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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
[_]Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission File Number: 0-26994
ADVENT SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 94-2901952
(State of incorporation) (I.R.S. Employer
(Identification No.)
</TABLE>
301 BRANNAN STREET, SAN FRANCISCO, CALIFORNIA 94107
(Address of principal executive offices and zip code)
(415) 543-7696
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Acts: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (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 [_]
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 the 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. [X]
The number of shares of the registrant's Common Stock outstanding as of
March 24, 1997 was 7,423,569. The aggregate market value of the registrant's
Common Stock held by non-affiliates, based upon the closing price on March 24,
1997, as reported on the Nasdaq National Market System, was approximately
$96.0 million. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Parts II
and III of this Form 10-K: (1) 1996 Annual Report to Stockholders of the
Registrant (Parts II of this Form 10-K); and (2) Definitive Proxy Statement
for the registrant's Annual Meeting of Stockholders to be held May 13, 1997
(Part III of this Form 10-K).
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PART I
ITEM 1. BUSINESS
OVERVIEW
Advent Software, Inc. (Advent) is a leading provider of stand-alone and
client/server software products, data interfaces and related services that
automate and integrate certain mission-critical functions of investment
management organizations. Advent's suite of complementary products for the
front, middle and back office includes Axys(TM), Advent Partner(TM), WinDx(TM)
and Geneva(TM), Advent's portfolio accounting and management systems;
Moxy(TM), a trade order management system; and Qube(TM), a client management
system. These products address the need to facilitate the management of
increasingly large and complex information and data flows both within
investment management organizations and between such organizations and third
parties, such as brokerage firms, clients, custodians, banks, pricing services
and other data providers. Advent's products are designed to reduce client
costs, improve the accuracy of client information, and generally enable
clients to devote more time to improving the service they provide to their
customers rather than focusing on operational details. Advent's strategy is to
develop long-term client relationships and to maintain a high level of
lifetime client satisfaction which Advent believes will result in additional
recurring revenues from new product licenses, renewals of maintenance
contracts and new data products.
Advent's clients include many of the world's leading investment management
organizations. These organizations vary significantly in size, assets under
management and the complexity of their investment environments. At present,
Advent has licensed its products to over 4,000 institutions, for use by more
than 25,000 concurrent users.
Advent was incorporated in 1983 in California and reincorporated in the
State of Delaware in November 1995.
ACQUISITIONS
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.
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 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. The DX Group's results of
operations are included in Advent's consolidated statements of operations
starting at the date of the acquisition.
INDUSTRY BACKGROUND
The investment management business includes a range of organizations that
manage investment portfolios, including investment advisors, brokerage firms,
banks and hedge funds. In addition, corporations, public funds, universities
and non-profit organizations manage investment portfolios and have many of the
same portfolio management needs. Recently, the investment management industry
has experienced significant growth which, in
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combination with other factors, has led to increasing demand for software
products that automate, simplify and integrate functions within investment
management organizations. This increasing demand is driven by several industry
dynamics. Financial assets under management have increased substantially
during the last decade. As the value of total financial assets under
management has increased, there has been a substantial increase in the number
of investment management organizations and a steady introduction of
increasingly sophisticated financial instruments. As a result, investment
managers are faced with increasingly complicated portfolio accounting and
management requirements. Investment management organizations are subject to
extensive and evolving industry standards and government regulations. These
dynamics have increased the volume and complexity of information and data
flows within investment management organizations and between such
organizations and third parties, such as brokerage firms, clients, custodians,
banks, pricing services and other data providers. Consequently, investment
management organizations require more sophisticated and integrated software
products for their front, middle and back offices. In order to operate
efficiently within this environment, investment management organizations must
automate and integrate their mission-critical and labor-intensive functions,
including (i) investment decision support and client relationship management,
(ii) order management and trading and (iii) portfolio accounting, performance
measurement, report generation and compliance. Investment management
organizations historically have relied on internally developed systems,
timesharing services or simple spreadsheet-based systems to manage information
flows. Due to inherent limitations in each of these types of systems,
investment management organizations are demanding highly functional, easy-to-
use, scalable, cost-effective and flexible software applications that automate
and integrate their mission-critical business functions.
SOFTWARE PRODUCTS
Advent offers a suite of stand-alone and client/server software products
that automate and integrate work and data flows across the front, middle and
back offices within the investment management organization, as well as the
information flows between the investment management organization and external
parties. Advent's products are intended to reduce client costs, improve the
accuracy of client information and generally enable clients to improve the
service they provide to their customers rather than focusing on operational
details. Each software product is focused on certain mission-critical
functions of the front, middle or back offices of investment management
organizations. Individual products are tailored to meet the needs of a
particular market segment, as determined by size, assets under management and
complexity of the investment environment. In addition, Advent believes its
products are well suited for the investment management functions of
corporations, public funds, universities and non-profit organizations.
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[Chart Appears Here]
PORTFOLIO ACCOUNTING AND MANAGEMENT
Advent offers four portfolio accounting and management systems, Axys, Advent
Partner, Geneva and WinDx, each targeted at a different segment of the
investment management industry.
Axys, Advent's core product introduced in 1993, is a highly functional
portfolio accounting and management system targeted towards investment
management organizations of all sizes. Axys provides investment professionals
with broad portfolio accounting functionality, timely decision support,
sophisticated performance measurement and flexible reporting. Specifically,
clients can record, account for and report on a variety of investment
instruments, including equities, fixed income, mutual funds and cash. Axys
users gain access on demand to portfolio holdings, asset allocation, realized
and unrealized gains and losses, actual and projected income and other
valuable data. Portfolio performance can be measured for individual portfolios
or related groups, and for any specified time period. Investment professionals
can choose from over 200 pre-defined reports with flexible "as-of" reporting,
which can be customized as to formats and fonts. Additionally, clients can
easily generate fully customized reports with the assistance of the Axys
Report Writer. Clients can also produce presentation-quality graphics via an
integrated link with Microsoft Excel's charting capability. In addition, Axys
offers integrated multicurrency capabilities which, among other things, allows
reports to be restated in any currency, withholding tax to be automatically
calculated, and components of return attributable to market prices versus
currency rate fluctuations to be identified.
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Axys also provides integration with a variety of investment tools and data,
including (i) trade order management via Moxy, (ii) pricing, corporate
actions, analytics and fundamental data via interfaces to data vendors and
(iii) automatic data entry and reconciliation of trades with interfaces to The
Depository Trust Corporation ( DTC ), and to certain brokerage firms and
custodians.
Advent Partner, the software product introduced as a result of the Bold
Software acquisition, is a tax layering and partnership allocation solution
which integrates with Axys. This product is specifically designed for hedge
funds, venture funds and limited investment partnerships who face the complex
and time-consuming task of consistently and accurately accounting for and
reporting on partnership tax allocation and other activities. The Window's-
based system tracks partner-specific information, layers realized and
unrealized gains, allocates performance incentive fees, provides on-demand
partner and partnership reporting on a book or tax allocation basis and
streamlines the production of partnership tax returns.
Geneva, currently in limited release in test environments, is a high-end
portfolio management system designed to meet the needs of investment
management organizations with complex, international accounting requirements,
such as hedge funds. Geneva offers feature-rich global accounting, extensive
reporting and sophisticated multicurrency capabilities. In addition, Geneva's
highly flexible design allows users to add newly created financial instruments
and tailor accounting treatments to their specific needs. Geneva operates on
UNIX-based servers with Windows-based clients. There can be no assurance that
Geneva will not require substantial software enhancements or modifications to
satisfy performance requirements of clients or to fix design defects or
previously undetected errors.
WinDx, the primary software product acquired in the Data Exchange
acquisition, is a high-end portfolio management and accounting system that
offers the benefits of a client/server platform and a Sybase(R) relational
database in a Windows environment. This product is designed for certain
regional broker/dealers and other professional money managers with more than
$1 billion in assets under management. WinDx provides investment professionals
with a wide range of decision support, performance measurement, external and
internal reporting, billing and portfolio accounting. Additionally WinDx
provides pricing and corporate action information as well as complex
interactive trade confirmation functionality through its DTC interface.
ORDER MANAGEMENT AND TRADING
Moxy, introduced in 1995, automates and streamlines the trade order
management process. An open system, Moxy can be integrated with any portfolio
accounting system. Moxy facilitates accurate trade order management and
preparation, tracks trade order status, automates the allocation of block
trades across multiple portfolios and electronically interfaces with Axys for
an integrated solution. Moxy supports fixed income, mutual funds, and equity
trading and offers multicurrency capabilities. Moxy enables investment
managers to accurately adjust portfolio holdings, rebalance portfolios against
models, interactively assess "what-if" scenarios and automatically create
orders to be executed. For traders, Moxy tracks cash and positions during the
trading day, enables the accurate preparation of block trades and internal
electronic trade tickets, facilitates compliance with investment restrictions
and trading requirements and minimizes trading errors. Moxy also allows
traders and others to view the status of orders via customizable screens and
maintain an electronic audit trail of the trade process. Moxy automates the
allocation process of partial and complete executions and allows the user to
send allocation results by fax directly from the computer to brokers and
banks. Moxy allows clients using OASYS, an electronic allocation system, to
communicate allocations to brokers electronically. In the future, Moxy will
have additional electronic links that instantly communicate trade and
allocation information to brokers and custodians. Moxy electronically posts
allocated trades into Axys on demand, eliminating time-consuming and error-
prone manual entry.
CLIENT CONTACT AND MANAGEMENT
Qube, introduced in 1995, is Advent's client management system initially
targeted to the brokerage industry. Qube is currently being deployed in
PaineWebber Incorporated's retail brokerage network. Qube is designed to
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help securities professionals develop and improve client relationships by
automating scheduling, client communications and client data. For example,
Qube enables investment professionals to interactively screen client
investment profiles and notes of conversations to identify appropriate
candidates for various investment opportunities. In addition, Qube can be used
to enhance direct marketing campaigns by matching clients with market
opportunities. Qube captures extensive investment profile information, has on-
line query capability, networking features and mail merge capabilities and
facilitates information sharing across professionals in an office. Moreover,
Qube is designed to be integrated with Axys, allowing users to provide
accurate and timely portfolio information to clients.
MAINTENANCE SUPPORT AND DATA INTERFACES
Advent earns recurring revenues by offering a choice of maintenance
contracts and by providing proprietary interfaces to external sources of
critical data. These interfaces allow clients to (i) download pricing,
corporate actions and other data from third party vendors such as Interactive
Data, a wholly owned indirect subsidiary of Pearson plc (Interactive Data),
and (ii) interface with DTC, certain brokerage firms and custodians for
trading activity. Advent continually analyzes the ongoing external data needs
of its clients and expects to offer new data products in the future. Many of
Advent's clients use Advent's proprietary interface to electronically retrieve
pricing and other data from Interactive Data. Interactive Data pays Advent a
commission based on Interactive Data's revenues from providing such data to
Advent's clients. This commission accounted for approximately 9% and 12% of
Advent's net revenues for the years ended December 31, 1996 and 1995,
respectively. The term of Advent's contract with Interactive Data ends on
September 30, 2003 and is renewed automatically for additional 12 month
periods unless either party gives the other at least 24 months prior notice of
termination.
As part of Advent's acquisition of Data Exchange, Advent acquired the
technical infrastructure and know-how to (i) deliver end-of-day pricing data
to our customers in an on-line, electronic format, and (ii) to provide our
customers with the ability to electronically confirm trades cleared and
settled through DTC. The revenues generated by these activities are based upon
client usage of the applicable services.
Due to the mission-critical nature of Advent's products, many clients
purchase annual maintenance contracts which entitle them to technical support
and product upgrades as they become available. Advent continually upgrades and
enhances its products to respond to changing market needs, evolving regulatory
requirements and new technologies
PROFESSIONAL SERVICES
Professional services consists of consulting, systems integration, custom
programming, and training. To ensure a successful product implementation,
consultants assist clients with the initial installation of a system, assist
in the conversion of the client's historical data and provide ongoing training
and education. Consulting services may be required for as little as two days
for small systems or up to many weeks for large implementations. Advent
believes that its consulting services facilitate a client's early success with
its products, strengthen the relationship with the client and generate
valuable feedback for Advent.
Advent's systems integration services develop new interfaces, either at the
request of existing clients or external organizations such as brokerage firms,
custodians, DTC, pricing services, and other data providers. These interfaces
are designed to provide easier and faster data entry, automatic reconciliation
or confirmations. These interfaces are licensed as an option which clients can
obtain when configuring the Axys system or later as their information needs
change. In addition, Advent also uses its systems integration services to
develop interfaces which Advent expects will satisfy anticipated needs of its
clients.
Advent provides its clients with custom programming services that enable
clients to tailor end-user reports to their own specifications. Advent also
provides training sessions to its clients at various sites across the country.
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CLIENTS
Advent's clients vary significantly in size and assets under management and
include investment advisors, brokerage firms, banks, hedge funds,
corporations, public funds, universities and non-profit organizations. At
present, Advent has licensed Axys, The Professional Portfolio, Geneva, WinDx,
Moxy, Qube, and Advent Partner to over 4,000 institutions for use by more than
25,000 concurrent users.
SALES AND MARKETING
Sales
Advent sells its products and services through a direct sales organization
comprised of field sales and telesales representatives. Advent's field sales
force is organized by geographic region and is primarily responsible for
selling Axys and Moxy to mid-sized and large investment management
organizations. Advent has sales offices in San Francisco, New York and Boston.
Advent's telesales organization is primarily focused on selling Advent's
products to existing Axys clients and small and mid-sized investment
management organizations. Advent's telesales representatives are located in
San Francisco. Advent's sales force is supported by extensive ongoing product
and sales training.
Marketing
The marketing department is responsible for assessing market opportunities,
product planning and management and specific sales support. In addition to its
traditional marketing functions, the marketing organization is actively
involved in a process called "Market Validation SM," using a system of
interaction with and input from potential and existing clients, product
development, sales and client services and support departments to define the
scope, features and functionality of new products and product upgrades. In
addition, product managers are responsible for all phases of a product life
cycle from product development through product introduction and beyond. The
marketing department is also responsible for corporate marketing, including
generating client leads, targeted direct mail campaigns, seminars,
advertising, trade shows and conferences and public relations efforts. The
marketing department also provides the sales force with appropriate written
and electronic materials to use during the sales process.
PRODUCT DEVELOPMENT
In recent years, Advent has substantially increased its product development
expenditures in order to accelerate the rate of new product introductions,
incorporate new technologies and sustain the quality of its products. In 1996,
1995, and 1994, Advent's product development expenditures were approximately
$6.7 million, $4.2 million and $3.0 million, respectively. In addition to
engineering, quality assurance and documentation, Advent's product development
activities include the identification and validation of product
specifications. Advent believes that a principal factor in the success of its
products is its system of performing extensive market research and testing of
products at important phases of development to ensure that each new product or
product upgrade is of the highest quality and addresses an identified market
opportunity. Advent believes that this can best be accomplished through the
Market Validation process which involves substantial input from existing and
potential clients at each stage of development from product conception to
product launch, and, ultimately, also includes post introduction reviews.
Advent relies on multi-disciplinary teams to validate each new product or
product upgrade. Market Validation teams include Advent employees from
marketing, product development, client services and sales.
Advent's new products and product upgrades require varying degrees of
development time, depending upon the complexity of the accounting requirements
and securities regulations which they are intended to address, as well as the
number and type of features incorporated. Advent has primarily relied upon the
internal development of its products. Advent has in the past acquired, and may
again in the future acquire, additional technologies or products from third
parties or consultants. Advent intends to continue to support industry
standard operating
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environments, client/server architectures and network protocols. There can be
no assurance that Advent will be successful in developing, introducing and
marketing new products or product enhancements on a timely and cost effective
basis, if at all, or that its new products and product enhancements will
adequately meet the requirements of the marketplace or achieve market
acceptance. Delays in the commencement of commercial shipments of new products
or enhancements may result in client dissatisfaction and delay or loss of
product revenues. If Advent is unable, for technological or other reasons, to
develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or client
requirements, or if new products or new versions of existing products do not
achieve market acceptance, Advent's business, operating results and financial
condition will be materially adversely affected. In addition, Advent's ability
to develop new products and product enhancements is dependent upon the
products of other software vendors, including certain system software vendors,
such as Microsoft Corporation, database vendors and development tool vendors.
In the event that the products of such vendors have design defects or flaws,
or if such products are unexpectedly delayed in their introduction, Advent's
business, operating results and financial condition could be materially
adversely affected. Software products as complex as those offered by Advent,
particularly Advent's new Geneva product, may contain undetected defects or
errors when first introduced or as new versions are released. Although Advent
has not experienced material adverse effects resulting from any software
errors, there can be no assurance that, despite testing by Advent and its
clients, defects or errors will not be found in new products after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material adverse effect upon Advent's business,
operating results and financial condition.
COMPETITION
The market for investment management software is segmented by the relative
size of the organizations that manage investment portfolios. In addition, the
market in each segment is intensely competitive and highly fragmented, subject
to rapid change and highly sensitive to new product introductions and
marketing efforts by industry participants. Advent's competitors include
providers of software and related services as well as providers of timeshare
services. Competitors vary in size, scope of services offered and platforms
supported. In addition, Advent competes indirectly with existing and potential
clients, many of whom develop their own software for their particular needs
and therefore may be reluctant to license software products offered by
independent vendors such as Advent. With respect to the market for its
portfolio accounting products, Advent currently competes primarily with Shaw
Data, a division of SunGard Data Systems, Inc., Thomson Financial, a division
of The Thomson Corporation, and with a number of other smaller companies.
Advent believes that the principal competitive factors affecting its market
include product performance and functionality, ease of use, scalability,
ability to integrate external data sources, product and company reputation,
client service and support and price. There can be no assurance that Advent
will be able to compete successfully against current and future competitors or
that competitive pressures will not result in price reductions, reduced
operating margins and the loss of market share, any one of which could
materially adversely affect Advent's business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Advent's success is dependent in part on its ability to protect its
proprietary technology. Advent relies on a combination of copyright and
trademark laws, trade secrets, software security measures, confidentiality
agreements and license agreements to establish and protect its proprietary
rights and its software. Despite these efforts, it may be possible for
unauthorized third parties to copy certain portions of Advent's products or to
reverse engineer or otherwise obtain and use proprietary information of
Advent. Advent does not have any patents, and existing copyright laws afford
only limited protection. In addition, Advent cannot be certain that others
will not develop substantially equivalent or superseding proprietary
technology, or that equivalent products will not be marketed in competition
with Advent's products, thereby substantially reducing the value of Advent's
proprietary rights. Furthermore, there can be no assurance that any
confidentiality agreements between Advent and its employees or any license
agreements with its clients will provide meaningful protection of Advent's
proprietary information in the event of any unauthorized use or disclosure of
such proprietary
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information. In addition, the laws of certain countries do not protect
Advent's proprietary rights to the same extent as do the laws of the United
States. Accordingly, there can be no assurance that Advent will be able to
protect its proprietary software against unauthorized third party copying or
use, which could adversely affect Advent's business, operating results and
financial condition.
Advent is not currently engaged in any intellectual property litigation or
proceedings. Nonetheless, from time to time Advent may receive notices
claiming that it is infringing the proprietary rights of third parties, and
there can be no assurance that Advent will not become the subject of
infringement claims or legal proceedings by third parties with respect to
current or future products. In addition, Advent may initiate claims or
litigation against third parties for infringement of Advent's proprietary
rights or to establish the validity of Advent's proprietary rights. Any such
claims could be time consuming, result in costly litigation, cause product
shipment delays or lead Advent to enter into royalty or licensing agreements
rather than disputing the merits of such claims.
EMPLOYEES
As of December 31, 1996, Advent had 281 full-time employees, including 33 in
sales, 44 in professional services, 13 in marketing, 82 in product
development, 59 in client services and support and 50 in finance,
administration, operations and general management. Advent believes that it
maintains competitive compensation, benefits, equity participation and work
environment policies to assist in attracting and retaining qualified
personnel. Advent's success depends to a significant extent upon a limited
number of members of senior management and other key employees, including
Stephanie DiMarco, Advent's Chairman of the Board, President and Chief
Executive Officer. The loss of the service of one or more senior managers or
other employees could have a material adverse effect upon Advent's business,
operating results and financial condition. None of Advent's employees is
represented by a labor union. Advent has not experienced any work stoppages
and considers its relations with its employees to be good.
ITEM 2. PROPERTIES
Advent leases office space in facilities in San Francisco and New York.
Advent's 35,232 square foot lease in San Francisco is Advent's principal
executive office and is where product development, marketing, technical
support and production are located. The San Francisco lease expires in 1998.
Advent's leases two separate office spaces in New York; the 12,068 square foot
lease in New York expires in 2003 and the 8,500 square foot lease expires in
2002. Advent believes that its facilities are adequate for its current needs
and that suitable additional or alternative space will be available in the
future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of Advent as of March 14, 1997:
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<CAPTION>
NAME AGE POSITION
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<C> <C> <S>
Stephanie G. DiMarco 39 Chairman of the Board, President and Chief
Executive Officer
Peter M. Caswell 40 Senior Vice President, Sales, Marketing and
Professional Services
Lily S. Chang 48 Senior Vice President, Technology
Irv H. Lichtenwald 41 Senior Vice President, CFO and Secretary
</TABLE>
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Ms. DiMarco founded Advent in June 1983 and, since such date, has served as
its President and Chief Executive Officer. She became Chairman of the Board in
September 1995. Ms. DiMarco holds a B.S. in Business Administration from the
University of California at Berkeley.
Mr. Caswell joined Advent in December 1993 as Vice President, Sales and
Professional Services. In 1996 Mr. Caswell took on responsibility for Advent's
marketing efforts upon the departure of John J. Griffin who had been the Vice
President of Marketing. Mr. Caswell was promoted to Senior Vice President.
From May 1986 to December 1993, Mr. Caswell held various management positions,
including Vice President and General Manager, Western Region, with Dun &
Bradstreet Software Services, Inc. and its predecessor, Management Science
America, Inc., a supplier of computer software for finance, marketing,
manufacturing and human resource functions. Mr. Caswell holds a diploma in
Management Studies (M.B.A. equivalent) and a Higher National Diploma in
Agriculture (B.S. equivalent) from Seale Hayne College in England.
Ms. Chang joined Advent in May 1993 as Vice President, Technology. In 1996,
Ms. Chang was promoted to Senior Vice President, Technology. From July 1989 to
May 1993, Ms. Chang held various positions, including Vice President,
Strategic Accounts and Vice President of Oracle Financial Applications, with
Oracle Corporation, a software licensing and consulting business. Ms. Chang
holds a B.S. in Biochemistry from Taiwan University.
Mr. Lichtenwald joined Advent in March 1995 as Chief Financial Officer. From
February 1984 to March 1995, Mr. Lichtenwald served as Chief Financial Officer
of Trinzic Corporation, a computer software developer, and its predecessor
Aion Corporation. From February 1982 to February 1984, he served as controller
of Visicorp, a computer software developer. Mr. Lichtenwald holds an M.B.A.
from the University of Chicago and a B.B.A. from Saginaw Valley State College.
Mr. Lichtenwald is a Certified Public Accountant.
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PART II
With the exception of the information incorporated by reference to the 1996
Annual Report to Stockholders in Part II of this Form 10-K, Advent's 1996
Annual Report to Stockholders is not deemed to be filed as part of this Form
10-K or otherwise.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Advent had approximately 200 stockholders of record at March 24, 1997. Other
information required by this Item is incorporated by reference to the sections
entitled "Selected Financial Data--Price Range of Common Stock" and "Corporate
Information--Stock Information" in Advent's 1996 Annual Report to
Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
Other information required by this Item is incorporated by reference to the
sections entitled "Selected Financial Data--Selected Annual Data" and "--
Selected Quarterly Data" in Advent's 1996 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Advent's 1996 Annual Report to Stockholders.
In addition, Advent operates in a rapidly changing environment that involves
a number of risks, some of which are beyond Advent's control. The following
discussion highlights some of these risks.
Period to Period Fluctuations 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. 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 first quarter, compounded by
Advent's annual incentive compensation plans which result in increased year-
end sales activity. Furthermore, Advent has often recognized a substantial
portion of its license revenues in the last month of a quarter.
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.
11
<PAGE>
Prior to the initial public offering in November 1995, there was no market
for the Advent's common stock. Advent's stock price has shown significant
fluctuation since the IPO date. Like many companies in the technology and
emerging growth sector, Advent's stock price may be subject to wide
fluctuations. If net revenues or earnings in any quarter fail to meet the
investment community's expectations, there could be an immediate impact on
Advent's stock price. In addition, the stock price may be affected by broader
market trends unrelated to Advent's performance
Product Concentration. During 1994, 1995 and 1996, Advent derived a
substantial majority of its net revenues from the licensing of Axys and
related products and services. In addition, certain of Advent's new products,
such as Moxy, Qube and various data interfaces, are currently designed to
operate with Axys and not on a stand-alone basis. Advent released in 1996 new
versions of Axys and Moxy. As a result, Advent believes that a majority of its
net revenues, at least through 1997, will be dependent upon continued market
acceptance of Axys, enhancements or upgrades to Axys and related products and
services.
Geneva. In 1995, Advent introduced Geneva to target organizations with
complex international accounting and reporting requirements. Geneva is
currently in limited release in test environments. To date, revenues derived
from these licenses of Geneva have not been material. Advent is directing a
significant amount of its product development expenditures to the on-going
development of Geneva and plans to devote a significant amount of its future
sales and marketing resources to the full commercial introduction of Geneva.
Advent has limited experience in developing products for this market. Because
of such limited client experience, there can be no assurance that Geneva will
not require substantial software enhancements or modifications to satisfy
performance requirements of clients or to fix design defects or previously
undetected errors. Further, 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.
New Products and Product Enhancements. 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. Delays in the commencement of commercial shipments of new products
or enhancements may result in client dissatisfaction and delay or loss of
product revenues. In addition, Advent's ability to develop new products and
product enhancements is dependent upon the products of other software vendors,
including certain system software vendors, such as Microsoft Corporation,
database vendors and development tool vendors. In the event that the products
of such vendors have design defects or flaws, or if such products are
unexpectedly delayed in their introduction, Advent's business, operating
results and financial condition could be materially adversely affected.
Financial Markets. The target clients for Advent's products include a range
of organizations that manage investment portfolios, including investment
advisors, brokerage firms, banks and hedge funds. In addition, Advent targets
corporations, public funds, universities and non-profit organizations which
also manage investment portfolios and have many of the same needs. The success
of many of Advent's clients is intrinsically linked to the health of the
financial markets. Advent believes that demand for its products could be
disproportionately affected by fluctuations, disruptions, instability or
downturns in the financial markets which may cause clients and potential
clients to exit the industry or delay, cancel or reduce any planned
expenditures for investment management systems and software products.
Relationship with Interactive Data. Many of Advent's clients use Advent's
proprietary interface to electronically retrieve pricing and other data from
Interactive Data. Interactive Data pays Advent a commission based on
Interactive Data's revenues from providing such data to Advent's clients. This
commission accounted for approximately 9% and 12% of Advent's net revenues for
the years ended December 31, 1996 and 1995, respectively. Advent's software
products have been customized to be compatible with Interactive Data's system
and such software would need to be redesigned if Interactive Data's services
were unavailable for any reason. The term of Advent's contract with
Interactive Data ends on September 30, 2003 and is renewed automatically for
additional 12 month periods unless either party gives the other at least 24
months prior notice of termination.
12
<PAGE>
In the event that Advent's relationship with Interactive Data were terminated
or Interactive Data's services were unavailable to Advent's clients for any
reason, replacing these services could be costly and time consuming.
Competition. The market for investment management software is segmented by
the relative size of the organizations that manage investment portfolios. In
addition, the market in each segment is intensely competitive and highly
fragmented, subject to rapid change and highly sensitive to new product
introductions and marketing efforts by industry participants. Advent's
competitors include providers of software and related services as well as
providers of timeshare services. Competitors vary in size, scope of services
offered and platforms supported. In addition, Advent competes indirectly with
existing and potential clients, many of whom develop their own software for
their particular needs and therefore may be reluctant to license software
products offered by independent vendors such as Advent. Many of Advent's
competitors have longer operating histories and greater financial, technical,
sales and marketing resources than Advent. There can be no assurance that
Advent will be able to compete successfully against current and future
competitors or that competitive pressures will not result in price reductions,
reduced operating margins and loss of market share, any one of which could
materially adversely affect Advent's business, operating results and financial
condition.
Data Exchange Acquisition 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(1) Financial Statements.
The following financial statements of Advent including the notes thereto,
and Report of Independent Accountants are incorporated by reference to page
23 through 35 of Advent's 1996 Annual Report to Stockholders:
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Operations--Years Ended December 31, 1996,
1995, and 1994
Consolidated Statements of Stockholders' Equity--Years Ended December
31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows--Years Ended December 31, 1996,
1995, and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedules.
The following financial statement schedules of Advent for the years ended
December 31, 1996, 1995, and 1994 are filed as part of this Form 10-K and
should be read in conjunction with Advent's financial statements listed in
Item 8(1) above.
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C>
Report of Independent Accountants S-1
Schedule II--Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or because the required information is
included in the financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
Certain information required by Part III is omitted from this Form 10-K in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, ("Proxy
Statement") not later than 120 days after the end of the fiscal year covered
by this Form 10-K and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement that
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Performance Graph included in the
Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Advent's directors required by this Item is
incorporated by reference to Advent's Proxy Statement.
The information concerning Advent's executive officers required by this Item
is incorporated by reference herein to the section of the Form 10-K in Part I,
Item 4, entitled "Executive Officers of Advent."
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is to be set forth in Advent's Proxy Statement and such
information is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)The following documents are filed as a part of this Annual Report on Form
10-K
1. Consolidated Financial Statements required to be filed by Item 8 of
Form 10-K. See the list of Financial Statements contained in Item 8
of this Report.
2. Financial Statement Schedules required to be filed by Item 8 of Form
10-K. See the list of Financial Statement Schedules contained in
Item 8 of this Report.
14
<PAGE>
3.Exhibits
The exhibits listed on the accompanying Index to Exhibits immediately
following the financial statement schedules are filed as part of, or
incorporated by reference into, this Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1+ Agreement and Plan of Merger between Registrant and Advent Software,
Inc., a California corporation, effective November 10, 1995.
2.2++ Stock Acquisition Agreement, dated as of February 15, 1996, by and
among Advent Software, Inc., a Delaware corporation, Data Exchange,
Inc., a Pennsylvania corporation, and Bruce Hechler, sole shareholder
of Data Exchange, Inc.
3.1+ Certificate of Incorporation of Registrant.
3.2+ Amended and Restated Certificate of Incorporation of Registrant.
3.3+ Bylaws of Registrant.
4.1+ Specimen Common Stock Certificate of Registrant.
10.1+ Form of Indemnification Agreement for Executive Officers and
Directors.
10.2+ 1992 Stock Plan, as amended, and form of stock option agreement.
10.3+ 1993 Profit Sharing & Employee Savings Plan, as amended.
10.4+ 1995 Employee Stock Purchase Plan and form of subscription agreement.
10.5+ 1995 Director Option Plan and form of stock option agreement.
10.6+ Common Stock Option Agreement between Advent and Maurice J. Duca dated
September 15, 1989 as amended by the Amendment and Correction to
Common Stock Option Agreement dated July 1993.
10.7+ Full Service Office Lease dated April 14, 1992, as amended, between
Brannan Street Properties and Advent for facilities located at 301
Brannan in San Francisco, California.
10.8+ Standard Form of Lease dated November 6, 1992 between Broadway
Management Company as agent for 500 Fifth Avenue Associates and Advent
for facilities located at 500 Fifth Avenue, New York, New York.
10.9+ Severance Agreement between Advent and Peter M. Caswell dated December
10, 1993.
10.10+* Agreement between Advent and Interactive Data Corporation dated
January 1, 1995.
10.11+ Registration Rights Agreement dated December 20, 1993, among Advent
and IGSB Investment Partnership I, Mayfield VII, Mayfield Associates
Fund II, MF Partners and WS Investment Company 93E.
10.13** Lease dated January 28, 1992 between Orient Overseas Associates and
Data Exchange, Inc. for facilities located at 88 Pine Street, a/k/a
Wall Street Plaza, New York, New York.
11.1 Statement Regarding Computation of Net Income (Loss) Per Share.
13.1 Selected Portions of Advent Software, Inc.'s 1996 Annual Report to
Stockholders.
21.1 Subsidiaries of Advent.
23.1 Consent of Coopers & Lybrand LLP, Independent Accountants.
24.1 Power of Attorney (included on page 16 of this Form 10-K).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Incorporated by reference to the exhibit filed with Advent's registration
statement filed on Form SB-2 (commission file number 33-97912-LA), declared
effective on November 15, 1995
++ Incorporated by reference to Advent's Form 8-K dated February 15, 1996.
* Confidential treatment requested as to certain portions of this exhibit.
** Incorporated by reference to Advent's Annual Report on Form 10-KSB for the
year ended December 31, 1995.
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, on this 24th day of March,
1997.
Advent Software, Inc.
/s/ Stephanie G. DiMarco
By___________________________________
STEPHANIE G. DIMARCO, CHAIRMAN OF
THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephanie G. DiMarco and Irv H. Lichtenwald,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his or her substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this Form 10-K has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Stephanie G. DiMarco Chairman of the Board, March 24, 1997
- --------------------------------- President, Chief
STEPHANIE G. DIMARCO Executive Officer and
Director (Principal
Executive Officer)
/s/ Irv H. Lichtenwald Senior Vice President of March 24, 1997
- --------------------------------- Finance and Chief
IRV H. LICHTENWALD Financial Officer and
Secretary (Principal
Financial and
Accounting Officer)
/s/ Maurice J. Duca Director March 24, 1997
- ---------------------------------
MAURICE J. DUCA
/s/ Frank H. Robinson Director March 24, 1997
- ---------------------------------
FRANK H. ROBINSON
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Advent Software, Inc.:
Our report on the financial statements of Advent Software, Inc. has been
incorporated by reference in this report on Form 10-K from page 35 of the 1996
Annual Report to Shareholders of Advent Software, Inc. In connection with our
audit of such financial statements, we have audited the related financial
statement schedule listed in the index on page 15 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material aspects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 23, 1997
S-1
<PAGE>
SCHEDULE II
ADVENT SOFTWARE, INC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- -------- -------- ---------- ----------
ADDITIONS
---------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1994....................... $120,000 $101,000 -- $154,000 $ 67,000
1995....................... $ 67,000 $240,000 -- $ 49,000 $258,000
1996....................... $258,000 $115,000 -- $138,000 $235,000
</TABLE>
S-2
<PAGE>
EXHIBIT 11.1
ADVENT SOFTWARE, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
(amounts in thousands, except per share data)
Year Ended December 31,
-------------------------------------
1996 1995 1994
-------- -------- --------
Primary and Fully Diluted:
Weighted average common
shares outstanding for
the period............... 7,070 3,455 2,925
Common equivalent shares:
Convertible preferred
stock.................... - 1,955 2,197
Options and warrants....... - 750 722
Shares pursuant to SAB 83.. - 196 261
======= ====== ======
Shares used in per share
calculations............. 7,070 6,356 6,105
Net income (loss).......... $(1,099) $2,819 $1,064
======= ====== ======
Net income (loss) per
share.................... $ (0.16) $ 0.44 $ 0.17
======= ====== ======
<PAGE>
EXHIBIT 13.1
SELECTED PORTIONS OF ADVENT'S 1996 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Advent provides stand-alone and client/server software products, data
interfaces and related maintenance and services that automate, integrate and
support certain mission-critical functions of the front, middle and back office
of investment management organizations. Advent's clients are principally
domestic and vary significantly in size and assets under management and include
investment advisors, brokerage firms, banks, hedge funds, corporations, public
funds, universities and non-profit organizations.
INITIAL PUBLIC OFFERING
In November 1995, Advent completed an initial public offering (IPO) in which
it sold 1,450,000 shares of its common stock at $18.00 per share which generated
net proceeds to Advent of $23.4 million.
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 was paid during the third quarter of 1996 and did not bear
interest. The DX Group's main product, WinDx, is a client/server portfolio
management system designed for certain regional broker/dealers and other
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, Advent incurred a
net loss per share of ($0.16) for the year ended December 31, 1996. Excluding
this write-off, net income per share would have been $0.58. Net income per share
for the years ended December 31, 1995 and 1994 was $0.44 and $0.17,
respectively.
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 FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
REVENUES
Net revenues were $36.7 million, $26.0 million and $20.1 million in 1996, 1995
and 1994, respectively, representing increases of 42% from 1995 to 1996 and 29%
from 1994 to 1995. Advent's net revenues are derived from license fees,
maintenance and other recurring revenues, and professional services related to
its software products. Substantially all of Advent's net revenues were from
domestic sales with international sales representing less than 2% of net
revenues in each of 1996, 1995 and 1994. License revenues are derived from the
licensing of software products. Maintenance and other recurring revenues are
derived from maintenance fees charged in the initial licensing year, renewals of
maintenance services in subsequent years and revenues derived from client
utilization of proprietary interfaces to access pricing and other data supplied
by third parties. Professional services and other includes fees for consulting,
systems integration projects, custom programming and conversions of data from
clients' previous systems.
During 1994, Axys and its related products and services provided substantially
all of Advent's net revenues, and in 1995 accounted for a substantial majority
of such net revenues. In 1996, revenues from license fees and related services
derived from its new products, Moxy, Qube, Geneva and WinDx accounted for an
increasing portion of net revenues.
<PAGE>
Each of the major revenue categories has historically varied as a percentage
of net revenues and this variability is expected to continue in future periods.
This variability is primarily due to the timing of the introduction of new
products, the relative size and timing of individual licenses, as well as the
complexity of the implementation and the resulting proportion of the maintenance
and professional services components of these license transactions, Advent's
pricing model and the amount of client utilization of pricing and related data.
License. License revenues were $17.0 million, $12.1 million and $9.4 million
-------
in 1996, 1995 and 1994, respectively, representing increases of 40% from 1995 to
1996 and 29% from 1994 to 1995. License revenues as a percentage of net revenues
decreased slightly from 47% in 1995 and 1994 to 46% in 1996. The growth in
license revenues during 1996 was primarily due to license revenue of WinDx, and
higher revenues derived from licensing of Moxy and Axys. Although new products
also contributed to the growth of license revenue in 1995, the growth in 1995
was primarily attributable to an increase in both the size and number of
licenses to new clients and conversion of existing clients into multi-user
networked environments which typically bear higher average licensing fees.
Advent typically licenses its products on a per server, per user basis with the
price per site varying based on the selection of the products licensed and the
number of authorized users.
Maintenance and Other Recurring. Maintenance and other recurring revenues were
-------------------------------
$14.7 million, $9.9 million and $7.5 million in 1996, 1995 and 1994,
respectively, representing increases of 49% from 1995 to 1996 and 32% from 1994
to 1995. Maintenance and other recurring revenues as a percentage of net
revenues increased to 40% in 1996 from 38% and 37% in 1995 and 1994,
respectively. The growth in maintenance and other recurring revenues in each
period in absolute dollars and as a percentage of net revenues was primarily
attributable to a larger customer base, additional revenues generated from the
DX Group, and higher average maintenance fees. Higher average maintenance fees
are due to the increased complexity of the maintenance services provided and
increased client utilization of proprietary interfaces to access pricing and
other data supplied by external parties. Advent's proprietary interfaces enable
users of Axys to retrieve critical data from external sources, including
pricing, corporate actions and analytical and fundamental data via interfaces
to information vendors, such as Interactive Data.
Professional Services and Other. Revenues from professional services and other
-------------------------------
were $5.1 million, $3.9 million and $3.2 million in 1996, 1995 and 1994,
respectively, representing increases of 30% from 1995 to 1996 and 22% from 1994
to 1995. Professional services and other as a percentage of net revenues was
relatively stable at 14%, 15%, and 16% in 1996, 1995 and 1994, respectively. The
growth in revenues from professional services and other in 1996 was due to
additional consulting revenue from the DX Group, and additional consulting
revenue associated with higher product sales activity, and additional interface
business resulting from higher market demand for automated interfaces. The
growth in 1995 was principally due to increased demand for consulting,
implementation and training services as a result of the release of Axys and the
increasing scope of the services performed for larger, more complex, multi-user
networked environments.
COST OF REVENUES
Cost of License. Cost of license revenues were $600,000, $469,000 and $433,000
---------------
in 1996, 1995 and 1994, respectively, representing 4%, 4% and 5% of license
revenues in these periods, respectively. Cost of license revenues consists
primarily of the cost of product media and duplication, manuals, packaging
materials and the direct labor involved in producing and distributing Advent's
software. Also included in cost of license revenues for a part of 1994 was
amortization of certain previously capitalized software development costs.
Cost of Maintenance and Other Recurring. Cost of maintenance and other
---------------------------------------
recurring revenues were $3.8 million, $2.4 million and $2.1 million in 1996,
1995 and 1994, respectively, representing 26%, 24% and
<PAGE>
28% of maintenance and other recurring revenues in these periods,
respectively. These costs are primarily comprised of the direct costs of
providing technical support and other services for recurring revenues and the
engineering costs associated with product updates. These expenses as a
percentage of maintenance and other recurring revenues increased in 1996 due
to increased resources allocated to the support services. These expenses as a
percentage of maintenance and other recurring revenues decreased in 1995
primarily reflecting economies of scale and efficiencies associated with a
larger installed base.
Cost of Professional Services and Other. Cost of professional services and
---------------------------------------
other revenues were $2.5 million, $2.0 million and $1.4 million in 1996, 1995
and 1994, respectively, representing 49%, 52% and 44% of professional services
and other revenues in these periods, respectively. These costs consist primarily
of personnel related costs of the client services and support organization that
are incurred in providing consulting, systems integration projects, custom
programming, conversions of data from clients' previous systems, and
participating in Advent-sponsored conferences. To the extent that such personnel
are not fully utilized in consulting, training, conversion or custom programming
projects, they are allocated to presales, marketing and engineering activities
and the resultant costs are charged to operating expenses. Cost of professional
services and other increased in 1996 and 1995 primarily as a result of the
increased staffing necessary to provide services to an expanding installed base.
Cost of professional services decreased as a percentage of the related revenues
in 1996 compared with 1995 due to economies of scale. In addition, cost of
professional services and other increased in absolute dollars and as a
percentage of the related revenues in 1996 and 1995 compared with 1994 as a
result of Advent's sponsoring two conferences during 1996 and 1995 compared to
one conference for 1994.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses were $12.4 million, $9.3
-------------------
million and $7.8 million in 1996, 1995 and 1994, respectively, representing
increases of 34% from 1995 to 1996 and 19% from 1994 to 1995. Sales and
marketing expenses as a percentage of net revenues were 34%, 36% and 39% in
1996, 1995 and 1994, respectively. Sales and marketing expenses consist
primarily of costs of all personnel involved in the sales and marketing process,
sales commissions, advertising and promotional materials, sales facilities
expense, trade shows, and seminars. Sales and marketing expenses increased in
1996 and 1995 primarily due to the continued increase in sales and marketing
employees and expenses for marketing materials needed to address new sales
opportunities and to support the introduction of new products. Also, during
1996, there were additional sales and marketing expenses incurred by the DX
Group.
Product Development. Product development expenses were $6.7 million, $4.2
-------------------
million and $3.0 million in 1996, 1995 and 1994, respectively, representing
increases of 60% from 1995 to 1996 and 39% from 1994 to 1995. Product
development expenses as a percentage of net revenues were 18%, 16% and 15% of
net revenues in these periods, respectively. Product development expenses
consist primarily of personnel costs and, accordingly, the increase in product
development expenses in absolute dollars and as a percentage of net revenues in
each of these periods was primarily attributable to an increase in personnel as
Advent increased its product development efforts to accelerate the rate of new
product introductions. Also, during 1996, there were additional product
development expenses incurred by the DX Group. Advent anticipates that it will
continue to devote substantial resources to product development. Development
costs subsequent to achievement of technological feasibility have not been
significant during these periods and, accordingly, all such costs have been
expensed as incurred.
General and Administrative. General and administrative expenses were $4.4
--------------------------
million, $3.4 million and $2.3 million in 1996, 1995 and 1994, respectively,
representing increases of 29% from 1995 to 1996 and 51% from 1995 to 1994.
General and administrative expenses as a percentage of net revenues were 12%,
13% and 11% of net revenues in 1996, 1995 and 1994, respectively. General and
administrative expenses consist primarily of personnel costs for finance,
administration, operations and general management, as well as legal and
accounting expenses. The increase in general and administrative expenses in
these periods was primarily due to continued growth in finance, administration
and operations which was necessary to support Advent's growth.
<PAGE>
Purchased Research and Development and Other. 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. In 1993, Advent agreed to repurchase all of the shares of common stock
owned by a former officer and director of Advent and, in connection therewith,
entered into a noncompetition and severance arrangement. Advent recognized
expenses in connection with the amortization of the noncompetition and severance
agreement of $405,000 in 1994. In 1994, Advent acquired the source code for a
software product for $1.0 million, the cost of which was recorded as in-process
research and development and fully expensed in 1994.
INTEREST INCOME, NET
Interest income, net was $1,165,000, $447,000 and $121,000 in 1996, 1995 and
1994, respectively. Interest income, net consists of interest income, interest
expense and miscellaneous non-operating income and expense items. The increases
were primarily due to greater interest income generated in 1996 and 1995 from
higher cash and cash equivalent balances as a result of the IPO.
INCOME TAXES
Advent had effective tax rates of 163%, 39% and 40% in 1996, 1995 and 1994,
respectively. The effective tax rate increased in 1996 due to the $5.6 million
write-off of in-process research and development which was not deductible for
tax purposes. Excluding the effect of the write-off on the 1996 rate, these
rates differ from the federal statutory rate primarily due to state income tax,
offset by certain research and development credits. As of December 31, 1996,
Advent did not have any net operating loss carryforwards or any research and
development credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Advent funds its operations primarily from cash generated from operations. Net
cash provided by operating activities was $1.6 million, $5.7 million and $1.9
million in 1996, 1995 and 1994, respectively. Net cash used in investing
activities was $5.6 million, $1.0 million and $1.5 million in 1996, 1995 and
1994, respectively. Included in the 1996 amount was $4.0 million for the
acquisition of the DX Group. The remaining 1996 amount and the 1995 and 1994
amounts were primarily for the acquisition of fixed assets. Net cash provided by
financing activities was $601,000 in 1996. Net cash provided by financing
activities in 1995 was $22.7 million, primarily from net proceeds from the IPO.
Net cash used in financing activities in 1994 was $2.4 million, primarily from
the repayment of a note in connection with a repurchase of common stock in 1993
and an additional repurchase of common stock in 1994.
As of December 31, 1996, Advent had $31.7 million in cash, cash equivalents and
short-term investments. At December 31, 1995, Advent had a bank line of credit
that was secured by the assets of Advent that permitted borrowings of up to $5
million subject to compliance with certain financial covenants. At December 31,
1995, Advent had no borrowings outstanding under this agreement. This line of
credit expired in 1996 and Advent elected not to renew it.
Advent issued a $800,000 note payable as a part of the acquisition of the DX
Group. This note was paid during the third quarter of 1996 and did not bear
interest.
Advent believes that its existing cash and cash equivalents, 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 1997.
<PAGE>
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 Form 10-K Report. Advent undertakes no
obligation to update any forward-looking statements.
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 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 successfully develop and achieve widespread market acceptance of a
fully commercial version of Geneva on a timely basis would adversely affect
Advent's business and operating results.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------
1996 1995
- ------------------------------------------------------------------------
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents $30,477 $33,918
Short-term investments 1,173 1,166
Accounts receivable, net of allowance for
doubtful accounts of $235 in 1996
and $258 in 1995 8,499 4,832
Prepaid and other 592 347
Deferred income taxes 1,064 441
------- -------
Total current assets 41,805 40,704
------- -------
Fixed assets, net 3,862 3,656
Deferred income taxes, noncurrent 361 361
Other assets, net 663 29
------- -------
Total assets $46,691 $44,750
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 646 $ 1,130
Accrued liabilities 2,627 2,119
Deferred revenues 5,071 5,376
Income taxes payable 686 1,071
------- -------
Total current liabilities 9,030 9,696
------- -------
Long-term liabilities:
Other liabilities 599 470
------- -------
Total liabilities 9,629 10,166
------- -------
Stockholders'equity:
Preferred stock, $0.01 par value
Authorized: 2,000
Issued and outstanding: None -- --
Common stock, $0.01 par value
Authorized: 40,000
Issued and outstanding: 7,344 shares in
1996 and 6,873 shares in 1995 73 68
Additional paid-in-capital 35,061 31,202
Retained earnings 1,928 3,314
------- -------
Total stockholders' equity 37,062 34,584
------- -------
Total liabilities and stockholders'
equity $46,691 $44,750
======= =======
- ------------------------------------------------------------------------
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands, except per share data)
Revenues:
License $16,951 $12,146 $ 9,412
Maintenance and other recurring 14,707 9,903 7,488
Professional services and other 5,086 3,908 3,201
------- ------- -------
Net revenues 36,744 25,957 20,101
------- ------- -------
Cost of revenues:
License 600 469 433
Maintenance and other recurring 3,793 2,389 2,120
Professional services and other 2,513 2,049 1,405
------- ------- -------
Total cost of revenues 6,906 4,907 3,958
------- ------- -------
Gross margin 29,838 21,050 16,143
------- ------- -------
Operating expenses:
Sales and marketing 12,446 9,268 7,800
Product development 6,731 4,206 3,024
General and administrative 4,422 3,418 2,266
Purchased research and development and other 5,648 -- 1,405
------- ------- -------
Total operating expenses 29,247 16,892 14,495
------- ------- -------
Income from operations 591 4,158 1,648
Interest income, net 1,165 447 121
------- ------- -------
Income before income taxes 1,756 4,605 1,769
Provision for income taxes 2,855 1,786 705
------- ------- -------
Net income (loss) $(1,099) $2,819 $1,064
======= ======= =======
Net income (loss) per share $ (0.16) $ 0.44 $ 0.17
======= ======= =======
Shares used in per share calculations 7,070 6,356 6,105
======= ======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- -------------- PAID-IN- RETAINED TOTAL
SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER EARNINGS EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 1,117 $ 7,530 3,096 $156 $ -- $(87) $558 $ 8,157
Repurchase of common stock (178) (21) 110 (983) (894)
Unrealized loss on investments (36) (36)
Net income 1,064 1,064
------ ------ ----- ---- ---- ---- ----- ------
Balances, December 31, 1994 1,117 7,530 2,918 135 -- (13) 639 8,291
Repurchase of common stock prior to
initial public offering (30) (19) (144) (163)
Reincorporation in Delaware (227) 227
Preferred stock converted to common stock (1,117) (7,530) 2,234 22 7,508
Initial public offering of common stock,
net of expenses of $2,677 1,450 14 23,409 23,423
Exercise of stock options and warrants 301 143 58 201
Realized loss on sale of investments 13 13
Net income 2,819 2,819
------ ------ ----- ---- ---- ---- ----- ------
Balances, December 31, 1995 -- -- 6,873 68 31,202 -- 3,314 34,584
Exercise of stock options 383 4 702 706
Tax benefit from exercise of stock options 2,175 2,175
Common stock issued under employee stock
purchase plan 53 1 982 983
Pooling of interests with Bold Software 35 -- (287) (287)
Net loss (1,099) (1,099)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 -- $ -- 7,344 $ 73 $35,061 $ -- $1,928 $37,062
------ ------ ----- ---- ------- ---- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income (loss) $(1,099) $2,819 $1,064
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Purchased research and development and other 5,648 -- --
Depreciation and amortization 1,528 1,016 827
Provision for doubtful accounts (15) 191 (53)
Deferred income taxes 247 (179) (185)
Deferred rent 129 (10) 28
Cash provided by (used in) operating assets
and liabilities:
Accounts receivable (3,625) (2,069) 1,378
Income taxes receivable -- 335 (339)
Prepaid and other current (213) (54) 281
Note payable -- -- 400
Accounts payable (885) 838 76
Accrued liabilities 234 682 (201)
Deferred revenues (2,130) 1,390 (1,330)
Income taxes payable 1,780 726 (42)
------- ------ ------
Net cash provided by operating activities 1,599 5,685 1,904
------- ------ ------
Cash flow from investing activities:
Net cash used in acquisition of DX Group (3,963) -- --
Acquisition of fixed assets (1,384) (1,182) (1,562)
Purchases of short-term investments (1,167) (1,011) (3,030)
Maturities of short-term investments 1,160 1,218 3,121
Other (287) -- --
------- ------ ------
Net cash used in investing activities (5,641) (975) (1,471)
------- ------ ------
Cash flow from financing activities:
Payment of note issued in acquisition of the
DX Group (800) -- --
Payment of debt assumed in the DX Group
acquisition (288) -- --
Proceeds from issuance of common stock 983 23,423 --
Proceeds from exercise of stock options and
warrants 706 201 --
Payment of note used for repurchase of
common stock -- -- (1,380)
Repurchase of common stock -- (163) (894)
Principal payments on long-term debt -- (759) (153)
------- ------ ------
Net cash provided by (used in) financing
activities 601 22,702 (2,427)
------- ------ ------
Net increase (decrease) in cash and cash
equivalents (3,441) 27,412 (1,994)
Cash and cash equivalents at beginning of year 33,918 6,506 8,500
------- ------ ------
Cash and cash equivalents at end of year $30,477 $33,918 $6,506
======= ======= ======
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 3 $ 11 $ 40
Income taxes $ 1,012 $ 1,009 $ 888
Contractual obligation for purchased software $ -- $ -- $ 400
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
----------
Advent provides stand-alone and client/server software products, data
interfaces and related maintenance and services that automate, integrate and
support certain mission-critical functions of the front, middle and back office
of investment management organizations. Advent's clients are principally
domestic and vary significantly in size and assets under management and include
investment advisors, brokerage firms, banks, hedge funds, corporations, public
funds, universities and non-profit organizations.
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of Advent and its
wholly-owned subsidiary. All intercompany transactions and amounts have been
eliminated.
Financial Instruments
---------------------
Cash equivalents comprise highly liquid investments purchased with a
remaining maturity of 90 days or less. These investments are maintained with
major financial institutions.
Short-term investments are comprised of various marketable securities carried
at cost. These investments are maintained with major financial institutions.
Securities are considered to be held-to-maturity. Amounts reported for short-
term investments are considered to approximate the fair value based on
comparable market information available at each year end. All investments had
remaining maturities of less than one year. Realized gains and losses have not
been significant.
The amounts reported for cash equivalents, receivables, accounts payable,
accrued liabilities and other financial instruments are considered to
approximate their market values based on comparable market information available
at the respective balance sheet dates.
Financial instruments that potentially subject Advent to concentrations of
credit risks comprise, principally, cash, short-term investments, and trade
accounts receivable. Advent invests excess cash through banks, mutual funds, and
brokerage houses primarily in highly liquid investments with remaining
maturities of 90 days or less and has investment policies and procedures which
are reviewed periodically to minimize credit risk. Advent does not require
collateral from its customers but performs ongoing credit evaluations and
maintains reserves for potential credit losses which historically have been
within management's estimates.
Depreciation and Amortization
-----------------------------
Fixed assets are stated at cost. Depreciation is computed using the straight-
line method over the estimated useful life of the related assets, generally five
years. Amortization of leasehold improvements is computed using the straight-
line method over the shorter of the estimated useful life of the assets or the
remaining lease term.
Capitalized Software
--------------------
Costs incurred for software development prior to technological feasibility
are expensed as product development costs in the period incurred. Once the point
of technological feasibility is reached, production costs are capitalized. Such
capitalized software costs were not material in 1996, 1995 and 1994.
<PAGE>
Revenue Recognition
-------------------
Advent licenses application software programs and offers annual maintenance
programs which provides for technical support and updates to software products.
Advent also offers customers on-site consulting services, training, custom
programming, and other services.
License revenue is recognized upon the shipment of a product to the client if
collection is probable and Advent's remaining obligations with respect to that
contract are insignificant. License revenue for licenses with remaining
significant obligations is deferred until the product has been shipped and
Advent's related obligations become insignificant. Maintenance revenues are
recognized ratably over the term of the contract. Annual payments for
maintenance contracts are generally received in advance and are nonrefundable.
Revenues for interface development and custom programming are recognized using
the percentage of completion method of accounting based on the costs incurred to
date compared with the estimated cost of completion. Revenues from professional
services are recognized as work is performed.
Net Income (Loss) Per Share
---------------------------
The computation of net income (loss) per share is based on the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares comprise preferred stock, warrants and stock
options using the treasury stock method. Common equivalent shares from stock
options, warrants, and preferred stock are excluded from the computation if
their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued at prices below the public offering price during the 12 months
immediately preceding the initial public offering date have been included in the
calculation as if they were outstanding for all periods prior to the offering
(using the treasury stock method and the initial public offering price).
Reclassifications
-----------------
Certain reclassifications have been made to the 1995 and 1994 financial
statement amounts to conform to the 1996 presentation. These reclassifications
had no impact on net income, working capital, or cash flows.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts. These estimates are based on information available as
of the date of the financial statements. Actual results could differ from those
estimates.
2. ACQUISITIONS
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 partnership tax accounting solution which integrates with
Axys.
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 was paid during the third quarter of 1996 and did not bear
interest. The DX Group's main product, WinDx, is a client/server portfolio
management system designed for certain regional broker/dealers and other
professional money managers with more than $1 billion in assets under
management. The transaction was accounted for as a purchase. Advent incurred a
<PAGE>
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.
3. BALANCE SHEET DETAIL
The following is a summary of fixed assets:
DECEMBER 31,
------------------
1996 1995
- --------------------------------------------------------------------------
(in thousands)
Fixed Assets:
Computer equipment $ 4,455 $ 3,119
Leasehold improvements 2,273 2,239
Furniture and fixtures 726 641
Telephone systems 461 363
------- --------
7,915 6,362
Less accumulated depreciation and amortization (4,053) (2,706)
------- --------
Total fixed assets, net 3,862 $ 3,656
======= ========
The following is a summary of accrued liabilities:
DECEMBER 31,
------------------
1996 1995
- --------------------------------------------------------------------------
(in thousands)
Accrued Liabilities:
Salaries and benefits payable $1,365 $1,161
Commissions payable 583 429
Sales taxes payable 307 383
Other 372 146
------ ------
Total accrued liabilities $2,627 $2,119
====== ======
- --------------------------------------------------------------------------
<PAGE>
4. INCOME TAXES
The provision for income taxes includes:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
- ------------------------------------------------------------------------------
(in thousands)
Current:
Federal $1,994 $1,578 $ 736
State 577 403 154
Deferred:
Federal 227 (168) (196)
State 57 (27) 11
------ ------ -----
Total $2,855 $1,786 $ 705
====== ====== =====
Advent's effective tax rate, as a percent of pre-tax income, differs from the
statutory federal rate as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Statutory federal rate 34.0% 34.0% 34.0%
State taxes 23.8 6.9 7.3
Purchased research and development 109.4 -- --
Research and development tax credits (5.1) (5.0) (10.8)
Other 0.5 2.9 9.5
----- ---- ----
Total 162.6% 38.8% 40.0%
===== ==== ====
- ------------------------------------------------------------------------------
The effective tax rate increased in 1996 due to the $5.6 million write-off of
in-process research and development which was not deductible for tax purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial reporting and income
tax purposes. The approximate tax effects of temporary differences which give
rise to net deferred tax assets are:
DECEMBER 31,
-----------------------
1996 1995
- ------------------------------------------------------------------------------
(in thousands)
Current:
Deferred revenue $ 718 $ --
Accrued liabilities 201 118
Reserves 145 285
State taxes -- 38
------ -----
1,064 441
------ -----
Noncurrent:
Depreciation and amortization 99 172
Deferred rent 262 189
------ -----
361 361
------ -----
Total deferred tax assets $1,425 $ 802
====== =====
- ------------------------------------------------------------------------------
<PAGE>
5. COMMITMENTS
Advent leases office space and equipment under noncancelable operating lease
agreements, which expire at various dates through February 2004. Some operating
leases contain escalation provisions for adjustments in the consumer price
index. Advent is responsible for maintenance, insurance, and property taxes and
has five year extension options on both of its facilities leases. Future minimum
payments under the noncancelable operating leases consist of the following at
December 31, 1996 (in thousands):
1997 $1,252
1998 1,154
1999 706
2000 706
2001 706
2002 and thereafter 942
------
Total minimum lease payments $5,466
======
Rent expense for 1996, 1995, and 1994 was approximately $1,159,000, $894,000,
and $888,000, respectively.
6. EMPLOYEE BENEFIT PLANS
401(k) Plan
-----------
Advent has a 401(k) deferred savings plan covering substantially all
employees. Employee contributions, limited to 15% of compensation, are matched
50% by Advent, up to a maximum of $500 per employee per year. Matching
contributions by Advent in 1996, 1995 and 1994 were $73,000, $61,000, and
$58,000, respectively. In addition to the employer matching contribution,
Advent may make a profit sharing contribution at the discretion of the Board
of Directors. Advent made profit sharing contributions of $87,000, $92,000,
and $50,000 in 1996, 1995 and 1994, respectively.
1995 Employee Stock Purchase Plan
---------------------------------
All individuals employed by Advent are eligible to participate in the
Employee Stock Purchase Plan (Purchase Plan) if they are employed by Advent
for at least 20 hours per week and at least five months per year. Any
individual who holds 5% or more of Advent's common stock (directly or upon the
exercise of options) is not eligible to participate. The Purchase Plan permits
eligible employees to purchase Advent's common stock through payroll
deductions at a price equal to 85% of the lower of the closing sale price for
Advent's common stock reported on the Nasdaq National Market at the beginning
and the end of each six-month offering period. In any calendar year, eligible
employees can withhold up to 10% of their salary and variable compensation
subject to certain restrictions. A total of 100,000 shares of common stock
have been reserved for issuance under the Purchase Plan. In 1996, 53,000
shares were sold through the Purchase Plan.
7. STOCKHOLDERS' EQUITY
Common Stock
------------
On November 15, 1995, Advent completed an IPO in which it sold 1,450,000
shares of its common stock at $18.00 per share which generated net proceeds to
Advent of $23.4 million. Prior to the effective date of Advent's IPO, Advent
reincorporated in the state of Delaware and exchanged each outstanding share
of no par common stock for one share of $.01 par value common stock.
<PAGE>
Stock Options
- -------------
Under Advent's 1992 Stock Plan (the Plan) Advent may grant options to
purchase common stock to employees and consultants. Options granted may be
incentive stock options or nonstatutory stock options and shall be granted at
a price not less than fair market value on the date of grant. Fair market
value (as defined in the Plan) and the vesting of these options shall be
determined by the Board of Directors. The options expire no later than 10
years from the date of grant. Unvested options on termination of employment
are canceled and returned to the Plan.
The activity under the Plan was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------------------------
WEIGHTED
AGGREGATE AVERAGE
AVAILABLE NUMBER OF PRICE PER EXERCISE PRICE PER
FOR GRANT OPTIONS SHARE PRICE SHARE
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 306,000 674,000 $0.63 - $4.50 $1,044,000 $ 1.55
Options granted (90,000) 90,000 5.00 450,000 5.00
Options canceled 82,000 (82,000) 0.63 - 5.00 (62,000) 0.76
------- --------- ------------- ----------- ------
Balances, December 31, 1994 298,000 682,000 0.63 - 5.00 1,432,000 2.10
Authorized 300,000 -- -- -- --
Options granted (466,000) 466,000 5.00 - 12.00 2,940,000 6.31
Options exercised -- (101,000) 0.63 - 5.00 (115,000) 1.14
Options canceled 21,000 (21,000) 1.00 - 6.50 (97,000) 4.62
------- --------- ------------- ----------- ------
Balances, December 31, 1995 153,000 1,026,000 0.63 - 12.00 4,160,000 4.05
Authorized 400,000 -- -- -- --
Options granted (412,000) 412,000 19.50 - 32.00 10,376,000 25.18
Options exercised -- (283,000) 0.63 - 12.00 (642,000) 2.27
Options canceled 58,000 (58,000) 1.00 - 19.50 (754,000) 13.00
------- --------- ------------- ----------- ------
Balances, December 31, 1996 199,000 1,097,000 $0.63 -$32.00 $13,140,000 $11.98
======= ========= =========== ======
</TABLE>
Of the 1,097,000 options under the Plan outstanding at December 31, 1996,
241,000 options were exercisable with an aggregate exercise price of $957,000.
In addition to the Plan, Advent had granted options to purchase
common stock to employees or consultants under special arrangements. These
options have an exercise price of $1.00 per share. There were 16,000 of these
options outstanding at December 31, 1995 and 1994. During 1996, 4,000 options
were exercised . There were 12,000 options outstanding at December 31, 1996, all
of which are fully vested.
Advent's 1995 Director Option Plan (the Director Plan) provides for the grant
of nonstatutory stock options to nonemployee directors of Advent (Outside
Directors). Under the Director Plan, each Outside Director is granted a non-
qualified option to purchase 10,000 shares on the last to occur of the date of
effectiveness of the Director Plan or the date upon which such person first
becomes a director with an exercise price equal to the fair market value of
Advent's common stock as of the date of the grant. In subsequent years, each
Outside Director is automatically granted an option to purchase 2,000 shares on
December 1 with an exercise price equal to the fair value of the Advent's common
stock on that date. Options granted under the Director Plan vest over a five
year period and have a ten year term.
<PAGE>
The activity under the Director Plan was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------------------
WEIGHTED
AGGREGATE AVERAGE
AVAILABLE NUMBER OF PRICE PER EXERCISE PRICE PER
FOR GRANT OPTIONS SHARE PRICE SHARE
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 -- -- $ -- -- --
Authorized 75,000 -- -- -- --
Options granted (30,000) 30,000 18.00 540,000 18.00
--------- --------- ----------- --------- ---------
Balances, December 31, 1995 45,000 30,000 18.00 540,000 18.00
Options granted (6,000) 6,000 32.75 196,500 32.75
--------- --------- ----------- --------- ---------
Balances, December 31, 1996 39,000 36,000 18.00-32.75 736,500 20.45
========= ========= =========== ========= =========
</TABLE>
Of the 36,000 options under the Director Plan outstanding at December 31,
1996, 6,000 options were exercisable with an aggregate exercise price of
$108,000.
In addition to the Director Plan, Advent granted options prior to 1994 to an
Outside Director for the purchase of 96,000 shares of common stock with an
exercise price of $0.63 per share. These options were exercised during 1996.
At December 31, 1996, Advent had reserved 1,688,000 shares of common stock
for the exercise of stock options.
Advent has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for Advent's stock option
plans. Had compensation cost been determined based on the fair value at the
grant date for awards in 1996 and 1995 consistent with the provisions of SFAS
No. 123, Advent's net income (loss) and net income (loss) per share for the year
ended December 31, 1996 and 1995, respectively, would have been as follows:
1996 1995
------- ------
Net income (loss) - as reported $(1,099) $2,819
Net income (loss) - pro forma $(1,528) $2,717
Net income (loss) per share - as reported $ (0.16) $ 0.44
Net income (loss) per share - pro forma $ (0.22) $ 0.43
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year.
The weighted-average grant-date fair value of options granted were $14.50 and
$3.82 per option for the years ended December 31, 1996 and 1995, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes valuation model with the following weighted average
assumptions:
1996 1995
------- -------
Risk-free interest rate 6.03% 6.40%
Volatility 55.04 55.04
Expected life 5 years 5 years
Expected dividends None None
<PAGE>
The risk-free interest rate was calculated in accordance with the grant date
and expected life. Volatility was calculated using an analysis of an Advent peer
group of publicly traded companies. The weighted average expected life was
calculated based on the vesting period and the exercise behavior of the
participants.
The options outstanding and currently exercisable by exercise price at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Average
Remaining Weighted Weighted
Exercise Prices Number Contractual average Number Average Exercise
Outstanding Life Exercise Price Exercisable Price
- ------------------------------------------------------------------ -------------------------------------
$ 0.63-$ 6.50 730,000 7.51 $ 4.43 251,000 $ 3.74
$12.00-$19.50 183,000 9.09 18.31 8,000 17.25
$29.75-$32.75 232,000 9.86 31.91 -- --
--------- ---- ------ ------- -----
1,145,000 8.24 $12.22 259,000 $ 4.16
========= ==== ====== ======= ======
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Advent Software, Inc.:
We have audited the accompanying consolidated balance sheets of Advent
Software, Inc. as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of Advent Software, Inc.'s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Advent Software,
Inc. as of December 31, 1996 and 1995 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 23, 1997
<PAGE>
SELECTED
FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED ANNUAL DATA
--------------------
YEAR ENDED DECEMBER 31, 1996* 1995 1994 1993 1992
.....................................................................................
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues $36,744 $25,957 $20,101 $16,740 $10,598
Income from operations 591 4,158 1,648 2,061 1,238
Net income (loss) (1,099) 2,819 1,064 1,259 760
Net income (loss) per share (0.16) 0.44 0.17 0.24 0.14
Shares used in per share calculation** 7,070 6,356 6,105 5,153 5,340
BALANCE SHEET
Working capital $32,775 $31,008 $ 5,093 $ 5,987 $ 16
Total assets 46,691 44,750 15,594 18,066 6,561
Long-term liabilities 599 470 708 801 617
Stockholders' equity 37,062 34,584 8,291 8,157 1,970
</TABLE>
SELECTED QUARTERLY DATA
-----------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
.............................................................................
1996
Net revenues $ 6,975 $9,022 $10,146 $10,601
Income (loss) from operations (5,087)* 1,376 1,920 2,383
Net income (loss) (5,102)* 1,015 1,349 1,640
Net income (loss) per share (0.74)* 0.13 0.17 0.21
1995
Net revenues $ 5,166 $6,256 $ 6,800 $ 7,735
Income from operations 211 1,000 1,155 1,792
Net income 176 673 772 1,198
Net income per share 0.03 0.11 0.13 0.17
PRICE RANGE OF COMMON STOCK
---------------------------
NASDAQ NATIONAL MARKET SYMBOL "ADVS" High Low
- ----------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
First Quarter $21 3/4 $14
Second Quarter 32 1/8 19
Third Quarter 32 3/4 20 1/4
Fourth Quarter 36 1/2 25 5/8
YEAR ENDED DECEMBER 31, 1996
Fourth Quarter (November 16, 1995 -
December 31, 1995 $ 24 3/4 $14
(1) In 1996 and 1994, Advent recognized no recurring charges of $5.6 million and
$1 million, respectively, in connection with the write-off of purchased
research and development. Excluding these non-recurring charges, net income
per share would have been $0.58 and $0.27 in 1996 and 1994, respectively.
For further explanation, see "Purchased Research and Development and Other"
in Management's Discussion and Analysis of Financial Condition and Results
of Operations on page 21.
** For an explanations of shares used in per share calculations, see Note 1 of
the Notes to Consolidated Financial Statements.
Stock Information
Advent's common stock has traded on the Nasdaq National Market under the symbol
ADVS since it's initial public offering on November 15,1996.
Advent has not paid cash dividends on its common stock and presently intends to
continue this policy in order to retain its earnings for the development if its
business.
Transfer Agent & Registrar
First National Bank of Boston is the Transfer Agent and Registrar of Advent's
common stock and maintains stockholder accounting records. Inquires regarding
lost certificates, consolidation of accounts, and changes in address, name or
ownership should be addressed to:
Bank of Boston
c/o Boston EquiServe, LP
PO Box 8040
Boston, MA 02266-8040
Telephone: (617) 575-3120
Internet: www.equiserve.com
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF ADVENT SOFTWARE, INC.
Name State of Incoporation
- ---- ---------------------
Data Exchange, Inc. Pennsylvania
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Advent Software, Inc. on Form S-8 (File No. 333-918) of our report
dated January 23, 1997, on our audit of the financial statements of Advent
Software, Inc. as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995, and 1994, which report is incorporated by reference in
this report on Form 10-K, and our report dated January 23, 1997, on our audit of
the financial statement schedule, which report is included in this report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
San Francisco, California
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 30,477
<SECURITIES> 1,173
<RECEIVABLES> 8,734
<ALLOWANCES> 235
<INVENTORY> 0
<CURRENT-ASSETS> 41,805
<PP&E> 7,915
<DEPRECIATION> 4,053
<TOTAL-ASSETS> 46,691
<CURRENT-LIABILITIES> 9,030
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 36,989
<TOTAL-LIABILITY-AND-EQUITY> 46,691
<SALES> 16,951
<TOTAL-REVENUES> 36,744
<CGS> 600
<TOTAL-COSTS> 6,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,756
<INCOME-TAX> 2,855
<INCOME-CONTINUING> (1,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,099)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
