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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 000-25375
VIGNETTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2769415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 South MoPac Expressway, Bldg III
Austin, Texas 78746
(Address of principal executive offices)
__________________
(512) 741-4300
(Registrant's telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of each class)
__________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
(1) Yes [X] No [_]
(2) Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_]
As of January 31, 2001, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $1,472,497,222.
As of January 31, 2001, there were 240,148,465 shares of the Registrant's
common stock outstanding.
__________________
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 2001 Annual Meeting of
Stockholders to be held May 11, 2001 are incorporated by reference in Part III
of this Form 10-K Report.
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VIGNETTE CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
Page
----
Part I.
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 21
Item 3. Legal Proceedings............................................................................. 21
Item 4. Submission of Matters to a Vote of the Security Holders....................................... 21
Item 4A. Executive Officers and Directors of the Registrant............................................ 22
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 25
Item 6. Selected Consolidated Financial Data.......................................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. 27
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................... 38
Item 8. Consolidated Financial Statements and Supplementary Data...................................... 39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures................................................................................. 39
Part III.
Item 10. Directors and Executive Officers of the Registrant............................................ 40
Item 11. Executive Compensation........................................................................ 40
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 40
Item 13. Certain Relationships and Related Transactions................................................ 40
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 41
SIGNATURES................................................................................................ 43
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PART I.
ITEM 1. BUSINESS
The statements contained in this Report on Form 10-K that are not purely
historical statements are forward-looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those indicated in such forward-
looking statements. We are under no duty to update any of the forward-looking
statements after the date of this filing on Form 10-K to conform these
statements to actual results. See "Risk Factors that May Affect Future Results,"
and the factors and risks discussed in our Registration Statement filed on Form
S-1 on December 9, 1999 (File No. 333-91085) with the Securities and Exchange
Commission.
Overview
Vignette is a leading provider of customer-driven Internet applications used
by the most successful and demanding enterprises to build lasting relationships
with their business, trade and consumer customers.
The family of Vignette products is focused around three core capabilities that
meet the needs of today's e-business organizations.
Content - the ability to manage and deliver content to every electronic
touchpoint.
Integration - the ability to integrate a variety of e-business
applications within and across enterprises.
Analysis - the ability to provide actionable insight into the
customer's relationship to a business.
We deliver customer-facing applications that leverage these content,
integration and analysis services and enable organizations to captivate their
customers, build a competitive difference and maximize their returns and
customer value.
Our products are supported by the Vignette Professional Services organization,
which offers a broad range of services, including strategic planning, project
management, account management, general implementation services, and an
extensive array of training offerings. In addition, our growth is facilitated by
a number of partnerships with world-class systems integrators like Accenture,
Computer Sciences Corporation, IBM Global Services and PricewaterhouseCoopers
who use Vignette technologies to ensure client success. Additionally, our open
platform and application products have fostered strong relationships with key
technology partners such as BEA Systems, IBM, Intel, Microsoft, Oracle and Sun.
We are intensely focused on customer success and serve over 1200 end-user
customers including market leaders like Daimler/Chrysler, Land's End, Merrill
Lynch, Motorola, PaineWebber and United Airlines.
Products
Our software solutions are based upon the architectural approach of the
customer-driven applications model for e-business organizations. This modular
architecture makes it possible to rapidly deploy adaptable and powerful
solutions for content management, information portals, business-to-customer, or
B2C, storefronts, business-to-business, or B2B, commerce and e-marketplaces. We
provide sell-side functionality to market to, sell to and service customers
through the Internet, and integrate seamlessly with buy-side procurement,
transaction and settlement application functions. The benefits of our products
and solutions are:
. Rapid deployment: accelerate time-to-results;
. Adaptable design: respond easily to changing e-business strategies;
. Modular approach: maximize current and future investments;
. Powerful solutions: ensure the performance of our customers'
e-business.
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Vignette Content Management Server
Vignette Content Management Server, or CMS, is an industry-leading
collaborative content management platform that tightly integrates content
management, scalable content delivery, and personalization. CMS offers
comprehensive support for managing content stored in databases, Extensible
Markup Language, or XML, repositories, and static files and, as a result, is a
powerful solution for enterprise-wide collaboration for e-businesses.
With CMS, our customers can:
. Allow non-technical content authors to submit, edit, review, and approve
content using their favorite tools
. Manage content from databases, file systems, news feeds, and legacy
systems
. Provide participants a simple to-do list interface for completing tasks
. Define workflow processes with e-mail notifications to manage the
collective efforts of their teams
. Keep a full approval history to ensure quality and accountability
. Schedule the launch and expiration of content and applications
. Retain complete control over their e-business applications and content
Vignette Content Aggregation Server
Vignette Content Aggregation Server, or CAS, is a product that enables the
rapid and reliable gathering--or aggregation--of numerous types of Internet-
based content, including text, graphics, audio and video files, database
records, and other digital assets such as applets. Typical users include
information portals, e-marketplaces, and large-scale corporations and
institutions with a major online presence. CAS provides a simple, versatile, and
highly cost-effective methodology for gathering and presenting the kind of rich,
varied, and up-to-date information required for success in today's competitive
Internet markets. CAS is versatile and can deliver virtually any type of
information--from virtually any source--automatically, quickly, and
consistently.
Vignette Lifecycle Personalization Server
Vignette Lifecycle Personalization Server, or LPS, solution includes Adaptive
Personalization and Observation Management Services to improve online customer
service by anticipating customer needs, delivering relevant content, and
minimizing visitor effort.
Adaptive Personalization services leverage both implicit and explicit visitor
knowledge to enable an e-business to personalize its website on a customer's
first visit, without explicitly asking the visitor for login or preference
information. For instance, system adaptation is used to determine the
characteristics of the user's browser and the connecting device, and behavioral
adaptation, comprised of content and navigational adaptation, provides the
ability to dynamically adapt the site to visitors as they browse. Integration of
these Adaptive Personalization services with CMS software allows content to be
categorized so that, as the visitor browses, a pattern of the visitor's interest
emerges.
The Observation Management Services work in conjunction with the content
categorization capabilities of CMS to handle all updates of a customer's
behavior. Functionally, this provides:
. Access to visitor information
. Tracking of implicit data through the visitor's browsing behavior
. Profiling of visitors using both implicit and explicit data. This may
include visitor session data or explicit "traits" expressed in a
registration form.
. Personalizing of content and navigation that the visitor experiences.
Vignette Content Syndication Server
Vignette Content Syndication Server, or CSS, is a comprehensive solution for
distribution--or syndication--of Web-based content from an e-business to
affiliates, customers, distributors, marketplaces, and other online trading
partners.
Utilizing a powerful syndication engine and independent application server,
CSS distributes packages of content--including text, graphics, audio, video,
applets, and other information--directly from an e-business site's repository to
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the Web repositories of trading partners, over standard Hypertext Transfer
Protocol and File Transfer Protocol, or HTTP and FTP, connections.
By delivering seamless, powerful, and flexible content syndication
capabilities, CSS enables e-businesses to:
. Open new sales channels by simplifying the distribution of timely
product information and other content in a wide variety of formats;
. Increase sales to existing customers by targeting them with customized
content packages;
. Liquidate distressed inventories by distributing targeted product
information to broader audiences;
. Dramatically reduce operating costs and errors by automating the manual
process of distributing product information and other content;
. Build stronger and longer-lasting relationships with key distribution
partners by supplying them with up-to-the-minute, accurate, and relevant
information on a schedule of their choosing.
CSS features the industry's widest range of supported input sources and
content formats, as well as unparalleled flexibility in delivery options. It
enables companies to leverage their web-based content for distribution to their
affiliates and customers quickly and easily.
Vignette Mobile Application Suite
Vignette Mobile Application Suite, or MAS, is a powerful solution that extends
the Vignette platform's transaction, integration, notification and data
aggregation capabilities to wireless devices such as Palm and Palm-compatible
products and Wireless Application Protocol, or WAP, compliant cellular phones.
With MAS, providers can take the Internet "on the road," giving selected
customers and trading partners personalized, mobile access to corporate
applications, Internet services, and customized messages and alerts.
E-businesses implementing MAS in conjunction with other Vignette products reap
immediate business benefits:
. Fast time-to-market through pre-packaged, "off-the-shelf" options, plus
an intuitive and highly versatile graphical development environment
ensure quick turnaround for new and updated wireless business services.
. High appeal for trading partners through wireless capabilities, an open
architecture, and a full range of transactional functionality that make
it easier to meet the specific needs of trading partners, while
decreasing the initial and long-term costs of business partnerships.
. Faster sales through increased access to corporate applications and
Internet services from mobile devices can raise the volume and rate of
sales overall.
. Increased productivity through a wireless-enabled field staff, customer
base, vendor pool and trading partner environment maximizes corporate
resources, speeding up operations and allowing each individual to have a
more direct impact on profitability.
Vignette Multi-channel Communication Server
Vignette Multi-channel Communication Server, or MCS, provides the leading
enterprise platform for developing mobile e-business applications that manage
relationships with customers, partners, and employees via multiple electronic
touchpoints.
MCS enables the proactive distribution of personalized content and provides
closed-loop interaction with a customer's e-business audience via e-mail,
pagers, mobile phones, personal digital assistants, or PDAs, and other
touchpoints. MCS propels our customers to the forefront of the wireless
revolution fueled by the alliance of computing and telecommunications
technologies.
Vignette Advanced Deployment Server
Vignette Advanced Deployment Server, or ADS, is designed for companies that
require an enterprise-wide development, testing, and production system for their
e-business applications.
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Benefits include:
. Management of both static and dynamic content, application code, and
targeted marketing campaigns, as well as rich metadata for
personalization, caching, and visitor tracking.
. A superior architecture that support an n-tiered development, testing,
and production environment. As the requirements or business processes of
the e-business grow, ADS is robust enough to support them.
. A flexible and adaptable design so that ADS can adapt to the most unique
staging environment. The adaptability of ADS allows businesses to
transfer assets across environments based on business requirements,
without having to worry about technical limitations.
. Rapid implementation time. ADS is an out-of-the-box solution that
enables a customer to install, configure, and run a robust staging
system in a matter of hours. The alternative is to create expensive,
handcoded methods for moving code, content, and other data securely
between environments.
. A robust set of Application Programming Interfaces, or API, that can be
used to extend the functionality of ADS or to integrate the
functionality of ADS with third-party applications.
. Security. By using strong (128-bit) or weak (40-bit) Secure Sockets
Layer, or SSL, encryption, ADS can deploy assets in a secure manner,
protecting your sensitive data. ADS leverages the Information and
Content Exchange, or ICE, standard protocol for reliable transfer of
assets between environments, which reduces risk and promotes
interoperability.
Vignette Application Power Pack
Vignette Application Power Pack, or VAPP, is a comprehensive set of reusable,
cross-platform, packaged application modules designed to accelerate the
assembly, deployment, and management of e-business applications. These modules
provide browser-based user interfaces and APIs for managing and finding
information, enabling personalized interactions, and building online
communities.
VAPP supports a "configure-and-go" approach designed to help companies get a
head start on reaching their strategic e-business application goals.
Vignette Business Integration Studio
Vignette Business Integration Studio, or BIS, connects e-business applications
with internal business applications. It is an easy-to-use solution for
integrating enterprise-wide systems, providing the exact features required to
effectively link Internet services with legacy applications, databases and
enterprise resource planning, or ERP, systems.
BIS automates information flow among diverse business systems, regardless of
platform, operating system, or native language. The result is consistency,
accuracy, timeliness, and accessibility for critical enterprise information.
E-commerce and traditional modes of doing business are no longer separate
corporate functions. BIS helps information systems reflect this new economic
reality, enhancing the effectiveness of Internet services and improving control
over the enterprise as a whole.
Vignette Collaborative Commerce Server
Vignette Collaborative Commerce Server, or CCS, is a business-to-business
integration, or B2Bi, solution, enabling the rapid, secure and guaranteed
exchange and processing of business transactions via the Internet and through
corporate firewalls.
The XML and Java(TM)-based solution delivers robust features and functionality
in several key areas:
. Highly scalable, open architecture. Unlike many B2Bi solutions that are
based on proprietary application servers, CCS is 100% Java and runs on
top of industry-leading application servers that provide extensive load
balancing, fault tolerance and clustering capabilities to enable high
volume execution of simultaneous transactions.
. Support for evolving industry standards and specifications. CCS's open
architecture can accommodate rapidly evolving technologies, which
simplifies the development and management of complex transaction
systems. CCS uses XML as the common language for business-to-business
document exchange and is the first application server to support Biz
Talk--the Microsoft specification for XML-based business information.
CCS
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also provides the ability to support other industry standards, such as
RosettaNet, cXML, xCBL, ebXML, EDI and OAGIS.
. Rapid configuration for complex business processes. CCS offers a robust,
easy-to-use solution for configuring and managing highly diversified
trading communities. Comprehensive trading community management features
ensure that transactions can be tailored to each trading partner's
specific business and technical requirements, providing an automated
solution that can scale easily to the high volumes desired for fast-
paced Internet business operations. The modular, open architecture also
allows users to incorporate emerging standards and new business
paradigms.
Vignette Relationship Management Server
Vignette Relationship Management Server, or RMS, solution enables business
managers to leverage analysis and business insight to create, implement, and
measure cross-channel customer marketing promotions using a closed-loop
marketing architecture. It enables businesses to:
. Gain critical insights by measuring and analyzing customer interactions
across multiple business touchpoints;
. Easily segment customers into relevant groups; and
. Automatically deliver highly targeted content to those groups in the
form of campaigns.
RMS "closes the loop" by continuously repeating this cycle--each time
measuring and analyzing customer responses to campaigns, and adjusting customer
segments and future campaign content based on continuous learning. The result is
that every communication with a business's customers becomes more effective at
achieving the business's objective--whether it be delivering timely and relevant
information, encouraging larger and more frequent online purchases, or
convincing its customers to come back again and again.
Open Architecture
Vignette has built one of the most open and comprehensive platforms in the
market. In the second quarter 2000, we made available native support for
Microsoft's Active Server Page scripting and COM technology, critical parts of
Microsoft's Windows DNA 2000 environment. In the fourth quarter 2000, we
released a version of our products that support the Java 2 Platform, Enterprise
Edition, or J2EE, scripting environment, Java Server Pages. In early 2001, we
began offering native Enterprise Java Bean implementations of our products.
With these milestones, we became one of the first vendors in its industry to
support both Sun Microsystems Inc.'s Java platform and Microsoft Corp.'s Windows
DNA, the two dominant Web application development environments in use today.
Professional Services
The Vignette Professional Services, or VPS, organization is integral to our
ability to provide our clients with an innovative and comprehensive e-business
solution. VPS has over 600 experienced consultants worldwide with extensive
software project management, development and deployment experience. VPS helps
clients plan, design and rapidly implement successful Internet businesses with
innovative e-business applications. VPS focuses its consulting services on
influencing the client's ability to understand and build online relationships
with their customers. The goals of the VPS organization are to mitigate client
implementation risks, improve the time to market and integrity of the solution
and share best practices with client project teams. We charge for our services
on either a time and materials basis or on a fixed-fee basis, and provide our
services through our VPS practices in San Francisco, California; Los Angeles,
California; Austin, Texas; Boston, Massachusetts; New York, New York;
Washington, D.C.; Chicago, Illinois; Atlanta, Georgia; Bellevue, Washington;
Denver, Colorado; London, England; Hamburg, Germany; Paris, France; Madrid,
Spain; Taiwan; Hong Kong; Singapore; Melbourne, Australia; and Sydney,
Australia.
Strategy
Our objective is to maintain and extend our leadership position as a global
provider of e-business solutions. To achieve this objective, we will focus on
expanding our customer base of Fortune 1000 enterprises, extending our
technology and product leadership through investment in research & development
and targeted acquisitions, expanding our global sales capabilities, and
extending our partnership alliances with leading technology and services
companies.
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Strategic Alliances
A critical element of our sales strategy is to establish strategic alliances
to assist us in marketing, selling and developing customer applications, as well
as to increase product interoperability within the industry. This approach is
intended to increase the number of personnel available to perform application
design and development services for our clients and provide additional marketing
expertise and technical expertise in certain vertical industry segments. The
"Vignette Economy" includes a community of skilled partners specifically
selected to support our customers and to grow with them to ensure success. As of
December 31, 2000, there were approximately 2,000 Vignette-trained third-party
partner professionals making up the Vignette Economy.
We have established partnerships with leading systems integrators such as
Accenture, Computer Sciences Corp., IBM Global Services and
PricewaterhouseCoopers. We have also established strategic alliances with
technology leaders like Ariba, BEA Systems, Dell Computer Corp., IBM, Intel,
Microsoft, Oracle and Sun Microsystems.
We intend to continue to invest in and extend our existing partner
relationships as well as to form new partnerships with other market leading
systems integrators and technology vendors.
Acquisitions
We have completed four acquisitions since our inception, three of which
occurred during 2000.
Effective January 18, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of Engine 5, Ltd. ("Engine 5"), a
developer of enterprise-wide Java server technology, in exchange for 248,043
shares of our common stock and approximately $4.9 million in cash. The total
cost of the acquisition, including transaction costs of $400,000, was
approximately $20.0 million. The acquisition was accounted for as a purchase
business combination. Accordingly, the acquired net liabilities were recorded at
their estimated fair values at the effective date of the acquisition and the
results of operations of Engine 5 have been included with ours for the periods
subsequent to the date of the acquisition.
Additionally, as part of the Engine 5 acquisition, contingent consideration of
33,183 shares of our common stock and $1.6 million was issued and paid,
respectively, during the year ended December 31, 2000. Remaining contingent
consideration of approximately 55,278 shares of our common stock and $2.7
million will be based upon defined future employment requirements met through
the first quarter of 2002. The contingent consideration related to the Engine 5
acquisition is not included in the total purchase price, above, but is expensed
as future employment requirements are satisfied; such amount totaled $3.8
million during the year ended December 31, 2000.
Effective February 15, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of DataSage, Inc. ("DataSage"), a leading
provider of e-marketing and personalization applications that help organizations
create a comprehensive single enterprise-wide view of their customers, in
exchange for 9,458,061 shares of our common stock. The total cost of the
acquisition, including transaction costs of $1.1 million, was approximately
$586.6 million. The acquisition was accounted for as a purchase business
combination. Accordingly, the acquired net assets were recorded at their
estimated fair values at the effective date of the acquisition and the results
of operations of DataSage have been included with ours for the periods
subsequent to the date of the acquisition.
Effective July 5, 2000, we acquired all of the outstanding stock and assumed
all outstanding stock options of OnDisplay, Inc. ("OnDisplay"), a leading
provider of e-business infrastructure software for powering e-business portals
and e-marketplaces, in exchange for 42,016,975 shares of Vignette common stock.
The total cost of the acquisition, including transaction costs of $14.0 million,
was approximately $1.5 billion. The acquisition was accounted for as a purchase
business combination. Accordingly, the acquired net assets were recorded at
their estimated fair values at the effective date of the acquisition and the
results of OnDisplay have been included with ours for the periods subsequent to
the date of the acquisition.
In connection with our respective acquisitions of Engine 5, DataSage and
OnDisplay, we incurred one-time acquisition costs and integration-related
charges, which included costs associated with product integration, cross
training, and other merger-related costs. Additionally, a portion of the
OnDisplay and DataSage purchase price was allocated to in-process research and
development based upon an independent third-party appraisal and expensed upon
the consummation of the transactions. These related acquisition, integration and
in-process research and development charges totaled
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approximately $169.9 million during fiscal year 2000.
Customers
As of December 31, 2000, we had 1,248 end-user customers. Our customer list
includes the most successful organizations in the automotive, education,
entertainment, financial services, government, health care, high tech,
manufacturing, new media and publishing, retail, telecom, travel and other
industries. Customers include (but are not limited to) the following:
Automotive Channel Education
- ---------- -------- ---------
BMW AT Kearney Acadio Corporation
DaimlerChrysler EDS Columbia University
Mercedes Benz Hill Holliday Interactive Digital Think
Volkswagen of America, Inc. Intelligroup, Inc. Kaplan Education
Volvo SPL World Group Sageport
Entertainment Financial services Government
- ------------- ------------------ ----------
British Sky Broadcasting (BSkyB) Charles Schwab & Company California Public Employees' Retirement
Checkout.com JP Morgan Chase System (CalPERS)
Direct TV Fidelity National Governors' Association
Globo.com PaineWebber National Science Foundation
Turner Entertainment Group New York Life Insurance Company SJ Rail
US Mint
Healthcare High tech Manufacturing
- ----------- ---------- -------------
American Medical Association Cisco Herman Miller, Inc.
Centrimed Compaq Computer Corp. Otis Elevator Company
Global Healthcare Exchange Dell Computer Corp. Pergo, Inc.
National Cancer Institute Hewlett-Packard Siemens AG
United Healthcare Siebel Systems Thomson Direct, Inc.
Sun Microsystems, Inc.
New media/publishing Retail Telecom
- -------------------- ------- -------
Bertelsmann Amazon.com Holdings, Inc. AT&T
CBS Broadcasting Best Buy Co., Inc. British Telecom
Chicago Tribune Harrods Ltd. Cablevision (CSC Holdings)
CNET /ZD Net Lands' End Motorola
Time Inc. New Media RCA.com Telefonica
Travel Other/Services
- ------- --------------
Atevo Travel Breakaway Solutions
Lufthansa DHL Worldwide Express
Preview Travel Federal Express
The Sabre Group McKinsey & Co.
United Air Lines, Inc. Waste Management, Inc.
Competition
The market for our products is intensely competitive, subject to rapid
technological change and significantly affected by new product introductions and
other market activities of industry participants. We expect competition to
persist and intensify in the future. We have three primary sources of
competition: in-house development efforts by potential clients or partners;
other vendors of software that directly address e-business solutions; and
developers of point solution software that address only certain technology
components of e-business solutions (e.g., content management).
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Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do and thus
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many current and potential
competitors have wider name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to our detriment. Such
competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies, and offer more attractive terms to
purchasers than we can. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to enhance their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
Such competition could materially and adversely affect our ability to obtain
revenues from either license or service fees from new or existing customers on
terms favorable to us. Further, competitive pressures may require us to reduce
the price of our software. In either case, our business, operating results and
financial condition would be materially and adversely affected. There can be no
assurance that we will be able to compete successfully with existing or new
competitors or that competition will not have a material adverse effect on our
business, financial condition and operating results. See "Risk Factors that May
Affect Future Results--Risks Related to Our Business--We Face Intense
Competition for e-Business Applications Software Which Could Make it Difficult
to Acquire and Retain Clients Now and in the Future."
Research and Development
We have made substantial investments in research and development through both
internal development and technology acquisitions. Although we plan to continue
to evaluate externally developed technologies for integration into our product
lines, we expect that most enhancements to existing and new products will be
developed internally.
The majority of our research and development activity has been directed
towards feature extensions to our family of products. This development consists
primarily of adding new competitive product features and additional tools and
products as we expand into new markets.
Our research and development expenditures, excluding the write-off of acquired
in-process research and development, for fiscal 1998, 1999 and 2000 were
approximately $7.0 million, $16.4 million and $58.3 million, respectively. We
expect that we will continue to commit significant resources to research and
development in the future. Most research and development expenses have been
expensed as incurred. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of products incorporating new technologies and the emergence of new
industry standards could render existing products obsolete and unmarketable. Our
future success will depend in part on our ability to anticipate changes, enhance
our current products, develop and introduce new products that keep pace with
technological advancements and address the increasingly sophisticated needs of
our customers. See "Risk Factors that May Affect Future Results--Risks Related
to Our Business--If We are Unable to Meet the Rapid Changes in E-Business
Applications Technology Our Existing Products Could Become Obsolete."
Sales and Marketing
We market our products primarily through our direct sales force and also
intend to expand our indirect sales through additional relationships with
systems integrators, VARs and OEMs. We generate leads from a variety of sources,
including businesses seeking partners to develop interactive marketing and
selling applications. Initial sales activities typically include a demonstration
of our product capabilities followed by one or more detailed technical reviews.
As of December 31, 2000, the direct sales force consisted of 519 sales
executives and support personnel.
We seek to establish partnerships with major industry vendors that will add
value to our products and expand distribution opportunities. We also pursue
marketing agreements with premier content authoring vendors, site usage analysis
vendors and vertically aligned Web server vendors.
We use a variety of marketing programs to build market awareness of us, our
brand name and our products, as well as to attract potential clients for our
products. A broad mix of programs are used to accomplish these goals, including
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market research, product and strategy updates with industry analysts, public
relations activities, advertising, direct marketing and relationship marketing
programs, seminars, trade shows, speaking engagements and Web site marketing.
Our marketing organization also produces marketing materials in support of sales
to prospective clients that include brochures, data sheets, white papers,
presentations and demonstrations.
Proprietary Rights and Licensing
Our success and ability to compete is dependent on our ability to develop and
maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret, and copyright law and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently own two patents
and have a number of patent applications pending in the United States. We have
eight registered trademarks in the United States, 26 pending trademark
applications in the United States, 22 registered trademarks in foreign
countries, and 27 pending trademark applications in foreign countries. We seek
to protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. We license our software
pursuant to signed license or "shrinkwrap" agreements, which impose certain
restrictions on the licensee's ability to utilize the software. Finally, we seek
to avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source code.
Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments and
enhancements to existing products are more important than the various legal
protections of our technology to establishing and maintaining a technology
leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of our
software exists, software piracy can be expected to be a persistent problem.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. However, the laws of many countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. Any such
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, operating
results and financial condition. There can be no assurance that our means of
protecting our proprietary rights will be adequate or that our competitors will
not independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.
To date, we have not been notified that our products infringe the proprietary
rights of third parties, but there can be no assurance that third parties will
not claim infringement with respect to our current or future products. We expect
that developers of Web-based commerce software products will increasingly be
subject to infringement claims as the number of products and competitors in our
industry segment grows and as the functionality of products in different
segments of the software industry increasingly overlaps. Any such claims, with
or without merit, could be time-consuming to defend, result in costly
litigation, divert management's attention and resources, cause product shipment
delays or require us to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to us or at all. A successful claim of product infringement against us and our
failure or inability to license the infringed technology or develop or license
technology with comparable functionality could have a material adverse effect on
our business, financial condition and operating results. See "Risk Factors that
May Affect Future Results--Risks Related to Our Business--Our Business is Based
on Our Intellectual Property and We Could Incur Substantial Costs Defending Our
Intellectual Property From Infringement or a Claim of Infringement."
We include certain third-party software in our products. This third-party
software may not continue to be available on commercially reasonable terms. We
license data encryption and authentication technology from RSA Data Security,
Inc., load balancing and traffic management software from Resonate, Inc.,
development software from Iona Technologies, Inc., database access technology
from Rogue Wave Software, Inc., Express Online Analytical Processing products
from Oracle Corporation, concept and keyword search functionality from Autonomy,
Inc., and other software that is integrated with internally developed software.
If we cannot maintain licenses to this third-party software, shipments of our
products could be delayed until equivalent software could be developed or
licensed and integrated into our products, which could materially adversely
affect our business, operating results and financial condition.
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Employees
As of December 31, 2000, we had a total of 2,330 employees. Of the total
employees, 679 were in engineering, 632 in sales and marketing, 696 in
professional services and 323 in finance and administration. Our future success
will depend in part on our ability to attract, retain and motivate highly
qualified technical and management personnel, for whom competition is intense.
From time to time we also employ independent contractors to support our
professional services, product development, sales, marketing and business
development organizations. Our employees are not represented by any collective
bargaining unit, and we have never experienced a work stoppage. We believe our
relations with our employees are good.
As of February 28, 2001, we had 2,005 employees. The decrease from December
31, 2000 resulted primarily from the restructuring efforts we initiated in
January 2001.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Risks Related to Our Business
In addition to the other information in this Report, the following risk
factors should be considered carefully in evaluating our business and us.
We Expect to Incur Future Losses
We have not achieved profitability and we expect to incur net operating losses
at least through the first quarter of 2001. To date, we have primarily funded
our operations from the sale of equity securities. We expect to continue to
incur significant product development, sales and marketing, and administrative
expenses and, as a result, we will need to generate significant revenues to
achieve and maintain profitability. Although our revenues have grown
significantly in recent quarters, we cannot be certain that we can sustain these
growth rates or that we will achieve sufficient revenues for profitability. If
we do achieve profitability, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis in the future.
Our Limited Operating History Makes Financial Forecasting Difficult
We were founded in December 1995 and thus have a limited operating history. As
a result of our limited operating history, we cannot forecast operating expenses
based on our historical results. Accordingly, we base our expenses in part on
future revenue projections. Most of our expenses are fixed in the short term and
we may not be able to quickly reduce spending if our revenues are lower than we
had projected. Our ability to forecast accurately our quarterly revenue is
limited because our software products have a long sales cycle that makes it
difficult to predict the quarter in which sales will occur. We would expect our
business, operating results and financial condition to be materially adversely
affected if our revenues do not meet our projections and that net losses in a
given quarter would be even greater than expected.
We Expect Our Quarterly Revenues and Operating Results to Fluctuate
Our revenues and operating results have varied significantly from quarter to
quarter in the past and we expect our operating results will continue to vary
significantly from quarter to quarter. A number of factors are likely to cause
these variations, including:
. Demand for our products and services;
. The timing of sales of our products and services;
. The timing of customer orders and product implementations;
. Unexpected delays in introducing new products and services;
. Increased expenses, whether related to sales and marketing, product
development or administration;
. Changes in the rapidly evolving market for e-business solutions;
. The mix of product license and services revenue, as well as the mix of
products licensed;
. The mix of services provided and whether services are provided by our
own staff or third-party contractors;
. The mix of domestic and international sales; and
. Costs related to possible acquisitions of technology or businesses.
Accordingly, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the results
of one quarter as an indication of future performance.
We plan to increase our operating expenses to expand sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support and improve
operational and financial systems as necessary. If our revenues do not increase
along with these expenses, our business, operating results or financial
condition could be materially adversely affected and net losses in a given
quarter would be even greater than expected.
We believe that our quarterly operating results may experience seasonal
fluctuations. For instance, quarterly results may fluctuate based on client
calendar year budgeting cycles, slow summer purchasing patterns in Europe and
our compensation policies that tend to compensate sales personnel, typically in
the latter half of the year, for achieving
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annual quotas. Another example is the recent uncertainty surrounding the overall
information technology spending environment and customer hesitancy to make large
capital expenditures.
If We Experienced a Product Liability Claim We Could Incur Substantial
Litigation Costs
Since our clients use our products for mission critical applications such as
Internet commerce, errors, defects or other performance problems could result in
financial or other damages to our clients. They could seek damages for losses
from us, which, if successful, could have a material adverse effect on our
business, operating results and financial condition. Although our license
agreements typically contain provisions designed to limit our exposure to
product liability claims, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. To date, we have
not experienced any product liability claims or litigation that we feel is
material to our business. However, such claims if brought against us, even if
not successful, would likely be time consuming and costly
We Depend on Increased Business from Our Current and New Customers and if We
Fail to Grow Our Customer Base or Generate Repeat Business, Our Operating
Results Could Be Harmed
If we fail to grow our customer base or generate repeat and expanded business
from our current and new customers, our business and operating results would be
seriously harmed. Many of our customers initially make a limited purchase of our
products and services. Some of these customers may not choose to purchase
additional licenses to expand their use of our products. Some of these customers
have not yet developed or deployed initial applications based on our products.
If these customers do not successfully develop and deploy such initial
applications, they may not choose to purchase deployment licenses or additional
development licenses. Our business model depends on the expanded use of our
products within our customers' organizations.
In addition, as we introduce new versions of our products or new products, our
current customers may not require the functionality of our new products and may
not ultimately license these products. Because the total amount of maintenance
and support fees we receive in any period depends in large part on the size and
number of licenses that we have previously sold, any downturn in our software
license revenue would negatively impact our future services revenue. In
addition, if customers elect not to renew their maintenance agreements, our
services revenue could be significantly adversely affected.
Our Operating Results May Be Adversely Affected by Small Delays in Customer
Orders or Product Implementations
Small delays in customer orders or product implementations can cause
significant variability in our license revenues and operating results for any
particular period. We derive a substantial portion of our revenue from the sale
of products with related services. In certain cases, our revenue recognition
policy requires us to substantially complete the implementation of our product
before we can recognize software license revenue, and any end of quarter delays
in product implementation could materially adversely affect operating results
for that quarter.
In Order to Increase Market Awareness of Our Products and Generate Increased
Revenue We Need to Expand Our Sales and Distribution Capabilities
We must expand our direct and indirect sales operations to increase market
awareness of our products and generate increased revenue. We cannot be certain
that we will be successful in these efforts. We have recently expanded our
direct sales force and plan to hire additional sales personnel. Our products and
services require a sophisticated sales effort targeted at the senior management
of our prospective clients. New hires will require training and take time to
achieve full productivity. We cannot be certain that our recent hires will
become as productive as necessary or that we will be able to hire enough
qualified individuals or retain existing employees in the future. We also plan
to expand our relationships with value-added resellers, systems integrators and
other third-party resellers to build an indirect sales channel. In addition, we
will need to manage potential conflicts between our direct sales force and
third-party reselling efforts.
Failure to Maintain the Support of Third-Party E-Business Consultants May Limit
Our Ability to Penetrate Our Markets
A significant portion of our sales are influenced by the recommendations of
our products made by systems integrators, consulting firms and other third
parties that help develop and deploy e-business applications for our clients.
Losing the support of these third parties may limit our ability to penetrate our
markets. These third parties are under no obligation to recommend or support our
products. These companies could recommend or give higher priority to the
products of
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other companies or to their own products. A significant shift by these companies
toward favoring competing products could negatively affect our license and
service revenue.
Our Lengthy Sales Cycle and Product Implementation Makes It Difficult to Predict
Our Quarterly Results
We have a long sales cycle because we generally need to educate potential
clients regarding the use and benefits of e-business applications. Our long
sales cycle makes it difficult to predict the quarter in which sales may fall.
In addition, since we recognize the majority of our revenue from product sales
upon implementation of our product, the timing of product implementation could
cause significant variability in our license revenues and operating results for
any particular period. The implementation of our products requires a significant
commitment of resources by our clients, third-party professional services
organizations or our professional services organization, which makes it
difficult to predict the quarter when implementation will be completed.
We May Be Unable to Adequately Sustain a Profitable Professional Services
Organization, Which Could Affect Both Our Operating Results and Our Ability to
Assist Our Clients with the Implementation of Our Products.
We cannot be certain that we can attract or retain a sufficient number of the
highly qualified services personnel that our business needs. Clients that
license our software typically engage our professional services organization to
assist with support, training, consulting and implementation of their Web
solutions. We believe that growth in our product sales depends on our ability to
provide our clients with these services and to educate third-party resellers on
how to use our products. As a result, we plan to increase the number of service
personnel to meet these needs. New services personnel will require training and
education and take time to reach full productivity. To meet our needs for
services personnel, we may also need to use more costly third-party consultants
to supplement our own professional services organization. We expect our services
revenue to increase in absolute dollars as we continue to provide consulting and
training services that complement our products and as our installed base of
clients grows. During 2000, our professional services organization achieved
profitability; however, prior to 2000, services costs related to professional
services had exceeded, or had been substantially equal to, professional
services-related revenue. Although we expect that our professional
services-related revenue will continue to exceed professional services-related
costs in future periods, we cannot be certain that this will occur. We generally
bill our clients for our services on a time and materials basis. However, from
time to time we enter into fixed-price contracts for services. On occasion, the
costs of providing the services have exceeded our fees from these contracts and,
from time to time, we may misprice future contracts to our detriment. In
addition, competition for qualified services personnel with the appropriate
Internet specific knowledge is intense. There are a limited number of people who
have acquired the skills needed to provide the services that our clients demand.
We May Be Unable to Attract Necessary Third-Party Service Providers, Which Could
Affect Our Ability to Provide Support, Consulting and Implementation Services
for Our Products
There may be a shortage of third-party service providers to assist our clients
with the implementation of our products. We do not believe our professional
services organization will be able to fulfill the expected demand for support,
consulting and implementation services for our products. We are actively
attempting to supplement the capabilities of our services organization by
attracting and educating third-party service providers and consultants to also
provide these services. We may not be successful in attracting these third-party
providers or maintaining the interest of current third-party providers. In
addition, these third parties may not devote enough resources to these
activities. A shortfall in service capabilities may affect our ability to sell
our software.
15
Our Business May Become Increasingly Susceptible to Numerous Risks Associated
with International Operations
International operations are generally subject to a number of risks,
including:
. Expenses associated with customizing products for foreign countries;
. Protectionist laws and business practices that favor local competition;
. Changes in jurisdictional tax laws;
. Dependence on local vendors;
. Multiple, conflicting and changing governmental laws and regulations;
. Longer sales cycles;
. Difficulties in collecting accounts receivable;
. Foreign currency exchange rate fluctuations; and
. Political and economic instability.
We recorded 26% of our total revenue in the year ended December 31, 2000,
through licenses and services sold to clients located outside of the United
States. We expect international revenue to account for an increasing percentage
of total revenue in the future and we believe that we must continue to expand
our international sales activities in order to be successful. Our international
sales growth will be limited if we are unable to establish additional foreign
operations, expand international sales channel management and support
organizations, hire additional personnel, customize products for local markets,
develop relationships with international service providers and establish
relationships with additional distributors and third-party integrators. In that
case, our business, operating results and financial condition could be
materially adversely affected. Even if we are able to successfully expand
international operations, we cannot be certain that we will be able to maintain
or increase international market demand for our products.
To date, a majority of our international revenues and costs have been
denominated in foreign currencies. We believe that an increasing portion of our
international revenues and costs will be denominated in foreign currencies in
the future. To date, we have not engaged in any foreign exchange hedging
transactions and we are therefore subject to foreign currency risk.
In Order to Properly Manage Growth, We May Need to Implement and Improve Our
Operational Systems on a Timely Basis
We have expanded our operations rapidly since inception. We intend to continue
to expand in the foreseeable future to pursue existing and potential market
opportunities. This rapid growth places a significant demand on management and
operational resources. In order to manage growth effectively, we must implement
and improve our operational systems, procedures and controls on a timely basis.
If we fail to implement and improve these systems, our business, operating
results and financial condition will be materially adversely affected.
We May Be Adversely Affected if We Lose Key Personnel
Our success depends largely on the skills, experience and performance of some
key members of our management. If we lose one or more of these key employees,
our business, operating results and financial condition could be materially
adversely affected. In addition, our future success will depend largely on our
ability to continue attracting and retaining highly skilled personnel. Like
other software companies, we face intense competition for qualified personnel,
particularly in the Austin, Texas area. We cannot be certain that we will be
successful in attracting, assimilating or retaining qualified personnel in the
future.
We Have Relied and Expect to Continue to Rely on Sales of Our V/Series Product
Line for Our Revenue
We currently derive substantially all of our revenues from the license and
related upgrades, professional services and support of our V/Series software
products. We expect that we will continue to depend on revenue related to new
and enhanced versions of our V/Series product line for at least the next several
quarters. We cannot be certain that we will be successful in upgrading and
marketing our products or that we will successfully develop and market new
products and services. If we do not continue to increase revenue related to our
existing products or generate revenue from new products and services, our
business, operating results and financial condition would be materially
adversely affected.
16
Our Future Revenue is Dependent Upon Our Ability to Successfully Market Our
Existing and Future Products
We expect that our future financial performance will depend significantly on
revenue from existing and future software products and the related tools that we
plan to develop, which is subject to significant risks. There are significant
risks inherent in a product introduction such as our existing V/Series software
products. Market acceptance of these and future products will depend on
continued market development for Internet products and services and the
commercial adoption of standards on which the V/Series is based. We cannot be
certain that either will occur. We cannot be certain that our existing or future
products offering will meet customer performance needs or expectations when
shipped or that it will be free of significant software defects or bugs. If our
products do not meet customer needs or expectations, for whatever reason,
upgrading or enhancing the product could be costly and time consuming.
If We are Unable to Meet the Rapid Changes in E-Business Applications
Technology, Our Existing Products Could Become Obsolete
The market for our products is marked by rapid technological change, frequent
new product introductions and Internet-related technology enhancements,
uncertain product life cycles, changes in client demands, changes in packaging
and combination of existing products and evolving industry standards. We cannot
be certain that we will successfully develop and market new products, new
product enhancements or new products compliant with present or emerging Internet
technology standards. New products based on new technologies, new industry
standards or new combinations of existing products as bundled products can
render existing products obsolete and unmarketable. To succeed, we will need to
enhance our current products and develop new products on a timely basis to keep
pace with developments related to Internet technology and to satisfy the
increasingly sophisticated requirements of our clients. Internet commerce
technology, particularly e-business applications technology, is complex and new
products and product enhancements can require long development and testing
periods. Any delays in developing and releasing enhanced or new products could
have a material adverse effect on our business, operating results and financial
condition.
We Face Intense Competition for E-Business Applications Software, Which Could
Make it Difficult to Acquire and Retain Clients Now and in the Future
The Internet software market is intensely competitive. Our clients'
requirements and the technology available to satisfy those requirements
continually change. We expect competition to persist and intensify in the
future.
Our principal competitors include: in-house development efforts by potential
clients or partners; other vendors of software that directly address elements of
e-business applications; and developers of software that address only certain
technology components of e-business applications (e.g., content management).
Many of these companies, as well as some other competitors, have longer
operating histories and significantly greater financial, technical, marketing
and other resources than we do. Many of these companies can also leverage
extensive customer bases and adopt aggressive pricing policies to gain market
share. Potential competitors such as Netscape and Microsoft may bundle their
products in a manner that many discourage users from purchasing our products. In
addition, it is possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share.
Competitive pressures may make it difficult for us to acquire and retain
clients and may require us to reduce the price of our software. We cannot be
certain that we will be able to compete successfully with existing or new
competitors. If we fail to compete successfully against current or future
competitors, our business, operating results and financial condition would be
materially adversely affected.
We Must Successfully Complete the Integration of Our Recent Acquisitions of
Engine 5, Ltd., DataSage, Inc. and OnDisplay, Inc.
We acquired Engine 5, Ltd., DataSage, Inc. and OnDisplay Inc. on January 18,
2000, February 15, 2000, and July 5, 2000, respectively. Our failure to
successfully address the risks associated with our acquisitions of these
companies could have a material adverse effect on our ability to develop and
market products based on their respective technologies. In particular, we are
developing integrated products and, accordingly, are devoting significant
resources to product development, sales and marketing. The success of these
acquisitions will depend on our ability to successfully integrate and manage
their operations and on our ability to develop and market products based on the
acquired technology.
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Potential Future Acquisitions Could Be Difficult to Integrate, Disrupt Our
Business, Dilute Stockholder Value and Adversely Affect Our Operating Results
We may acquire other businesses in the future, which would complicate our
management tasks. We may need to integrate widely dispersed operations that have
different and unfamiliar corporate cultures. These integration efforts may not
succeed or may distract management's attention from existing business
operations. Our failure to successfully manage future acquisitions could
seriously harm our business. Also, our existing stockholders would experience
dilution if we financed the acquisitions by issuing equity securities.
The Internet is Generating Privacy Concerns in the Public and Within
Governments, Which Could Result in Legislation Materially and Adversely
Affecting Our Business or Result in Reduced Sales of Our Products, or Both
Businesses use our V/Series products to develop and maintain profiles to
tailor the content to be provided to Web site visitors. Typically, the software
captures profile information when consumers, business customers or employees
visit a Web site and volunteer information in response to survey questions.
Usage data collected over time augments the profiles. However, privacy concerns
may nevertheless cause visitors to resist providing the personal data necessary
to support this profiling capability. More importantly, even the perception of
security and privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of our products. In addition, legislative or regulatory
requirements may heighten these concerns if businesses must notify Web site
users that the data captured after visiting certain Web sites may be used by
marketing entities to unilaterally direct product promotion and advertising to
that user. We are not aware of any such legislation or regulatory requirements
currently in effect in the United States. Other countries and political
entities, such as the European Economic Community, have adopted such legislation
or regulatory requirements. The United States may adopt similar legislation or
regulatory requirements. If consumer privacy concerns are not adequately
addressed, our business, financial condition and operating results could be
materially adversely affected.
Our V/Series products use "cookies" to track demographic information and user
preferences. A "cookie" is information keyed to a specific server, file pathway
or directory location that is stored on a user's hard drive, possibly without
the user's knowledge, but generally removable by the user. Germany has imposed
laws limiting the use of cookies, and a number of Internet commentators,
advocates and governmental bodies in the United States and other countries have
urged passage of laws limiting or abolishing the use of cookies. If such laws
are passed, our business, operating results and financial condition could be
materially adversely affected.
We Develop Complex Software Products Susceptible to Software Errors or Defects
that Could Result in Lost Revenues, or Delayed or Limited Market Acceptance
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects. Serious
defects or errors could result in lost revenues or a delay in market acceptance,
which would have a material adverse effect on our business, operating results
and financial condition.
Our Product Shipments Could Be Delayed if Third-Party Software Incorporated in
Our Products is No Longer Available
We integrate third-party software as a component of our software. The
third-party software may not continue to be available to us on commercially
reasonable terms. If we cannot maintain licenses to key third-party software,
shipments of our products could be delayed until equivalent software could be
developed or licensed and integrated into our products, which could materially
adversely affect our business, operating results and financial condition.
18
Our Business is Based on Our Intellectual Property and We Could Incur
Substantial Costs Defending Our Intellectual Property from Infringement or a
Claim of Infringement
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We could incur
substantial costs to prosecute or defend any such litigation. Although we are
not involved in any such litigation which we believe is material to the
Company's business, if we become a party to litigation in the future to protect
our intellectual property or as a result of an alleged infringement of other's
intellectual property, we may be forced to do one or more of the following:
. Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
. Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not
be available on reasonable terms; and
. Redesign those products or services that incorporate such technology.
We rely on a combination of patent, trademark, trade secret and copyright law
and contractual restrictions to protect our technology. These legal protections
provide only limited protection. If we litigated to enforce our rights, it would
be expensive, divert management resources and may not be adequate to protect our
business.
Anti-Takeover Provisions in Our Charter Documents and Delaware Law Could Prevent
or Delay a Change in Control of Our Company
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. Such provisions include:
. Authorizing the issuance of "blank check" preferred stock;
. Providing for a classified board of directors with staggered, three-year
terms;
. Prohibiting cumulative voting in the election of directors;
. Requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
. Limiting the persons who may call special meetings of stockholders;
. Prohibiting stockholder action by written consent; and
. Establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Certain provisions of Delaware law and our stock incentive plans may also
discourage, delay or prevent someone from acquiring or merging with us.
Risks Related to the Internet Industry
Our Business is Sensitive to the Overall Economic Environment; Any Slowdown in
E-Business Growth or Other Factors Impacting Information Technology Spending
Budgets Could Harm Our Operating Results
The primary customers for our products are enterprises seeking to launch or
expand e-business initiatives. Any significant downturn in our customers'
markets or in general economic conditions that results in reduced information
technology spending budgets would likely result in a decreased demand for our
products and services and harm our business. Industry downturns like these have
been, and may continue to be, characterized by diminished product demand,
erosion of average selling prices, lower than expected revenues and difficulty
making collections from existing customers.
Our Performance Will Depend on the Growth of the Internet for Commerce
Our future success depends heavily on the Internet being accepted and widely
used for commerce. If Internet commerce does not continue to grow or grows more
slowly than expected, our business, operating results and financial condition
would be materially adversely affected. Consumers and businesses may reject the
Internet as a viable commercial medium for a number of reasons, including
potentially inadequate network infrastructure, slow development of enabling
technologies or insufficient commercial support. The Internet infrastructure may
not be able to support the demands placed on it by increased Internet usage and
bandwidth requirements. In addition, delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or increased government regulation could cause the Internet to lose
its viability as a commercial medium. Even if the
19
required infrastructure, standards, protocols or complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
Our Performance Will Depend on the New Market for E-Business Applications
Software
The market for e-business applications software is new and rapidly evolving.
We expect that we will continue to need intensive marketing and sales efforts to
educate prospective clients about the uses and benefits of our products and
services. Accordingly, we cannot be certain that a viable market for our
products will emerge or be sustainable. Enterprises that have already invested
substantial resources in other methods of conducting business may be reluctant
or slow to adopt a new approach that may replace, limit or compete with their
existing systems. Similarly, individuals have established patterns of purchasing
goods and services. They may be reluctant to alter those patterns. They may also
resist providing the personal data necessary to support our existing and
potential product uses. Any of these factors could inhibit the growth of online
business generally and the market's acceptance of our products and services in
particular.
There is Substantial Risk that Future Regulations Could Be Enacted that Either
Directly Restrict Our Business or Indirectly Impact Our Business by Limiting the
Growth of Internet Commerce
As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. If enacted, such laws, rules or
regulations could limit the market for our products and services, which could
materially adversely affect our business, financial condition and operating
results. Although many of these regulations may not apply to our business
directly, we expect that laws regulating the solicitation, collection or
processing of personal and consumer information could indirectly affect our
business. The Telecommunications Act of 1996 prohibits certain types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a Telecommunications Act
violation are currently unsettled. In addition, although substantial portions of
the Communications Decency Act were held to be unconstitutional, we cannot be
certain that similar legislation will not be enacted and upheld in the future.
It is possible that such legislation could expose companies involved in Internet
commerce to liability, which could limit the growth of Internet commerce
generally. Legislation like the Telecommunications Act and the Communications
Decency Act could dampen the growth in Web usage and decrease its acceptance as
a communications and commercial medium.
The United States government also regulates the export of encryption
technology, which our products incorporate. If our export authority is revoked
or modified, if our software is unlawfully exported or if the United States
government adopts new legislation or regulation restricting export of software
and encryption technology, our business, operating results and financial
condition could be materially adversely affected. Current or future export
regulations may limit our ability to distribute our software outside the United
States. Although we take precautions against unlawful export of our software, we
cannot effectively control the unauthorized distribution of software across the
Internet.
Risks Related to the Securities Markets
Our Stock Price May Be Volatile
The market price of our common stock has been highly volatile and has
fluctuated significantly in the past. We believe that it may continue to
fluctuate significantly in the future in response to the following factors, some
of which are beyond our control:
. Variations in quarterly operating results;
. Changes in financial estimates by securities analysts;
. Changes in market valuations of Internet software companies;
. Announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. Loss of a major client or failure to complete significant license
transactions;
. Additions or departures of key personnel;
. Sales of common stock in the future; and
. Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of Internet and software
companies.
20
Our Business May Be Adversely Affected by Class Action Litigation Due to Stock
Price Volatility
In the past, securities class action litigation has often been brought against
a company following periods of volatility in the market price of its securities.
We may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert management's attention and
resources, which could have a material adverse effect on our business, operating
results and financial condition.
We May Be Unable to Meet Our Future Capital Requirements
We expect the cash on hand, cash equivalents, marketable securities and
short-term investments to meet our working capital and capital expenditure needs
for at least the next 12 months. After that time, we may need to raise
additional funds and we cannot be certain that we would be able to obtain
additional financing on favorable terms, if at all. Further, if we issue equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise funds, if needed, on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could have a material adverse effect on our
business, operating results and financial condition.
ITEM 2. PROPERTIES
The Company owns no real estate or facilities, and its leased headquarters
offices are located in Austin, Texas. As of December 31, 2000, the Company
leased and occupied, or had committed to lease office space in the following
locations, with remaining terms of up to 10 years: Austin, Texas; Houston,
Texas; San Ramon, California; Redwood Shores, California; New York City, New
York; Reston, Virginia; Waltham, Massachusetts; Boston, Massachusetts;
Maidenhead, England; Madrid, Spain; Hamburg, Germany; Sydney; Australia;
Singapore, Malaysia; and Guragon, India.
Additionally, the company leases and occupies several medium-sized, short-term
offices, with remaining terms of less than one year: Reading, Massachusetts;
Cambridge, Massachusetts; Atlanta, Georgia; Dallas, Texas; Paris, France;
Melbourne, Australia; Hong Kong, China; Bangalore, India. The Company also
leases and utilizes numerous full service managed suites, executive suites, and
serviced office short-term leases (lease terms of less than one year, or
month-to-month to allow us the flexibility for growth and changing
business/customer requirements) for small sales offices across the United States
and around the world. As of December 31, 2000, the Company leased office space
in 22 countries outside of the United States.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any litigation which we feel will be material
to the Company's business.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the fourth
quarter of the fiscal year ending December 31, 2000.
21
ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers and directors of Vignette as of February 28, 2001.
Name Age Position
- ---- --- --------
Gregory A. Peters........... 40 Chairman of the Board, President and Chief Executive Officer
William R. Daniel........... 45 Senior Vice President of Products
Bryce M. Johnson............ 42 Senior Vice President and General Counsel
Joel G. Katz................ 37 Chief Financial Officer and Secretary
Steven W. Manweiler......... 39 Senior Vice President and Chief Technology Officer
Philip C. Powers............ 42 Senior Vice President of Professional Services
Charles W. Sansbury......... 33 Senior Vice President of Corporate Development
David J. Shirk.............. 34 Senior Vice President and General Manager, Application
Platform Products Division
Michael J. Vollman.......... 43 Senior Vice President of Sales and Services
Robert E. Davoli (2) ....... 52 Director
Joseph A. Marengi........... 47 Director
Steven G. Papermaster (1)... 42 Director
John D. Thornton (1)(2)..... 35 Director
(1) Member of Audit Committee
(2) Member of Compensation Committee
Set forth below is biographical information about each of our executive
officers and directors.
Gregory A. Peters has served as our President and Chief Executive Officer and
as a director since June 1998. From October 1997 to May 1998, Mr. Peters served
as President and Chief Executive Officer of Logic Works, Inc., a software
company. Mr. Peters joined Logic Works as Chief Financial Officer and Executive
Vice President, Finance and Operations in August 1996 and served as Acting
President and Chief Executive Officer from April 1997 to October 1997. From
April 1994 to August 1996, Mr. Peters served as Chief Financial Officer,
Treasurer and Senior Vice President, and from 1992 to March 1994, as Controller
and Treasurer, at Micrografx, Inc., a Windows-based graphics software company.
From 1990 to 1992, Mr. Peters held various financial positions at DSC
Communications Corporation, a telecommunications company. Mr. Peters is a
Certified Public Accountant and received his Bachelor of Arts degree in Business
Administration from Rhodes College in Memphis, Tennessee.
William R. Daniel has served as our Senior Vice President of Products since
September 1999. From November 1998 to August 1999, he served as our Vice
President, Business Development. From August 1995 to May 1998, Mr. Daniel served
as President, Chief Operating Officer, and was a co-founder of Wallop Software,
Inc., a provider of web application development and assembly solutions. From
June 1988 until July 1995, he served as Chief Operating Officer and Senior Vice
President with Datis Corporation (acquired by HCIA, Inc. in 1995), a healthcare
information provider. Mr. Daniel received his Bachelor of Arts degree in
Engineering Sciences with honors from Dartmouth College and his Masters of
Business Administration degree in finance with honors from the Haas School of
Business at the University of California, Berkeley.
Bryce M. Johnson has served as our Senior Vice President and General Counsel
since December 2000 and is responsible for overseeing the Company's legal and
governmental affairs. From March 1997 to November 2000, Mr. Johnson was the
Chief Legal Counsel for Tivoli Systems Inc. and Associate General Counsel of IBM
Corporation. From May 1984 to March 1997, Mr. Johnson held a variety of legal
positions with IBM Corporation, including Counsel to IBM Europe in Paris,
France. Mr. Johnson received his Bachelor of Arts degree with highest honors
from Georgetown College and his Doctorate of Jurisprudence from the University
of Kentucky.
Joel G. Katz has served as our Chief Financial Officer and Secretary since
April 1999. From December 1990 to April 1999, Mr. Katz served as Chief Financial
Officer and Secretary of Harbinger Corporation, an e-commerce software and
services company. From December 1985 to December 1990, Mr. Katz held various
financial positions at Arthur Andersen, a professional services organization,
where he was a Certified Public Accountant. Mr. Katz received his Bachelor of
Business Administration in Accounting with honors from the University of
Georgia.
22
Steven W. Manweiler has served as our Senior Vice President and Chief
Technology Officer since June 2000 and is responsible for the overall
architectural issues across all product lines as well as future technology
direction. From February 1996 to May 2000, Mr. Manweiler held various positions
within the Company and was a primary developer of our early products. Prior to
Vignette, he worked at Hewlett-Packard, where he developed networking services
for the company's Unix product and worked on Unix kernel development in the area
of distributed file systems. He also served as a leader and key software
developer at HaL Computer Systems. Mr. Manweiler received his Master of Science
degree in Computer Science from the University of Arizona.
Philip C. Powers has served as our Senior Vice President of Professional
Services since September 1999 and as our Vice President, Professional Services
from August 1998 to September 1999. From February 1997 to August 1998 he served
as Vice President of Worldwide Professional Services at Tivoli Systems, Inc., a
client/server software company. From January 1981 to February 1997, he held
several management roles at IBM which most recently included Director of
Worldwide Channel Marketing for IBM's software group and Director of Worldwide
Marketing, LAN systems for IBM's personal software products division. Mr. Powers
received his Bachelor of Arts in Marketing and Business Management from the
University of Dayton.
Charles W. Sansbury has served as our Senior Vice President of Corporate
Development since January 2000. From June 1996 to December 1999, Mr. Sansbury
was a Principal in the Technology Investment Banking Group at Morgan Stanley
Dean Witter. While at Morgan Stanley, he specialized in advising companies in
the Internet infrastructure software and Internet professional services
industries. He served as our investment banker during our initial and secondary
public offerings and, over the past two years, has helped guide our corporate
development and strategic financing initiatives. From August 1993 to June 1996,
he was an investment banker at Lehman Brothers. Mr. Sansbury received his Master
of Business Administration degree from the Wharton School of the University of
Pennsylvania and his Bachelor of Science degree from Georgetown University.
David J. Shirk has served as our Senior Vice President and General Manager,
Application Platform Products Division, since July 2000 and is responsible for
the development and delivery of business-to-business infrastructure software
products. From March 1998 to June 2000, Mr. Shirk worked at Novell Corporation
as Senior Vice President of Product Management and Chief Technology Officer,
where he was responsible for delivering Novell's Net services software strategy
and roadmap for all Novell products. From March 1996 to February 1998, he was
Vice President of Marketing at Oracle Corporation in charge of its Industry
Applications Division. He has more than 12 years of experience in product
development, product marketing, business application and vertical industry
business solutions. Mr. Shirk received his Bachelor of Arts degree in Business
Administration from Ohio State University.
Michael J. Vollman has served as our Senior Vice President of Sales and
Services since September 1999, our Vice President, North American Sales and
Professional Services from September 1998 to August 1999, and our Vice
President, North American Operations from April 1998 to August 1998. Mr. Vollman
joined Vignette in February 1998 as Vice President, Professional Services and
served in that capacity until April 1998. From February 1997 to February 1998,
Mr. Vollman served as Practice Director within the Central Region Consulting
Business for Oracle Corporation, an enterprise database company. From June 1985
to February 1997, he served in various account leadership and business
development roles for Electronic Data Systems, an information technology
services company. He received his Bachelor of Science degree in Computer Science
from Lawrence Technological University and his Master of Business Administration
degree in Marketing from the University of Michigan.
Robert E. Davoli has served as a director of Vignette since February 1996.
Mr. Davoli has served as General Partner of Sigma Partners, a venture capital
firm, since January 1995. He served as President and Chief Executive Officer of
Epoch Systems, a client-server software company, from February 1993 to September
1994. From May 1986 through June 1992, Mr. Davoli was the President and Chief
Executive Officer of SQL Solutions, a relational database management systems
consulting and tools company that he founded and sold to Sybase, Inc. in January
1990. He is a director of ISS Group, Inc., a publicly held network security
software company, and he serves as a director of several privately held
companies. Mr. Davoli received his Bachelor of Arts degree in History from
Ricker College.
23
Joseph A. Marengi has served as a director of Vignette since July 1999. Mr.
Marengi, who is a Senior Vice President with Dell Computer Corporation,
reporting to the Office of the Chief Executive Officer, is responsible for the
Dell Americas units serving enterprise, large corporate and medium-sized
business customers. Prior to joining Dell in July 1997, Mr. Marengi worked with
Novell, Inc., most recently serving as President and Chief Operating Officer. He
joined Novell in 1989, beginning as director of the Eastern region and moving
through successive promotions to become Executive Vice President of Worldwide
Sales and Field Operations. Mr. Marengi received his Bachelor of Arts degree in
Public Administration from the University of Massachusetts, Boston, and his
Master of Business Administration degree in Management from the University of
Southern California.
Steven G. Papermaster has served as a director of Vignette since September
1998. Mr. Papermaster has served as the Chairman of Powershift Group, a
technology venture development group, since 1996. He is also Chairman of
Perficient, Inc., a provider of professional services to Internet software
companies, as well as a director of several privately held companies. Mr.
Papermaster was the Founder, Chairman and Chief Executive Officer of BSG
Corporation, a system integration company, from 1987 to 1996. Mr. Papermaster
also founded Enterprise Technology Institute in 1990. He received his Bachelor
of Arts degree in Finance from the University of Texas at Austin.
John D. Thornton has served as a director of Vignette since February 1996.
Mr. Thornton is a General Partner of Austin Ventures, a venture capital firm,
where he has been employed since 1991. Mr. Thornton serves as a director of
MetaSolv Software, Inc., a telecommunications software company, as well as
several privately held companies. He joined Austin Ventures from McKinsey & Co.,
where he served clients in the United States and Europe. He received his
Bachelor of Arts degree with honors from Trinity University and his Master of
Business Administration degree from the Stanford Graduate School of Business.
24
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"VIGN." Public trading of the common stock commenced on February 19, 1999. Prior
to that, there was no public market for the common stock. The following table
sets forth, for the periods indicated, the high and low sale price per share of
the common stock on the Nasdaq National Market in each of the last eight fiscal
quarters, as adjusted for the two-for-one forward split of our common stock paid
on December 1, 1999 and for the three-for-one forward split of our common stock
paid on April 14, 2000.
High Low
---------- ----------
Year Ended December 31, 2000:
Fourth Quarter............................................................ $ 34.38 $ 15.75
Third Quarter............................................................. 52.25 27.00
Second Quarter............................................................ 66.98 25.50
First Quarter............................................................. 99.00 51.67
Year Ended December 31, 1999:
Fourth Quarter............................................................ 54.58 14.88
Third Quarter............................................................. 15.08 8.73
Second Quarter............................................................ 17.52 7.10
First Quarter (from February 19, 1999).................................... 14.67 6.64
As of February 28, 2001, there were approximately 1,181 holders of record of
our common stock.
We have never declared or paid any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future.
On January 18, 2000, and in connection with our acquisition of Engine 5, Ltd.
("Engine 5"), we issued 248,043 shares of our common stock to the holders of
Engine 5 securities. In exchange for these shares and approximately $4.9 million
in cash, we acquired all of the issued and outstanding securities of Engine 5.
During 2000, we issued an additional 33,183 shares of our common stock to the
holders of Engine 5 securities as contingent consideration for the acquisition.
All of these shares were issued pursuant to the exemption provided by Section
4(2) of the Securities Act of 1933. Among the facts relied upon to determine
that this exemption was available was the existence of less than 35
non-accredited investors that were to receive shares of our common stock in that
transaction.
On February 15, 2000 and in connection with our acquisition of DataSage, Inc.
("DataSage"), we issued 9,458,061 shares of our common stock to the holders of
DataSage securities. In exchange for these shares, we acquired all of the issued
and outstanding securities of DataSage. These shares were issued pursuant to the
exemption provided by Section 4(2) of the Securities Act of 1933. Among the
facts relied upon to determine that this exemption was available was the
existence of less than 35 non-accredited investors that were to receive shares
of our common stock in that transaction.
25
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial data included elsewhere in this Report on Form
10-K. Consolidated statement of operations data for the year ended December 31,
1996 includes results of operations for the period from December 19, 1995, the
date of our inception, through December 31, 1996. The consolidated statement of
operations data for the years ended December 31, 1998, 1999 and 2000 and the
consolidated balance sheet data at December 31, 1999 and 2000 are derived from
audited consolidated financial statements included elsewhere in this Report on
Form 10-K. The consolidated statement of operations data for the years ended
December 31, 1996 and 1997 and the consolidated balance sheet data at December
31, 1996, 1997 and 1998 are derived from audited consolidated financial
statements not included in this Report on Form 10-K.
Year ended December 31,
-------------------------------------------------------------
1996 1997 1998 1999 (1) 2000 (2)
----- ------- ------- ----------- -----------
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue:
Product license............................... $ --- $ 1,943 $ 8,584 $ 46,292 $ 216,257
Services...................................... --- 1,081 7,621 42,893 150,404
-------- -------- --------- -------- ----------
Total revenue......................... --- 3,024 16,205 89,185 366,661
Cost of revenue:
Product license............................... --- 37 964 3,306 7,611
Services...................................... --- 1,438 9,340 33,488 111,410
-------- -------- --------- -------- ----------
Total cost of revenue................. --- 1,475 10,304 36,794 119,021
-------- -------- --------- -------- ----------
Gross profit....................................... --- 1,549 5,901 52,391 247,640
Operating expenses:
Research and development...................... 892 2,895 6,962 16,447 58,324
Sales and marketing........................... 428 4,964 15,880 49,559 175,020
General and administrative.................... 503 1,333 4,864 9,494 38,625
Purchased in-process research and
development, acquisition-related and other
charges..................................... 1,865 --- 2,089 15,641 169,885
Amortization of deferred stock
compensation................................ --- --- 2,475 5,654 33,863
Amortization of intangibles................... --- --- --- 1,796 328,691
-------- -------- --------- -------- ----------
Total operating expenses.............. 3,688 9,192 32,270 98,591 804,408
-------- -------- --------- -------- ----------
Loss from operations............................... (3,688) (7,643) (26,369) (46,200) (556,768)
Other income, net.................................. 62 169 172 3,723 25,992
-------- -------- --------- -------- ----------
Loss before income taxes........................... (3,626) (7,474) (26,197) (42,477) (530,776)
Provision for income taxes......................... --- --- --- --- 1,449
-------- -------- --------- -------- ----------
Net loss........................................... $ (3,626) $ (7,474) $(26,197) $ (42,477) $(532,225)
======== ======== ========= ========= ==========
Basic net loss per share........................... $ (0.96) $ (0.70) $ (1.53) $ (0.31) $ (2.59)
======== ======== ========= ========= ==========
Shares used in computing basic net loss per
share........................................... 3,780 10,728 17,094 137,253 205,885
Pro forma basic net loss per share................. $ (0.28)
==========
Shares used in computing pro forma net loss per
share........................................... 150,912
26
As of December 31,
----------------------------------------------------------------
1996 1997 1998 1999 (1) 2000 (2)
------- ------- ---------- ---------- -----------
Consolidated Balance Sheet Data: (in thousands)
Cash and cash equivalents $ 1,863 $ 6,865 $ 12,242 $391,278 $ 435,481
Working capital 1,583 4,255 3,757 375,211 389,831
Total assets 2,229 8,499 21,349 498,166 2,190,954
Long-term debt and capital lease obligation,
less current portion 198 833 758 --- 782
Redeemable convertible preferred stock 3,458 13,458 36,258 --- ---
Total stockholders' equity (deficit) (1,770) (9,248) (30,767) 437,059 2,024,513
- --------
(1) Reflects the acquisition of Diffusion, Inc. on June 30, 1999.
(2) Reflects the acquisitions of Engine 5, Ltd., DataSage, Inc. and
OnDisplay, Inc. on January 18, 2000, February 15, 2000 and July 5,
2000, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-K that are not purely
historical statements are forward-looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those indicated in such
forward-looking statements. All forward-looking statements included in this
Report on Form 10-K are based upon information available to the Company as of
the date hereof and we are under no duty to update any of the forward-looking
statements after the date of this Report to conform these statements to actual
results. See "Risk Factors that May Affect Future Results," and the factors and
risks discussed in our Registration Statement filed on Form S-1 on December 9,
1999 (File No. 333-91085) with the Securities and Exchange Commission.
Overview
We are a leading global provider of customer-driven Internet application
software products and services. Our e-business solutions are designed to enable
businesses to build successful and sustainable online businesses that are
customer-managed. Our customer-driven Internet applications and solutions allow
businesses to create and manage Internet business channels that are designed to
attract, engage and retain their customers, partners, and suppliers online.
Using our products' content, integration, and analysis capabilities, our clients
deploy applications, which are focused on personalized and mass-customized
interaction across multiple touchpoints and communication channels. We were
founded in December 1995. To date, we have developed and released several
versions of our product and have sold our products and services to approximately
1,250 clients. We market and sell our products worldwide primarily through our
direct sales force but also market through third-party providers.
We derive our revenue from the sale of software product licenses and from
professional consulting, maintenance and support services. Product license
revenue is recognized when persuasive evidence of an agreement exists, the
product has been delivered, we have no remaining significant obligations with
regard to implementation, the license fee is fixed or determinable and
collection of the fee is probable. Product license revenue for arrangements to
deliver unspecified additional software products in the future is recognized
ratably over the term of the arrangement, beginning with the delivery of the
first product. Services revenue consists of fees from professional services and
from maintenance and telephone support. Professional services include
integration of software, application development, training and software
installation. We bill professional services fees on a time-and-materials basis.
We recognize professional services fees billed on a time-and-materials basis as
the services are performed. Our clients typically purchase maintenance
agreements annually, and we price maintenance agreements based on a percentage
of our current product list price. We price telephone support based on differing
levels of support. Clients purchasing maintenance agreements receive unspecified
product upgrades and electronic, Web-based technical support, while purchasers
of support contracts receive additional telephone support. We recognize revenue
from maintenance and support agreements ratably over the
27
term of the agreement, which is typically one year.
Cost of revenue consists of costs to manufacture, package and distribute our
products and related documentation, as well as personnel and other expenses
related to providing professional services. Since our inception, we have
incurred substantial costs to develop our technology and products, to recruit
and train personnel for our engineering, sales and marketing and professional
services departments, and to establish an administrative organization. As a
result, we have incurred significant losses since inception and, as of December
31, 2000, we had an accumulated deficit of approximately $612.0 million. We
believe our success depends on further increasing our client base and on
continued growth in the e-business solutions market. Accordingly, we intend to
continue to invest in sales, marketing, professional services, research and
development and in our operational and financial systems as necessary.
Furthermore, we expect to continue to incur operating losses, excluding
amortization of intangibles and stock-based compensation and restructuring
charges, at least through the first quarter of 2001, and our expected increase
in operating expenses will require significant increases in revenues before we
become profitable.
We had 2,330 full-time employees at December 31, 2000, up from 757 at
December 31, 1999. This rapid growth places a significant demand on our
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems, procedures and controls on a
timely basis. In addition, we expect that future expansion will continue to
challenge our ability to hire, train, motivate, and manage our employees.
Competition is intense for highly qualified technical, sales and marketing and
management personnel. If our total revenue does not increase relative to our
operating expenses, our management systems do not expand to meet increasing
demands, we fail to attract, assimilate and retain qualified personnel, or our
management otherwise fails to manage our expansion effectively, there would be a
material adverse effect on our business, operating results and financial
condition.
Business Combinations
Effective January 18, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of Engine 5, Ltd. ("Engine 5"), a
developer of enterprise-wide Java server technology, in exchange for 248,043
shares of our common stock and approximately $4.9 million in cash. The total
cost of the acquisition, including transaction costs of $400,000, was
approximately $20.0 million. The acquisition was accounted for as a purchase
business combination. Accordingly, the acquired net liabilities were recorded at
their estimated fair values at the effective date of the acquisition and the
results of operations of Engine 5 have been included with those of the Company
for the periods subsequent to the date of the acquisition.
Additionally, contingent consideration of approximately 88,461 shares of our
common stock and approximately $4.3 million in cash will be based upon defined
future employment requirements met through the first quarter of fiscal year
2002. The contingent consideration related to the Engine 5 acquisition is not
included in the total purchase price, above, but will be expensed when the
future employment requirements have been met; such amount totaled $3.8 million
in 2000.
Effective February 15, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of DataSage, Inc. ("DataSage"), a leading
provider of e-marketing and personalization applications that help organizations
create a comprehensive single enterprise-wide view of their customers, in
exchange for 9,458,061 shares of our common stock. The total cost of the
acquisition, including transaction costs of $1.1 million, was approximately
$586.6 million. The acquisition was accounted for as a purchase business
combination. Accordingly, the acquired net assets were recorded at their
estimated fair values at the effective date of the acquisition and the results
of operations of DataSage have been included with those of the Company for the
periods subsequent to the date of the acquisition.
Effective July 5, 2000, we acquired all of the outstanding stock and assumed
all outstanding stock options of OnDisplay, Inc. ("OnDisplay"), a leading
provider of e-business infrastructure software for powering e-business portals
and e-marketplaces, in exchange for 42,016,975 shares of Vignette common stock.
The total cost of the acquisition, including transaction costs of $14.0 million,
was approximately $1.5 billion. The acquisition was accounted for as a purchase
business combination. Accordingly, the acquired net assets were recorded at
their estimated fair values at the effective date of the acquisition and the
results of OnDisplay have been included with those of the Company for the
periods subsequent to the date of the acquisition.
28
In connection with our respective acquisitions of Engine 5, DataSage and
OnDisplay, we incurred one-time acquisition costs and integration-related
charges, which included costs associated with product integration, cross
training, and other merger-related costs. Additionally, a portion of the
OnDisplay and DataSage purchase price was allocated to in-process research and
development based upon an independent third-party appraisal and expensed upon
the consummation of the transactions. These related acquisition, integration and
in-process research and development charges totaled approximately $169.9 million
during fiscal year 2000.
Intangible assets, net of accumulated amortization, represented 68% and 4% of
total assets at December 31, 2000 and 1999, respectively.
Accounting Reclassification
Effective December 31, 2000, we report as deferred revenue only amounts
received from customers for which revenue has not been recognized, and we report
as accounts receivable only amounts due from customers for which revenue has
been recognized. Deferred revenue and accounts receivable balances for all
previous periods have been reclassified to conform to the current year
presentation. This reclassification reduced our deferred revenue and accounts
receivable balances