SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended September 30, 1997
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
(State or other jurisdiction of incorporation or organization)
94-2901952
(IRS Employer Identification Number)
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
October 31, 1997 was 7,558,509.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEP 30, DEC 31,
1997 1996
- -------------------------------------------------------------------------------
(in thousands) (unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 35,298 $ 31,650
Accounts receivable, net 11,381 8,499
Prepaid expenses and other 1,241 592
Deferred income taxes 1,287 1,064
------------- -------------
Total current assets 49,207 41,805
------------- -------------
Fixed assets, net 5,671 3,862
Other assets, net 803 1,024
============= =============
Total assets $ 55,681 $ 46,691
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 801 $ 646
Accrued liabilities 2,918 2,627
Deferred revenues 6,251 5,071
Income taxes payable 1,903 686
------------- -------------
Total current liabilities 11,873 9,030
------------- -------------
Long-term liabilities:
Other liabilities 516 599
------------- -------------
Total liabilities 12,389 9,629
------------- -------------
Stockholders' equity:
Common stock 81 73
Additional paid-in-capital 36,904 35,061
Retained earnings 6,307 1,928
------------- -------------
Total stockholders' equity 43,292 37,062
------------- -------------
Total liabilities and stockholders' equity $ 55,681 $ 46,691
============= =============
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ADVENT SOFTWARE, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License and other $ 6,743 $ 4,941 $ 16,226 $ 11,682
Maintenance and other recurring 4,633 3,798 13,247 10,564
Professional services and other 1,582 1,407 4,737 3,897
------------ ------------ ----------- ------------
Net revenues 12,958 10,146 34,210 26,143
------------ ------------ ----------- ------------
Cost of revenues:
License 143 123 419 375
Maintenance and other recurring 1,351 1,069 3,461 2,762
Professional services and other 782 723 2,622 1,897
------------ ------------ ----------- ------------
Total cost of revenues 2,276 1,915 6,502 5,034
------------ ------------ ----------- ------------
Gross margin 10,682 8,231 27,708 21,109
------------ ------------ ----------- ------------
Operating expenses:
Sales and marketing 4,016 3,322 11,084 9,203
Product development 2,463 1,841 6,807 4,890
General and administrative 1,386 1,148 3,710 3,159
Purchased research and development and other - - - 5,648
------------ ------------ ----------- ------------
Total operating expenses 7,865 6,311 21,601 22,900
------------ ------------ ----------- ------------
Income (loss) from operations 2,817 1,920 6,107 (1,791)
Interest income, net 323 280 894 883
------------ ------------ ----------- ------------
Income (loss) before income taxes 3,140 2,200 7,001 (908)
Provision for income taxes 1,133 851 2,621 1,830
------------ ------------ ----------- ------------
Net income (loss) $ 2,007 $ 1,349 $ 4,380 $ (2,738)
============ ============ =========== ============
Net income (loss) per share $ 0.25 $ 0.17 $ 0.55 $ (0.39)
============ ============ =========== ============
Shares used in per share calculations 8,043 7,887 8,020 7,008
============ ============ =========== ============
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
4
<PAGE>
ADVENT SOFTWARE, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1997 1996
- ------------------------------------------------------------------------------------------
(in thousands) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,380 $ (2,738)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Purchased research and development and other -- 5,648
Depreciation and amortization 1,364 1,104
Provision for doubtful accounts 47 (54)
Deferred income taxes (196) 285
Deferred rent (76) 144
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (3,117) (2,306)
Prepaid and other current assets (454) (78)
Accounts payable 155 (811)
Accrued liabilities 283 43
Deferred revenues 1,180 (905)
Income taxes payable 1,779 685
-------- --------
Net cash provided by operating activities 5,345 1,017
-------- --------
Cash flow from investing activities:
Net cash used in acquisition of the DX Group -- (3,963)
Acquisition of fixed assets (3,058) (1,141)
-------- --------
Net cash used in investing activities (3,058) (5,104)
-------- --------
Cash flow from financing activities:
Payment of debt assumed in the DX Group acquisition -- (288)
Proceeds from issuance of common stock 427 512
Proceeds from exercise of stock options and warrants 934 260
-------- --------
Net cash provided by financing activities 1,361 484
-------- --------
Net increase (decrease) in cash and short-term investments 3,648 (4,403)
Cash and short-term investments at beginning of year 31,650 35,084
-------- --------
Cash and short-term investments at end of quarter $ 35,298 $ 30,681
======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 1,043 $ 849
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
5
<PAGE>
ADVENT SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Advent Software, Inc. (Advent) and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
The condensed 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 1996
Report on Form 10-K filed with the SEC. Interim results are not necessarily
indicative of the results to be expected for the full year.
In management's opinion, the condensed consolidated financial statements
include all adjustments necessary to present fairly the financial position and
results of operations for each interim period shown.
2. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share", (SFAS 128) which specifies the
computation, presentation and disclosure requirements for net income per share.
SFAS 128 will become effective for Advent's 1997 fiscal year end.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", (SFAS 130) which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. It is effective for Advent's fiscal year 1998.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information", (SFAS 131) which changes current
practice under SFAS 14 by establishing a new framework on which to base segment
reporting (referred to as the "management" approach) and also requires interim
reporting of segment information. It is effective for Advent's fiscal year 1998.
In October 1997, the AICPA issued a Statement of Position (SOP) on Software
Revenue Recognition which supersedes SOP 91-1. The SOP is effective for all
fiscal years beginning after December 15, 1997 and will be effective for
Advent's December 31, 1998 fiscal year end.
Advent will be studying the implications of these standards and has not yet
determined the impact of their implementation on Advent's financial statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Acquisitions
In February, 1996, Advent acquired Data Exchange, Inc. (the DX Group), a private
company based in 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 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 $0.37.
In November 1996, Advent issued 35,000 shares of Advent's common stock in
exchange for all of the outstanding shares of Bold Software, Inc., a private
software development company based in New York. This business combination was
accounted for as a pooling of interests. Prior year amounts have not been
restated to include Bold Software's results of operations as such operations
were immaterial. As a result of this business combination, Advent introduced
Advent Partner, a tax layering and partnership allocation solution which
integrates with Axys.
Results of Operations
Net Revenues. Advent's net revenues for the third quarter of 1997 increased
28% to $13.0 million, as compared with net revenues of $10.1 million for the
third quarter of 1996, reflecting increases in each component of net revenues.
Advent's net revenues for the nine months ended September 30, 1997 increased 31%
to $34.2 million, as compared with net revenues of $26.1 million for the nine
months ended September 30, 1996, reflecting increases in each component of net
revenues. License revenue for the third quarter of 1997 increased 36% to $6.7
million as compared with license revenue of $4.9 million for the third quarter
of 1996. License revenue for the nine months ended September 30, 1997 increased
39% to $16.2 million as compared with license revenue of $11.7 million for the
nine months ended September 30, 1996. The increase in license revenue was due to
continued demand for Advent's suite of products. Maintenance and other recurring
revenue for the third quarter of 1997 increased 22% to $4.6 million, as compared
with maintenance and other recurring revenue of $3.8 million for the third
quarter of 1996. Maintenance and other recurring revenue for the nine months
ended September 30, 1997 increased 25% to $13.2 million, as compared with
maintenance and other recurring revenue of $10.6 million for the nine months
ended September 30, 1996. The increases in both periods were due primarily to a
larger customer base and higher average maintenance fees. Higher average
maintenance fees are due to the increased complexity of maintenance services
provided and increased client use of proprietary interfaces to access pricing
and other data supplied by third parties. Professional services and other
revenue for the third quarter of 1997 increased 12% to $1.6 million, as compared
with professional services and other revenue of $1.4 million for the third
quarter of 1996. Professional services and other revenue for the nine months
ended September 30, 1997 increased 22% to $4.7 million, as compared with
professional services and other revenue of $3.9 million for the nine months
ended September 30, 1996. The increases in both periods were due primarily to
higher product sales activity. The lower percentage increase for the third
quarter of 1997 as compared with the increase for the nine months ended
September 30, 1997 was due primarily to revenues generated from Advent's fall
conference which in 1996 was held in the third quarter. In 1997, Advent's fall
conference will be held in the fourth quarter.
Cost of Revenues. Advent's cost of revenues for the third quarter of 1997
increased 19% to $2.3 million, as compared with cost of revenues of $1.9 million
for the third quarter of 1996. Advent's cost of revenues for the nine months
ended September 30, 1997 increased 29% to $6.5 million, as compared with cost of
revenues of $5.0 million for the nine months ended September 30, 1996. Cost of
revenues as a percentage of net revenues was relatively stable at 18% for the
third quarter of 1997 and 19% for the nine months ended September 30, 1997 as
compared with 19% for the third quarter of 1996 and for the nine months ended
September 30, 1996. Cost of professional services and other revenue increased 8%
to $782,000 for the third quarter of 1997, as compared with $723,000 for the
third quarter of 1996 and increased 38% to $2.6 million for the nine months
ended September 30, 1997, as compared with $1.9
7
<PAGE>
million for the nine months ended September 30, 1996. Cost of professional
services and other revenue as a percentage of professional services and other
revenue decreased to 49% in the third quarter of 1997 from 51% in the third
quarter of 1996 and increased to 55% for the nine months ended September 30,
1997 from 49% for the nine months ended September 30, 1996. The increase in
expenses in both periods was due primarily to increased staffing necessary to
provide system integration, custom programming and conversion services to an
expanding installed base. The decrease in the cost of professional services and
other revenues as a percentage of professional services and other revenues for
the third quarter of 1997 as compared with the third quarter of 1996 was due
primarily to Advent's fall conference which in 1996 was held in the third
quarter. In 1997, Advent's fall conference will be held in the fourth quarter.
The increase in the cost of professional services and other revenues as a
percentage of professional services and other revenues for the nine month period
is due primarily to the increase in personnel dedicated to accelerating the
conversion of existing clients to Axys Release 2.
Sales and Marketing. Advent's sales and marketing expenses for the third
quarter of 1997 increased 21% to $4.0 million, as compared with sales and
marketing expenses of $3.3 million for the third quarter of 1996. Advent's sales
and marketing expenses for the nine months ended September 30, 1997 increased
20% to $11.1 million, as compared with sales and marketing expenses of $9.2
million for the nine months ended September 30, 1996. Sales and marketing
expenses as a percentage of net revenues decreased to 31% in the third quarter
of 1997 from 33% in the third quarter of 1996. Sales and marketing expenses as a
percentage of net revenues decreased to 32% for the nine months ended September
30, 1997 from 35% for the nine months ended September 30, 1996. The increase in
expenses in both periods was due primarily to an increase in sales and marketing
personnel. The decrease in sales and marketing expenses as a percentage of net
revenues in both periods was due primarily to the ability of Advent's sales and
marketing organization to support an increased revenue base. In addition, the
decrease was also due to increased contribution of maintenance and other
recurring revenues to net revenues which did not have significant associated
sales and marketing expenses.
Product Development. Advent's product development expenses for the third
quarter of 1997 increased 34% to $2.5 million, as compared with product
development expenses of $1.8 million for the third quarter of 1996. Advent's
product development expenses for the nine months ended September 30, 1997
increased 39% to $6.8 million, as compared with product development expenses of
$4.9 million for the nine months ended September 30, 1996. Product development
expenses as a percentage of net revenues increased to 19% in the third quarter
of 1997 from 18% in the third quarter of 1996. Product development expenses as a
percentage of net revenues increased to 20% for the nine months ended September
30, 1997 from 19% for the nine months ended September 30, 1996. These increases
were primarily due to an increase in personnel as Advent has increased its
product development efforts to accelerate the rate of product enhancements and
new product introductions.
General and Administrative. Advent's general and administrative expenses for
the third quarter of 1997 increased 21% to $1.4 million, as compared with
general and administrative expenses of $1.1 million for the third quarter of
1996. Advent's general and administrative expenses for the nine months ended
September 30 1997, increased 17% to $3.7 million, as compared with general and
administrative expenses of $3.2 million for the nine months ended September 30,
1996. General and administrative expenses as a percentage of net revenues was
unchanged at 11% for the third quarter of 1997 as compared with the third
quarter of 1996. General and administrative expenses as a percentage of net
revenues decreased to 11% for the nine months ended September 30, 1997 as
compared with 12% for the nine months ended September 30, 1996. The increase in
general and administrative expenses in both periods reflects higher expenses
necessary to support Advent's growth.
Purchased Research and Development and Other. On February 15, 1996, Advent
acquired Data Exchange, Inc. (the DX Group), a private company based in New
York, for $4.0 million in cash and an $800,000 note payable. In the first
quarter of 1996, Advent incurred a one-time charge of $5.6 million in connection
with the write-off of in-process research and development due to the acquisition
of the DX Group. There was no comparable charge in 1997.
8
<PAGE>
Interest Income, Net. Advent's interest income, net for the third quarter of
1997 increased 15% to $323,000, as compared with interest income, net of
$280,000 for the third quarter of 1996. Advent's interest income, net for the
nine months ended September 30, 1997 increased 1% to $894,000, as compared with
interest income, net of $883,000 for the nine months ended September 30, 1996.
The increase in the third quarter 1997 as compared with the third quarter of
1996 was due to a higher cash and short-term investment balance. The smaller
increase for the nine month period was due to the decrease in cash and
short-term investment balance that resulted from the acquisition of the DX Group
in the first quarter of 1996.
Provision for Income Taxes. For the nine months ended September 30, 1997,
Advent recorded a tax provision of 37.4% in anticipation of its expected tax
rate for the entire fiscal year. This is lower than its previous estimate of its
effective tax rate for fiscal 1997 due to the reinstatement of certain research
and development credits in the recently enacted tax law changes. The company had
an effective tax rate of 162.6% for fiscal 1996 due to nondeductible expenses
arising from the acquisition of the DX Group in the first quarter of 1996.
Liquidity and Capital Resources
Cash and short-term investments totaled $35.3 million at September 30, 1997
as compared to $31.7 million at December 31, 1996. The increase in cash and
short-term investments was primarily due to cash provided by operating
activities.
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 at least through fiscal 1998.
Forward-Looking Statements
The discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains trend analysis and other
forward-looking statements that are based on current expectations and
assumptions made by management. Words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks and uncertainties which are difficult to predict.
Therefore, actual results could differ materially from those expressed or
forecasted in the forward-looking statements as a result of the factors
summarized below and other risks detailed from time to time in reports filed
with the Securities and Exchange Commission, including Advent's 1996 Annual
Report to Stockholders, incorporated by reference in Advent's 1996 Form 10-K
Report. Additionally, the financial statements for the periods presented are not
necessarily indicative of results to be expected for any future period, nor for
the entire year.
Advent operates in a rapidly changing environment that involves a number of
risks, some of which are beyond Advent's control. These risks include the
potential for period to period fluctuations in operating results and the
dependence on the successful development and market acceptance of new products
and product enhancements on a timely, cost effective basis, as well as the
stability of financial markets, maintenance of Advent's relationship with
Interactive Data and price and product/performance competition. In particular,
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. Advent's software products typically are shipped shortly
after receipt of a signed license agreement and initial payment and,
consequently, software backlog at the beginning of any quarter typically
represents only a small portion of that quarter's expected revenues. In
addition, 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. The sales cycles for these transactions are often
lengthy and unpredictable, and the ability to close large license transactions
on a timely basis or at all could cause additional variability in Advent's
quarterly operating results. Advent's future success will continue to depend
upon its ability to develop new products, such as Moxy, Qube, and Geneva, that
address the future needs of its target markets and to respond to
9
<PAGE>
emerging industry standards and practices. Advent is directing a significant
amount of its product development efforts on the on-going development of Geneva.
The failure to achieve widespread market acceptance of a fully commercial
version of Geneva on a timely basis would adversely affect Advent's business and
operating results.
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 Statement Regarding Computation of Net Income (Loss) 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-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVENT SOFTWARE, INC.
Dated: November 12, 1997 By: /s/ STEPHANIE G. DIMARCO
----------------------------
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
Dated: November 12, 1997 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
<TABLE>
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
(amounts in thousands, except per share data)
<CAPTION>
Quarter Ended Nine Month Period Ended
September 30, September 30,
----------------------- -------------------------
1997 1996 1997 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
Primary and Fully Diluted:
Weighted average common shares
outstanding for the period 7,541 7,127 7,466 7,008
Common equivalent shares:
Options and warrants 502 760 554 --
------- ------- ------- -------
Shares used in per share calculations 8,043 7,887 8,020 7,008
------- ------- ------- -------
Net income (loss) $ 2,007 $ 1,349 $ 4,380 $(2,738)
======= ======= ======= =======
Net income (loss) per share $ 0.25 $ 0.17 $ 0.55 $ (0.39)
======= ======= ======= =======
</TABLE>
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 35,298
<SECURITIES> 0
<RECEIVABLES> 11,381
<ALLOWANCES> 222
<INVENTORY> 0
<CURRENT-ASSETS> 49,207
<PP&E> 10,951
<DEPRECIATION> 5,280
<TOTAL-ASSETS> 55,681
<CURRENT-LIABILITIES> 11,873
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 43,211
<TOTAL-LIABILITY-AND-EQUITY> 55,681
<SALES> 16,226
<TOTAL-REVENUES> 34,210
<CGS> 419
<TOTAL-COSTS> 6,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,001
<INCOME-TAX> 2,621
<INCOME-CONTINUING> 4,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,380
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
