<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 SEPTEMBER 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 September
30, 1996 was 7,148,658.
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
SEPTEMBER 30, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(in thousands) (unaudited)
ASSETS
Current assets:
Cash and short-term investments $30,681 $35,084
Accounts receivable, net 7,211 4,832
Prepaid and other 457 347
Deferred income taxes 1,027 441
------- -------
Total current assets 39,376 40,704
------- -------
Fixed assets, net 3,982 3,656
Other assets, net 1,085 390
------- -------
Total assets $44,443 $44,750
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 720 $ 1,130
Accrued liabilities 2,438 2,119
Deferred revenues 6,296 5,376
Income taxes payable 665 1,071
------- -------
Total current liabilities 10,119 9,696
------- -------
Long-term liabilities:
Other liabilities 614 470
------- -------
Total long-term liabilities 614 470
------- -------
Total liabilities 10,733 10,166
------- -------
Stockholders' equity:
Common stock 72 68
Additional paid-in-capital 33,063 31,202
Retained earnings 575 3,314
------- -------
Total stockholders' 33,710 34,584
equity ------- -------
Total liabilities and $44,443 $44,750
stockholders' equity ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTH PERIOD ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited) (unaudited)
Revenues:
<S> <C> <C> <C> <C>
License $ 4,941 $3,250 $11,682 $ 8,127
Maintenance and other recurring 3,798 2,551 10,564 7,171
Professional services and other 1,407 999 3,897 2,924
------- ------ ------- -------
Net revenues 10,146 6,800 26,143 18,222
------- ------ ------- -------
Cost of revenues:
License 123 124 375 348
Maintenance and other recurring 1,069 609 2,762 1,702
Professional services and other 723 540 1,897 1,546
------- ------ ------- -------
Total cost of revenues 1,915 1,273 5 ,034 3,596
------- ------ ------- -------
Gross margin 8,231 5,527 21,109 14,626
------- ------ ------- -------
Operating expenses:
Sales and marketing 3,322 2,364 9,203 6,731
Product development 1,841 1,086 4,890 2,975
General and administrative 1,148 922 3,159 2,554
Purchased research and development and other -- -- 5,648 --
------- ------ ------- -------
Total operating expenses 6,311 4,372 22,900 12,260
------- ------ ------- -------
Income (loss) from operations 1,920 1,155 (1,791) 2,366
Interest income, net 280 90 883 248
------- ------ ------- -------
Income (loss) before income taxes 2,200 1,245 (908) 2,614
Provision for income taxes 851 473 1,830 993
------- ------ ------- -------
Net income (loss) $ 1,349 $ 772 $(2,738) $ 1,621
======= ====== ======= =======
Net income (loss) per share $ 0.17 $ 0.13 $ (0.39) $ 0.26
======= ====== ======= =======
Shares used in per share calculations 7,887 6,131 7,008 6,125
======= ====== ======= =======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
.
4
<PAGE>
ADVENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
1996 1995
(in thousands) (unaudited)
Cash flows from operating activities:
Net income (loss) $(2,738) $ 1,621
Adjustments to reconcile net income
(loss) to net cash
used in operating activities:
Purchased research and development and other 5,648 --
Depreciation and amortization 1,104 727
Provision for doubtful accounts (54) 233
Deferred income taxes 285 (178)
Deferred rent 144 (12)
Cash provided by (used in)
operating assets and liabilities:
Accounts receivable (2,306) (1,323)
Income tax receivable -- 335
Prepaid and other current assets (78) (136)
Accounts payable (811) 172
Accrued liabilities 43 21
Deferred revenues (905) 673
Income taxes payable 685 366
------- -------
Net cash provided by operating 1,017 2,499
activities ------- -------
Cash flow from investing activities:
Net cash used in acquisition of the DX Group (3,963) --
Acquisition of fixed assets (1,141) (712)
------- -------
Net cash used in investing
activities (5,104) (712)
------- -------
Cash flow from financing activities:
Payment of note issued in acquisition
of the DX Group (800) --
Proceeds from exercise of stock
options and warrants 772 142
Payment of debt acquired in the DX
Group acquisition (288) --
Repurchase of common stock -- (163)
Principal payments on long-term debt -- (759)
------- -------
Net cash used in financing
activities (316) (780)
------- -------
Net increase (decrease) in cash and
short-term investments (4,403) 1,007
Cash and short-term investments at
beginning of period 35,084 7,867
------- -------
Cash and short-term investments at end
of period $30,681 $ 8,874
======= =======
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ 849 $ 581
Cash paid for interest $ -- $ 11
Issuance of note payable in
acquisition of DX Group $ 800 $ --
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. This
note payable was paid during the third quarter of 1996. The note payable did not
bear interest. 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 operations are
included in Advent's consolidated statements of operations starting at the date
of the acquisition.
3. INCOME TAXES.
During the third quarter of 1996 Advent reclassified $1.1 million from income
taxes payable to additional paid-in-capital to reflect the tax benefit received
by Advent for the disqualifying disposition of non-compensatory stock options.
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. This note payable was paid during the third quarter of
1996 and did not bear interest. 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 ($0.39) for the nine months ended
September 30, 1996. Excluding this write-off net income per share would have
been $0.38. Net income per share for the nine months ended September 30, 1995
was $0.26
RESULTS OF OPERATIONS
Net Revenues. Advent's net revenues for the third quarter of 1996 increased
49% to $10.1 million, as compared with net revenues of $6.8 million for the
third quarter of 1995. Advent's net revenues for the nine months ended September
30, 1996 increased 43% to $26.1 million, as compared with net revenues of $18.2
million for the nine months ended September 30, 1995. The increase for the third
quarter of 1996 and for the nine months ended September 30, 1996 was a result of
increases in each component of net revenues. License revenues increased
primarily due to license revenue of WinDx, the main product of the DX Group
which Advent acquired in first quarter of 1996, and higher Qube, Moxy, and Axys
revenues. Maintenance and other recurring revenues increased for the third
quarter of 1996 and for the nine months ended September 30, 1996 due to a larger
customer base, additional revenues generated from the DX Group, and higher
average maintenance fees. 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 third quarter of 1996 and for the nine months ended September
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 third quarter of 1996
increased 50% to $1.9 million, as compared with cost of revenues of $1.3 million
for the third quarter of 1995. Advent's cost of revenues for the nine months
ended September 30, 1996 increased 40% to $5.0 million, as compared with cost of
revenues of $3.6 million for the nine months ended September 30, 1995. Cost of
revenues as a percentage of net revenues remained constant at 19% for the third
quarter of 1996 and for the third quarter of 1995 and decreased to 19% for the
nine months ended September 30, 1996 from 20% for the nine months ended
September 30, 1995. Cost of revenues increased for the third quarter of 1996 and
for the nine months ended September 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 third
quarter of 1996 increased 41% to $3.3 million, as compared with sales and
marketing expenses of $2.4 million for the third quarter of 1995. Advent's sales
and marketing expenses for the nine months ended September 30, 1996 increased
37% to $9.2 million, as compared with sales and marketing expenses of $6.7
million for the nine months
7
<PAGE>
ended September 30, 1995. Sales and marketing expenses as a percentage of net
revenues decreased to 33% for the third quarter of 1996 from 35% for the third
quarter of 1995. Sales and marketing expenses as a percentage of net revenues
decreased to 35% for the nine months ended September 30, 1996 from 37% for the
nine months ended September 30, 1995. The increase in sales and marketing
expenses for the third quarter of 1996 and for the nine months ended September
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.
Product Development. Advent's product development expenses for the third
quarter of 1996 increased 70% to $1.8 million, as compared with product
development expenses of $1.1 million for the third quarter of 1995. Advent's
product development expenses for the nine months ended September 30, 1996
increased 64% to $4.9 million, as compared with product development expenses of
$3.0 million for the nine months ended September 30, 1995. Product development
expenses as a percentage of net revenues increased to 18% for the third quarter
of 1996 from 16% for the third quarter of 1995 and to 19% for the nine months
ended September 30, 1996 from 16% for the nine months ended September 30, 1995.
The increases in product development expenses and in product development
expenses as a percentage of net revenues for the third quarter of 1996 and for
the nine months ended September 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 third quarter of 1996 increased 25% to $1.1 million, as compared with
general and administrative expenses of $0.9 million for the third quarter of
1995. Advent's general and administrative expenses for the nine months ended
September 30, 1996 increased 24% to $3.2 million, as compared with general and
administrative expenses of $2.6 million for the nine months ended September 30,
1995. General and administrative expenses as a percentage of net revenues
decreased to 11% for the third quarter of 1996 from 14% for the third quarter of
1995 and decreased to 12% for the nine months ended September 30, 1996 from 14%
for the nine months ended September 30, 1995. The increase in general and
administrative expenses for the third quarter of 1996 and for the nine months
ended September 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 third quarter
of 1996 increased 212% to $280,000, as compared with interest income, net of
$90,000 for the third quarter of 1995. Advent's interest income, net for the
nine months ended September 30, 1996 increased 256% to $883,000 as compared with
interest income, net of $248,000 for nine months ended September 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 $30.7 million at September 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. At December
31, 1995, Advent had a line of credit that permitted borrowings of up to $5
million subject to compliance with certain financial covenants. This line of
credit was canceled during the third quarter of 1996. At 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 was paid during the third quarter of 1996. The note
payable did not bear interest.
Advent believes that its existing cash and short-term investments, and cash
expected to be generated from operations will be sufficient to meet its cash and
capital requirements through fiscal 1997.
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, for the nine months ended
September 30, 1996, sales of software licenses to four clients accounted for
approximately 8% 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's future success will continue to depend upon its ability to develop
new products that address the future needs of its target markets and to respond
to emerging industry standards and practices. Advent invests a significant
amount of resources in new product initiatives. For example, in 1995, Advent
introduced Geneva to target organizations with complex international accounting
and reporting requirements. Advent is directing a significant amount of its
product development expenditures to the on-going development of Geneva. There
can be no assurance that Advent will be successful in marketing a fully
commercial version of Geneva. Advent's failure to successfully develop and
market a fully commercial version of Geneva could adversely affect Advent's
business and operating results. In addition, as a result of its acquisition of
Data Exchange, Advent must successfully manage the development and sale of the
WinDx product and successfully integrate the products, technologies, and
personnel of the two companies. There can be no assurance that Advent will be
able to manage this process successfully.
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.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Calculation of Earnings per Share
27 Financial Data Schedule
(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: November 8, 1996 By: /s/ STEPHANIE G. DIMARCO
-----------------------------
Stephanie G. DiMarco
Chairman of the Board,
President and Chief
Executive Officer
DATED: November 8, 1996 By: /s/ IRV H. LICHTENWALD
-----------------------------
Irv H. Lichtenwald
Senior Vice President,
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>
QUARTER ENDED SEPTEMBER 30, NINE MONTH PERIOD ENDED SEPTEMBER 30,
--------------------------- --------------------------------------
1996 1995 1996 1995
------------ ------------ ------------------- ----------------
<S> <C> <C> <C> <C>
Primary and Fully Diluted:
Weighted average common shares
outstanding for the period............... 7,127 2,951 7,008 2,945
Common equivalent shares:
Convertible preferred stock.......... -- 2,235 -- 2,235
Options and warrants................. 760 684 -- 684
Shares pursuant to SAB 83............ -- 261 -- 261
====== ====== ======= ======
Shares used in per share calculations 7,887 6,131 7,008 6,125
Net income........................... $1,349 $ 772 $(2,738) $1,621
====== ====== ======= ======
Net income per share................. $ 0.17 $0.13 $ (0.39) $ 0.26
====== ====== ======= ======
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 30,681
<SECURITIES> 0
<RECEIVABLES> 7,415
<ALLOWANCES> 204
<INVENTORY> 0
<CURRENT-ASSETS> 39,376
<PP&E> 7,672
<DEPRECIATION> 3,690
<TOTAL-ASSETS> 44,443
<CURRENT-LIABILITIES> 10,119
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 33,638
<TOTAL-LIABILITY-AND-EQUITY> 44,443
<SALES> 11,682
<TOTAL-REVENUES> 26,143
<CGS> 375
<TOTAL-COSTS> 5,034
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (908)
<INCOME-TAX> 1,830
<INCOME-CONTINUING> (2,738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,738)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
