<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
or
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
COMMISSION FILE NUMBER: 0-26994
ADVENT SOFTWARE, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-2901952
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
301 BRANNAN STREET, SAN FRANCISCO, CALIFORNIA 94107
(Address of principal executive offices and zip code)
(415) 543-7696
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
--- ---
The number of shares of the issuer's Common Stock outstanding as of July 31,
1996 was 7,055,707.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 2. Changes in Securities 9
ITEM 3. Defaults Upon Senior Securities 9
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVENT SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
- - - -------------------------------------------------------------------------------------------------
(in thousands) (unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and short-term investments $30,835 $35,084
Accounts receivable, net 5,930 4,832
Prepaid and other 510 347
Deferred income taxes 1,148 441
------- -------
Total current assets 38,423 40,704
------- -------
Fixed assets, net 3,883 3,656
Other assets, net 1,143 390
------- -------
Total assets $43,449 $44,750
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 800 $ --
Accounts payable 638 1,130
Accrued liabilities 1,981 2,119
Deferred revenues 7,306 5,376
Income taxes payable 1,038 1,071
------- -------
Total current liabilities 11,763 9,696
------- -------
Long-term liabilities:
Other liabilities 443 470
------- -------
Total long-term liabilities 443 470
------- -------
Total liabilities 12,206 10,166
------- -------
Stockholders' equity:
Common stock 71 68
Additional paid-in-capital 31,945 31,202
Retained earnings (773) 3,314
------- -------
Total stockholders' equity 31,243 34,584
------- -------
Total liabilities and stockholders' equity $43,449 $44,750
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTH PERIOD
QUARTER ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1996 1995 1996 1995
- - - -------------------------------------------------------------------------- -------------------------
(in thousands, except per share data) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License $4,153 $2,913 $ 6,741 $ 4,877
Maintenance and other recurring 3,565 2,383 6,766 4,620
Professional services and other 1,304 960 2,490 1,925
------ ------ ------- -------
Net revenues 9,022 6,256 15,997 11,422
------ ------ ------- -------
Cost of revenues:
License 148 129 252 224
Maintenance and other recurring 989 552 1,693 1,093
Professional services and other 636 539 1,174 1,006
------ ------ ------- -------
Total cost of revenues 1,773 1,220 3,119 2,323
------ ------ ------- -------
Gross margin 7,249 5,036 12,878 9,099
------ ------ ------- -------
Operating expenses:
Sales and marketing 3,215 2,146 5,881 4,367
Product development 1,646 989 3,049 1,889
General and administrative 1,012 901 2,011 1,632
Purchased research and development and other -- -- 5,648 --
------ ------ ------- -------
Total operating expenses 5,873 4,036 16,589 7,888
------ ------ ------- -------
Income (loss) from operations 1,376 1,000 (3,711) 1,211
Interest income, net 277 75 603 158
------ ------ ------- -------
Income (loss) before income taxes 1,653 1,075 (3,108) 1,369
Provision for income taxes 638 402 979 520
------ ------ ------- -------
Net income (loss) $1,015 $ 673 $(4,087) $ 849
====== ====== ======= =======
Net income (loss) per share $0.13 $0.11 $(0.59) $0.14
====== ====== ======= =======
Shares used in per share calculations 7,835 6,121 6,949 6,122
====== ====== ======= =======
- - - -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
.
4
<PAGE>
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1996 1995
- - - -----------------------------------------------------------------------------------------------------------
(in thousands) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,087) $ 849
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Purchased research and development and other 5,648 --
Depreciation and amortization 694 478
Provision for doubtful accounts (50) 110
Deferred income taxes 164 --
Deferred rent (27) (9)
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (1,029) (1,442)
Income tax receivable -- 335
Prepaid and other current assets (129) (83)
Accounts payable (893) (40)
Accrued liabilities (413) (150)
Deferred revenues 105 226
Income taxes payable (34) 499
------- -------
Net cash provided by used in operating activities (51) 773
------- -------
Cash flow from investing activities:
Net cash used in acquisition of the DX Group (3,963) --
Acquisition of fixed assets (692) (383)
------- -------
Net cash used in investing activities (4,655) (383)
------- -------
Cash flow from financing activities:
Payment of debt acquired in the DX Group acquisition (288) --
Proceeds from exercise of stock options and warrants 745 24
Repurchase of common stock -- (95)
Principal payments on long-term debt -- (759)
------- -------
Net cash provided by (used in) financing activities 457 (830)
------- -------
Net decrease in cash and short-term investments (4,249) (440)
Cash and short-term investments at beginning of period 35,084 7,867
------- -------
Cash and short-term investments at end of period $30,835 $ 7,427
======= =======
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 849 $ 40
Issuance of note payable in acquisition of the DX Group $ 800 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ADVENT SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Advent
Software, Inc. (Advent) and its wholly owned subsidiary, Data Exchange, Inc. (DX
Group). All significant intercompany balances and transactions have been
eliminated.
The consolidated financial statements have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission (SEC)
applicable to interim financial information. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted in these interim
statements pursuant to such SEC rules and regulations. Management recommends
that these interim financial statements be read in conjunction with the audited
financial statements and notes thereto included in Advent's 1995 Annual Report
to Stockholders which was incorporated by reference in Advent's 1995 Report on
Form 10-KSB filed with the SEC.
In management's opinion, the consolidated financial statements include all
adjustments necessary to present fairly the financial position and results of
operations for each interim period shown.
2. ACQUISITION OF THE DX GROUP.
On February 15, 1996, Advent acquired the DX Group, a private company
based in New York, New York for $4.0 million in cash and an $800,000 note
payable. The note payable bears no interest and is due in the first quarter of
1997. The DX Group's main product, WinDx(TM), is a client/server portfolio
management system designed specifically for regional broker/dealers and other
top tier professional money managers with more than $1 billion in assets under
management. The transaction was accounted for as a purchase. Advent incurred a
one-time charge of $5.6 million in connection with the write-off of in-process
research and development. The DX Group's results of operation are included in
Advent's consolidated statements of operations starting at the date of the
acquisition. On a pro forma basis, assuming that the purchase had occurred on
January 1, 1996, net revenues and income (loss) from operations of the DX Group
would be less than 10% of those amounts on a consolidated basis.
In addition, if certain revenue and profitability targets are attained by
the DX Group by February 15, 1997, Advent must make an additional payments to
the original shareholder of the DX Group that in the aggregate will not exceed
$600,000. Based on criteria established in Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies," no amount related to this
contingent liability has been accrued.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains certain trend analysis and other forward-
looking statements which involve risks and uncertainties. Advent's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in this
discussion under "Factors that May Affect Operating Results" and other risks
detailed from time to time in reports that Advent files with the Securities and
Exchange Commission, including the annual report on Form 10-KSB.
ACQUISITION OF THE DX GROUP
- - - ---------------------------
On February 15, 1996, Advent acquired Data Exchange, Inc. (the DX Group), a
private company based in New York, New York, for $4.0 million in cash and an
$800,000 note payable. The note payable bears no interest and is due in the
first quarter of 1997. The DX Group's main product, WinDx(TM), is a
client/server portfolio management system designed specifically for regional
broker/dealers and other top tier professional money managers with more than $1
billion in assets under management. The transaction was accounted for as a
purchase. Advent incurred a one-time charge of $5.6 million in connection with
the write-off of in-process research and development. This expense was recorded
in purchased research and development and other expenses. As a result of this
expense, there was a net loss per share of ($0.59) for the six months ended June
30, 1996. Excluding this write-off net income per share would have been $0.20.
Net income per share for the six months ended June 30, 1995 was $0.14.
RESULTS OF OPERATIONS
- - - ---------------------
Net Revenues. Advent's net revenues for the second quarter of 1996
------------
increased 44% to $9.0 million, as compared with net revenues of $6.3 million for
the second quarter of 1995. Advent's net revenues for the six months ended June
30, 1996 increased 40% to $16.0 million, as compared with net revenues of $11.4
million for the six months ended June 30, 1995. The increase for the second
quarter of 1996 and for the six months ended June 30, 1996 was a result of
increases in each component of net revenues. License revenues increased
primarily due to sales of WinDx, the main product of the DX Group which Advent
acquired in first quarter of 1996, and higher Geneva revenues. Maintenance and
other recurring revenues increased for the second quarter of 1996 and for the
six months ended June 30, 1996 due to a larger customer base, higher average
maintenance fees, and additional revenues generated from the DX Group. Higher
average maintenance fees are due to increased complexity of the maintenance
services provided and increased client utilization of proprietary interfaces to
access pricing and other data supplied by third parties through Advent's
proprietary interfaces. Professional services and other increased for the second
quarter of 1996 and for the six months ended June 30, 1996 due to additional
consulting revenue from the DX Group, additional consulting revenue generated
from higher product sales activity, and additional interface business resulting
from higher market demand for automated interfaces.
Cost of Revenues. Advent's cost of revenues for the second quarter of
----------------
1996 increased 45% to $1.8 million, as compared with cost of revenues of $1.2
million for the second quarter of 1995. Advent's cost of revenues for the six
months ended June 30, 1996 increased 34% to $3.1 million, as compared with cost
of revenues of $2.3 million for the six months ended June 30, 1995. Cost of
revenues as a percentage of net revenues increased to 20% for the second quarter
of 1996 from 19% for the second quarter of 1995 and decreased to 19% for the six
months ended June 30, 1996 from 20% for the six months ended June 30, 1995. Cost
of revenues increased for the second quarter of 1996 and for the six months
ended June 30, 1996 due primarily to increased staffing necessary to provide
services to an expanding installed base.
Sales and Marketing. Advent's sales and marketing expenses for the second
-------------------
quarter of 1996 increased 50% to $3.2 million, as compared with sales and
marketing expenses of $2.1 million for the second quarter of 1995. Advent's
sales and marketing expenses for the six months ended June 30, 1996 increased
35% to $5.9 million, as compared with sales and marketing expenses of $4.4
million for the six months ended June 30, 1995. Sales and marketing expenses as
a percentage of net revenues increased to 36% for the second quarter of 1996
from 34% for the second quarter of 1995. Sales and marketing expenses as a
percentage of net revenues decreased to 37% for the six months ended June 30,
1996 from 38% for the six months ended June 30, 1995. The increase in sales and
marketing expenses for the second quarter of 1996 and for the six
7
<PAGE>
months ended June 30, 1996 was due to an increase in sales and marketing
employees and an increase in expenses for marketing materials needed to address
new sales opportunities and to support the introduction of new products. Also,
there were additional sales and marketing expenses incurred by the DX Group. The
increase in sales and marketing expenses as a percentage of net revenues for the
second quarter of 1996 was due primarily to the higher expenses for marketing
materials related to new product introductions.
Product Development. Advent's product development expenses for the second
-------------------
quarter of 1996 increased 66% to $1.6 million, as compared with product
development expenses of $1.0 million for the second quarter of 1995. Advent's
product development expenses for the six months ended June 30, 1996 increased
61% to $3.0 million, as compared with product development expenses of $1.9
million for the six months ended June 30, 1995. Product development expenses as
a percentage of net revenues increased to 18% for the second quarter of 1996
from 16% for the second quarter of 1995 and to 19% for the six months ended June
30, 1996 from 17% for the six months ended June 30, 1996. The increases in
product development expenses and in product development expenses as a percentage
of net revenues for the second quarter of 1996 and for the six months ended June
30, 1996 were primarily due to an increase in personnel as Advent has increased
its product development efforts to accelerate the rate of new product
introductions and additional product development expenses incurred by the DX
Group.
General and Administrative. Advent's general and administrative
--------------------------
expenses for the second quarter of 1996 increased 12% to $1.0 million, as
compared with general and administrative expenses of $0.9 million for the second
quarter of 1995. Advent's general and administrative expenses for the six months
ended June 30, 1996 increased 23% to $2.0 million, as compared with general and
administrative expenses of $1.6 million for the six months ended June 30, 1995.
General and administrative expenses as a percentage of net revenues decreased to
11% for the second quarter of 1996 from 14% for the second quarter of 1995 and
decreased to 13% for the six months ended June 30, 1996 from 14% for the six
months ended June 30, 1995. The increase in general and administrative expenses
for the second quarter of 1996 and for the six months ended June 30, 1996 was
primarily due to growth in finance, administration and operations which is
necessary to support Advent's growth. The decrease in general and
administrative expenses as a percentage of net revenues was due to the ability
of Advent to realize greater economies of scale in supporting Advent's increased
revenue base.
Interest Income, Net. Advent's interest income, net for the second
--------------------
quarter of 1996 increased 271% to $277,000, as compared with interest income,
net of $75,000 for the second quarter of 1995. Advent's interest income, net for
the six months ended June 30, 1996 increased 280% to $603,000 as compared with
interest income, net of $158,000 for six months ended June 30, 1995. This
increase was due to a higher cash balance, primarily as a result of proceeds
from Advent's initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $30.8 million at June 30, 1996 as
compared to $35.1 at December 31, 1995. The decrease in cash and short-term
investments was primarily due to the acquisition of the DX Group. Advent has a
line of credit which bears interest at the bank's prime rate and expires in
August 1996. This line of credit permits borrowings of up to $5 million subject
to compliance with certain financial covenants. At June 30, 1996 and December
31, 1995, Advent had no borrowings outstanding under this agreement.
Advent issued a $800,000 note payable as a part of the acquisition of the
DX Group. This note payable bears no interest and is due in the second quarter
of 1997.
Advent believes that its existing cash and short-term investments, line of
credit and cash expected to be generated from operations will be sufficient to
meet its cash and capital requirements at least through fiscal 1996.
8
<PAGE>
FACTORS THAT MAY AFFECT OPERATING RESULTS
Advent's net revenues and operating results have varied substantially from
period to period on a quarterly basis and may continue to fluctuate due to a
number of factors. As Advent's licenses into multi-user networked environments
have increased both in individual size and number, the timing and size of
individual license transactions are becoming increasingly important factors in
Advent's quarterly operating results. For example, during 1995, sales of
software licenses to two clients accounted for approximately 9% of net revenues.
The sales cycles for transactions of this size are often lengthy and
unpredictable. There can be no assurance that Advent will be successful in
closing large license transactions such as these on a timely basis or at all.
Accordingly, if in the future revenues from large site licenses constitute a
material portion of Advent's net revenues, the timing of such licenses could
cause additional variability in Advent's quarterly operating results. Advent's
software products typically are shipped shortly after receipt of a signed
license agreement and initial payment and, consequently, software product
backlog at the beginning of any quarter typically represents only a small
portion of that quarter's expected revenues. Advent's expense levels are based
in significant part on Advent's expectations of future revenues and therefore
are relatively fixed in the short term. Due to the fixed nature of these
expenses combined with the relatively high gross margin historically achieved by
Advent on products and services, an unanticipated decline in net revenues in any
particular quarter is likely to disproportionately adversely affect operating
results.
Advent generally has realized lower revenues from license fees in the first
quarter of the year than in the immediately preceding quarter. Advent believes
that this has been due primarily to the concentration by some clients of larger
capital purchases in the fourth quarter of the calendar year and their lower
purchasing activity during the subsequent second quarter, compounded by Advent's
annual incentive compensation plans which result in increased year-end sales
activity.
Due to all of the foregoing factors, Advent believes that period to period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Advent's Annual Meeting of Stockholders held May 8, 1996, the following
matters were voted upon by stockholders pursuant to proxies solicited pursuant
to Regulation 14A:
The following individuals were elected to the Board of Directors:
VOTES VOTE
FOR WITHELD
--------- -------
Stephanie G. DiMarco 5,564,236 6,800
Maurice J. Duca 5,564,236 6,800
Frank H. Robinson 5,564,236 6,800
Wendell G. Van Auken 5,564,236 6,700
The following proposals were approved at Advent's Annual Meeting of
Stockholders:
VOTES VOTES
FOR AGAINST ABSTAINED
--------- ------- ---------
1. Amendment of the Company's 4,867,163 495,922 1,900
1992 Stock Plan, increasing
the reserved shares by 400,000.
2. Ratification of appointment of 5,551,766 5,300 1,150
Coopers & Lybrand LLP as
independent auditors
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Calculation of Earnings per Share
(b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this Form 10-QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVENT SOFTWARE, INC.
DATED: July 31, 1996 By: /s/ STEPHANIE G. DIMARCO
------------------------------
Stephanie G. DiMarco
Chairman of the Board, President
and Chief Executive Officer
DATED: July 31, 1996 By: /s/ IRV H. LICHTENWALD
------------------------------
Irv H. Lichtenwald
Senior Vice President of Finance,
Chief Financial Officer
and Secretary
11
<PAGE>
EXHIBIT 11.1
ADVENT SOFTWARE, INC
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTH PERIOD
QUARTER ENDED JUNE 30, ENDED JUNE 30,
----------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary and Fully Diluted:
Weighted average common shares
outstanding for the period 6,973 2,941 6,949 2,942
Common equivalent shares:
Convertible preferred stock -- 2,235 -- 2,235
Options and warrants 862 684 -- 684
Shares pursuant to SAB 83 -- 261 -- 261
====== ====== ======= ======
Shares used in per share calculations 7,835 6,121 6,949 6,122
Net income $1,015 $ 673 $(4,087) $ 849
====== ====== ======= ======
Net income per share $0.13 $ 0.11 $ (0.59) $ 0.14
====== ====== ======= ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,835
<SECURITIES> 0
<RECEIVABLES> 6,138
<ALLOWANCES> 208
<INVENTORY> 0
<CURRENT-ASSETS> 38,423
<PP&E> 7,223
<DEPRECIATION> 3,340
<TOTAL-ASSETS> 43,449
<CURRENT-LIABILITIES> 11,763
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 31,172
<TOTAL-LIABILITY-AND-EQUITY> 43,449
<SALES> 6,741
<TOTAL-REVENUES> 15,997
<CGS> 252
<TOTAL-COSTS> 3,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,653
<INCOME-TAX> 638
<INCOME-CONTINUING> 1,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,015
<EPS-PRIMARY> $0.13
<EPS-DILUTED> $0.13
</TABLE>
