENTORY> 96,830
<CURRENT-ASSETS> 91,227,957
<PP&E> 5,089,497
<DEPRECIATION> 1,057,173
<TOTAL-ASSETS> 96,288,264
<CURRENT-LIABILITIES> 13,711,787
<BONDS> 0
0
0
<COMMON> 78,153,944
<OTHER-SE> 4,422,533
<TOTAL-LIABILITY-AND-EQUITY> 96,288,264
<SALES> 8,403,554
<TOTAL-REVENUES> 10,379,770
<CGS> 1,068,660
<TOTAL-COSTS> 1,068,660
<OTHER-EXPENSES> 8,127,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,416,019
<INCOME-TAX> 904,306
<INCOME-CONTINUING> 1,511,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,511,713
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.05
</TABLE>
