SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30, 1997
or
[ ]Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission file number: 0-26994
ADVENT SOFTWARE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
94-2901952
(IRS Employer Identification Number)
301 Brannan Street, San Francisco, California 94107
(Address of principal executive offices and zip code)
(415) 543-7696
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes[x] No
The number of shares of the issuer's Common Stock outstanding as of July 31,
1997 was 7,521,505.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Result of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DEC 31,
1997 1996
- -------------------------------------------------------------------------------
(in thousands) (unaudited)
ASSETS
Current assets:
Cash and short-term investments $33,567 $31,650
Accounts receivable, net 10,172 8,499
Prepaid expenses and other 1,531 592
Deferred income taxes 1,287 1,064
------- -------
Total current assets 46,557 41,805
------- -------
Fixed assets, net 4,647 3,862
Other assets, net 802 1,024
------- -------
Total assets $52,006 $46,691
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 464 $ 646
Accrued liabilities 2,572 2,627
Deferred revenues 5,910 5,071
Income taxes payable 1,546 686
------- -------
Total current liabilities 10,492 9,030
------- -------
Long-term liabilities:
Other liabilities 550 599
------- -------
Total liabilities 11,042 9,629
------- -------
Stockholders' equity:
Common stock 80 73
Additional paid-in-capital 36,582 35,061
Retained earnings 4,302 1,928
------- -------
Total stockholders' equity 40,964 37,062
------- -------
Total liabilities and stockholders' equity $52,006 $46,691
======= =======
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
<PAGE>
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited) (unaudited)
Revenues:
License $ 5,482 $ 4,153 $ 9,484 $ 6,741
Maintenance and other recurring 4,419 3,565 8,614 6,766
Professional services and other 1,798 1,304 3,155 2,490
-------- -------- -------- --------
Net revenues 11,699 9,022 21,253 15,997
-------- -------- -------- --------
Cost of revenues:
License 124 148 276 252
Maintenance and other recurring 1,143 989 2,110 1,693
Professional services and other 1,021 636 1,840 1,174
-------- -------- -------- --------
Total cost of revenues 2,288 1,773 4,226 3,119
-------- -------- -------- --------
Gross margin 9,411 7,249 17,027 12,878
-------- -------- -------- --------
Operating expenses:
Sales and marketing 3,783 3,215 7,068 5,881
Product development 2,223 1,646 4,344 3,049
General and administrative 1,236 1,012 2,325 2,011
Purchased research and
development and other -- -- -- 5,648
-------- -------- -------- --------
Total operating expenses 7,242 5,873 13,737 16,589
-------- -------- -------- --------
Income (loss) from operations 2,169 1,376 3,290 (3,711)
Interest income, net 307 277 572 603
-------- -------- -------- --------
Income (loss) before
income taxes 2,476 1,653 3,862 (3,108)
Provision for income taxes 954 638 1,488 979
-------- -------- -------- --------
Net income (loss) $ 1,522 $ 1,015 $ 2,374 $ (4,087)
======== ======== ======== ========
Net income (loss) per share $ 0.19 $ 0.13 $ 0.30 $ (0.59)
======== ======== ======== ========
Shares used in per share
calculations 8,006 7,835 8,009 6,949
======== ======== ======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
<PAGE>
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-------------------------------
1997 1996
- -------------------------------------------------------------------------------
(in thousands) (unaudited)
Cash flows from operating activities:
Net income (loss) $ 2,374 $ (4,087)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Purchased research and development and other -- 5,648
Depreciation and amortization 906 694
Provision for doubtful accounts (53) (50)
Deferred income taxes (196) 164
Deferred rent (50) (27)
Cash provided by (used in) operating assets
and liabilities:
Accounts receivable (1,882) (1,029)
Prepaid and other current assets (670) (129)
Accounts payable (182) (893)
Accrued liabilities (54) (413)
Deferred revenues 839 105
Income taxes payable 1,422 (34)
-------- --------
Net cash provided by (used in)
operating activities 2,454 (51)
-------- --------
Cash flow from investing activities:
Net cash used in acquisition of the DX Group -- (3,963)
Acquisition of fixed assets (1,576) (692)
-------- --------
Net cash used in investing
activities (1,576) (4,655)
-------- --------
Cash flow from financing activities:
Payment of debt assumed in the DX Group
acquisition -- (288)
Proceeds from issuance of common stock 427 512
Proceeds from exercise of stock options
and warrants 612 233
-------- --------
Net cash provided by (used in)
financing activities 1,039 457
-------- --------
Net increase (decrease) in cash and
short-term investments 1,917 (4,249)
Cash and short-term investments at
beginning of quarter 31,650 35,084
-------- --------
Cash and short-term investments at
end of quarter $ 33,567 $ 30,835
======== ========
Supplemental disclosure of cash flow information:
Issuance of note payable in acquisition
of the DX Group $ -- $ 800
Cash paid for income taxes $ -- $ 849
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
<PAGE>
ADVENT SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Advent Software, Inc. (Advent) and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission (SEC) applicable to interim financial information. Certain
information and footnote disclosures included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted in
these interim statements pursuant to such SEC rules and regulations. Management
recommends that these interim financial statements be read in conjunction with
the audited financial statements and notes thereto included in Advent's 1996
Report on Form 10-K filed with the SEC.
In management's opinion, the condensed consolidated financial statements
include all adjustments necessary to present fairly the financial position and
results of operations for each interim period shown.
2. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share", (SFAS 128) which specifies the
computation, presentation and disclosure requirements for net income per share.
SFAS 128 will become effective for Advent's 1997 fiscal year end. Advent's
management does not expect the adoption of SFAS 128 to have a material impact on
Advent's financial condition or results of operations.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", (SFAS 130) which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. It is effective for Advent's fiscal year 1998. Advent will
be studying the implications of SFAS 130, but the impact of its implementation
on Advent's financial statements has not yet been determined.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information", (SFAS 131) which changes current
practice under SFAS 14 by establishing a new framework on which to base segment
reporting (referred to as the "management" approach) and also requires interim
reporting of segment information. It is effective for Advent's fiscal year 1998.
Advent will be studying the implications of SFAS 131, but the impact of its
implementation on Advent's financial statements has not yet been determined.
Page 6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ACQUISITIONS
In February, 1996, Advent acquired Data Exchange, Inc. (the DX Group), a
private company based in New York, for $4.0 million in cash and an $800,000 note
payable. This note payable was paid during the third quarter of 1996 and did not
bear interest. The transaction was accounted for as a purchase. Advent incurred
a one-time charge of $5.6 million in connection with the write-off of in-process
research and development. This expense was recorded in purchased research and
development and other expenses. As a result of this expense, there was a net
loss per share of ($0.59) for the six months ended June 30, 1996. Excluding this
write-off net income per share would have been $0.20.
In November 1996, Advent issued 35,000 shares of Advent's common stock in
exchange for all of the outstanding shares of Bold Software, Inc., a private
software development company based in New York. This business combination was
accounted for as a pooling of interests. Prior year amounts have not been
restated to include Bold Software's results of operations as such operations
were immaterial. As a result of this business combination, Advent introduced
Advent Partner, a tax layering and partnership allocation solution which
integrates with Axys.
RESULTS OF OPERATIONS
NET REVENUES. Advent's net revenues for the second quarter of 1997 increased
30% to $11.7 million, as compared with net revenues of $9.0 million for the
second quarter of 1996, reflecting increases in each component of net revenues.
Advent's net revenues for the six months ended June 30, 1997 increased 33% to
$21.3 million, as compared with net revenues of $16.0 million for the six months
ended June 30, 1996, reflecting increases in each component of net revenues.
License revenue for the second quarter of 1997 increased 32% to $5.5 million as
compared with license revenue of $4.2 million for the second quarter of 1996.
License revenue for the six months ended June 30, 1997 increased 41% to $9.5
million as compared with license revenue of $6.7 million for the six months
ended June 30, 1996. The increase in both periods were due primarily to higher
revenues derived from licensing of Axys, Moxy, and Qube. Maintenance and other
recurring revenue for the second quarter of 1997 increased 24% to $4.4 million,
as compared with maintenance and other recurring revenue of $3.6 million for the
second quarter of 1996. Maintenance and other recurring revenue for the six
months ended June 30, 1997 increased 27% to $8.6 million, as compared with
maintenance and other recurring revenue of $6.8 million for the six months ended
June 30, 1996. The increases in both periods were due primarily to a larger
customer base and higher average maintenance fees. Higher average maintenance
fees are due to the increased complexity of maintenance services provided and
increased client utilization of proprietary interfaces to access pricing and
other data supplied by third parties through Advent's proprietary interfaces.
Professional services and other revenue for the second quarter of 1997 increased
38% to $1.8 million, as compared with professional services and other revenue of
$1.3 million for the second quarter of 1996. Professional services and other
revenue for the six months ended June 30, 1997 increased 27% to $3.2 million, as
compared with professional services and other revenue of $2.5 million for the
six months ended June 30, 1996. The increases in both periods were due primarily
to higher product sales activity and higher revenues from Advent's second
quarter conference.
COST OF REVENUES. Advent's cost of revenues for the second quarter of 1997
increased 29% to $2.3 million, as compared with cost of revenues of $1.8 million
for the second quarter of 1996. Advent's cost of revenues for the six months
ended June 30, 1997 increased 35% to $4.2 million, as compared with cost of
revenues of $3.1 million for the six months ended June 30, 1996. Cost of
revenues as a percentage of net revenues was relatively stable at 20% for the
second quarter of 1997 and six months ended June 30, 1997 as compared with 20%
for the second quarter of 1996 and 19% for the six months ended June 30, 1996.
Cost of professional services and other revenue increased 61% to $1,021,000 for
the second quarter of 1997, as compared with $636,000 for the second quarter of
1996 and increased 57% to $1.8 million for the six months ended June 30, 1997,
as compared with $1.2 million for the six months ended June 30, 1996. Cost of
professional services and other revenue as a percentage of professional services
and other revenue increased to
Page 7
<PAGE>
58% in the second quarter of 1997 from 49% in the second quarter of 1996 and
increased to 58% for the six months ended June 30, 1997 from 47% for the six
months ended June 30, 1996. The increase in expenses in both periods was due
primarily to increased staffing necessary to provide system integration, custom
programming and conversion services to an expanding installed base. The increase
in the cost of professional services and other revenues as a percentage of
professional services and other revenues is due primarily to the increase in
personnel dedicated to accelerating the conversion of existing clients to Axys
Release 2.
SALES AND MARKETING. Advent's sales and marketing expenses for the second
quarter of 1997 increased 18% to $3.8 million, as compared with sales and
marketing expenses of $3.2 million for the second quarter of 1996. Advent's
sales and marketing expenses for the six months ended June 30, 1997 increased
20% to $7.1 million, as compared with sales and marketing expenses of $5.9
million for the six months ended June 30, 1996. Sales and marketing expenses as
a percentage of net revenues decreased to 32% in the second quarter of 1997 from
36% in the second quarter of 1996. Sales and marketing expenses as a percentage
of net revenues decreased to 33% for the six months ended June 30, 1997 from 37%
for the six months ended June 30, 1996. The increase in expenses in both periods
was due primarily to an increase in sales and marketing personnel. The decrease
in sales and marketing expenses as a percentage of net revenues in both periods
was due primarily to the ability of Advent's sales and marketing organization to
support an increased revenue base. In addition, the decrease was also due to an
increase in maintenance and other recurring revenues which did not have
significant associated sales and marketing expenses.
PRODUCT DEVELOPMENT. Advent's product development expenses for the second
quarter of 1997 increased 35% to $2.2 million, as compared with product
development expenses of $1.6 million for the second quarter of 1996. Advent's
product development expenses for the six months ended June 30, 1997 increased
42% to $4.3 million, as compared with product development expenses of $3.0
million for the six months ended June 30, 1996. Product development expenses as
a percentage of net revenues increased to 19% in the second quarter of 1997 from
18% in the second quarter of 1996. Product development expenses as a percentage
of net revenues increased to 20% for the six months ended June 30, 1997 from 19%
for the six months ended June 30, 1996. These increases were primarily due to an
increase in personnel as Advent has increased its product development efforts to
accelerate the rate of product enhancements and new product introductions.
GENERAL AND ADMINISTRATIVE. Advent's general and administrative expenses for
the second quarter of 1997 increased 22% to $1.2 million, as compared with
general and administrative expenses of $1.0 million for the second quarter of
1996. Advent's general and administrative expenses for the six months ended June
30 1997, increased 16% to $2.3 million, as compared with general and
administrative expenses of $2.0 million for the six months ended June 30, 1996.
General and administrative expenses as a percentage of net revenues was
unchanged at 11% for the second quarter of 1997 as compared with the second
quarter of 1996. General and administrative expenses as a percentage of net
revenues decreased to 11% for the six months ended June 30, 1997 as compared
with 13% for the six months ended June 30, 1996. The increase in general and
administrative expenses in both periods reflects higher expenses necessary to
support Advent's growth.
PURCHASED RESEARCH AND DEVELOPMENT AND OTHER. On February 15, 1996, Advent
acquired Data Exchange, Inc. (the DX Group), a private company based in New
York, for $4.0 million in cash and an $800,000 note payable. In the first
quarter of 1996, Advent incurred a one-time charge of $5.6 million in connection
with the write-off of in-process research and development due to the acquisition
of the DX Group. There was no comparable charge in 1997.
INTEREST INCOME, NET. Advent's interest income, net for the second quarter
of 1997 increased 11% to $307,000, as compared with interest income, net of
$277,000 for the second quarter of 1996. Advent's interest income, net for the
six months ended June 30, 1997 decreased 5% to $572,000, as compared with
interest income, net of $603,000 for the six months ended June 30, 1996. The
increase in the second quarter 1997 as compared with the second quarter of 1996
was due to a higher cash and short-term investment balance. The decrease for the
six month period was due to a smaller cash and short-term investment balance
that resulted from the acquisition of the DX Group in the first quarter of 1996.
Page 8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $33.6 million at June 30, 1997 as
compared to $31.7 million at December 31, 1996. The increase in cash and
short-term investments was primarily due to cash provided by operating
activities.
Advent believes that its existing cash and short-term investments and cash
expected to be generated from operations will be sufficient to meet its cash and
capital requirements at least through fiscal 1997.
FORWARD-LOOKING STATEMENTS
The discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains trend analysis and other
forward-looking statements that are based on current expectations and
assumptions made by management. Words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks and uncertainties which are difficult to predict.
Therefore, actual results could differ materially from those expressed or
forecasted in the forward-looking statements as a result of the factors
summarized below and other risks detailed from time to time in reports filed
with the Securities and Exchange Commission, including Advent's 1996 Annual
Report to Stockholders, incorporated by reference in Advent's 1996 Form 10-K
Report. Additionally, the financial statements for the periods presented are not
necessarily indicative of results to be expected for any future period, nor for
the entire year.
Advent operates in a rapidly changing environment that involves a number of
risks, some of which are beyond Advent's control. These risks include the
potential for period to period fluctuations in operating results and the
dependence on the successful development and market acceptance of new products
and product enhancements on a timely, cost effective basis, as well as the
stability of financial markets, maintenance of Advent's relationship with
Interactive Data and price and product/performance competition. In particular,
Advent's net revenues and operating results have varied substantially from
period-to-period on a quarterly basis and may continue to fluctuate due to a
number of factors. Advent's software products typically are shipped shortly
after receipt of a signed license agreement and initial payment and,
consequently, software backlog at the beginning of any quarter typically
represents only a small portion of that quarter's expected revenues. In
addition, as Advent's licenses into multi-user networked environments have
increased both in individual size and number, the timing and size of individual
license transactions are becoming increasingly important factors in Advent's
quarterly operating results. The sales cycles for these transactions are often
lengthy and unpredictable, and the ability to close large license transactions
on a timely basis or at all could cause additional variability in Advent's
quarterly operating results. Advent's future success will continue to depend
upon its ability to develop new products, such as Moxy, Qube, and Geneva, that
address the future needs of its target markets and to respond to 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Page 9
<PAGE>
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At Advent's Annual Meeting of Stockholders held May 13, 1997, the following
matters were voted upon by stockholders pursuant to proxies solicited pursuant
to Regulation 14A of the Securities Exchange Act of 1934:
The following individuals were elected to the Board of Directors:
VOTES VOTES
FOR WITHHELD
--- --------
Stephanie G. DiMarco 6,588,675 15,773
Frank H. Robinson 6,491,434 113,014
Wendell G. Van Auken 6,589,034 15,140
The following proposals were approved at Advent's Annual Meeting of
Stockholders:
Votes Votes
For Against Abstained
--- ------- ---------
1. Amendment of the Company's 1992
Stock Plan, increasing the shares
reserved for issuance by 600,000. 4,949,919 991,182 663,347
2. Ratification of appointment
of Coopers & Lybrand LLP as
independent auditors for the
1997 fiscal year. 6,601,396 2,300 752
Item 5. Other Information
None.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Net Income (Loss) Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVENT SOFTWARE, INC.
Dated: August 7, 1997 By: /s/ STEPHANIE G. DIMARCO
----------------------------
Stephanie G. DiMarco
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Dated: August 7, 1997 By: /s/ IRV H. LICHTENWALD
--------------------------
Irv H. Lichtenwald
SENIOR VICE PRESIDENT OF FINANCE,
CHIEF FINANCIAL OFFICER
AND SECRETARY
Page 11
<PAGE>
EXHIBIT 11.1
ADVENT SOFTWARE, INC
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
(amounts in thousands, except per share data)
Quarter Ended Six Month Period
June 30, Ended June 30,
--------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
Primary and Fully Diluted:
Weighted average common shares
outstanding for the period 7,479 6,973 7,438 6,949
Common equivalent shares:
Options and warrants 527 862 571 --
------- ------- ------- -------
Shares used in per share
calculations 8,006 7,835 8,009 6,949
------- ------- ------- -------
Net income (loss) $ 1,522 $ 1,015 $ 2,374 $(4,087)
======= ======= ======= =======
Net income (loss) per share $ 0.19 $ 0.13 $ 0.30 $ (0.59)
======= ======= ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 33,567
<SECURITIES> 0
<RECEIVABLES> 10,048
<ALLOWANCES> 182
<INVENTORY> 0
<CURRENT-ASSETS> 46,557
<PP&E> 9,469
<DEPRECIATION> 4,522
<TOTAL-ASSETS> 52,006
<CURRENT-LIABILITIES> 10,492
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 40,613
<TOTAL-LIABILITY-AND-EQUITY> 52,006
<SALES> 9,484
<TOTAL-REVENUES> 21,253
<CGS> 276
<TOTAL-COSTS> 4,226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,862
<INCOME-TAX> 1,488
<INCOME-CONTINUING> 2,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,374
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
