SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1998
or
[ ]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)
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
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of the Registrant's Common Stock outstanding as of
October 31, 1998 was 8,176,452.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to the Condensed Consolidated Financial
Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEP 30, DEC 31,
1998 1997
- ------------------------------------------------------------------------------
(in thousands) (unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 44,950 $ 36,056
Accounts receivable, net 15,381 12,226
Prepaid expenses and other 1,228 1,391
Deferred income taxes 1,418 1,418
------------- -------------
Total current assets 62,977 51,091
------------- -------------
Fixed assets, net 9,620 7,424
Other assets, net 4,265 770
Total assets $ 76,862 $ 59,285
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 810 $ 814
Accrued liabilities 4,136 2,977
Deferred revenues 11,189 6,832
Income taxes payable 3,381 1,632
------------- -------------
Total current liabilities 19,516 12,255
------------- -------------
Long-term liabilities:
Other liabilities 932 537
------------- -------------
Total liabilities 20,448 12,792
------------- -------------
Stockholders' equity:
Common stock 81 76
Additional paid-in-capital 46,055 37,776
Retained earnings 10,278 8,641
------------- -------------
Total stockholders' equity 56,414 46,493
------------- -------------
Total liabilities and stockholders'
equity $ 76,862 $ 59,285
============= =============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License and development fees $ 9,650 $ 6,743 $ 25,188 $ 16,226
Maintenance and other recurring 6,460 4,633 17,652 13,247
Professional services and other 2,494 1,582 6,520 4,737
-------------- ------------- ------------- -------------
Net revenues 18,604 12,958 49,360 34,210
-------------- ------------- ------------- -------------
Cost of revenues:
License and development fees 777 143 1,932 419
Maintenance and other recurring 1,526 1,351 4,559 3,461
Professional services and other 1,024 782 2,788 2,622
-------------- ------------- ------------- -------------
Total cost of revenues 3,327 2,276 9,279 6,502
-------------- ------------- ------------- -------------
Gross margin 15,277 10,682 40,081 27,708
-------------- ------------- ------------- -------------
Operating expenses:
Sales and marketing 5,955 4,016 16,736 11,084
Product development 3,250 2,463 8,920 6,807
General and administrative 1,784 1,386 5,249 3,710
Purchased research and development and other 0 0 5,422 0
-------------- ------------- ------------- -------------
Total operating expenses 10,989 7,865 36,327 21,601
-------------- ------------- ------------- -------------
Income from operations 4,288 2,817 3,754 6,107
Interest income, net 352 323 1,083 894
-------------- ------------- ------------- -------------
Income before income taxes 4,640 3,140 4,837 7,001
Provision for income taxes 1,578 1,133 2,099 2,621
-------------- ------------- ------------- -------------
Net income $ 3,062 $ 2,007 $ 2,738 $ 4,380
============== ============= ============= =============
NET INCOME PER SHARE DATA
Diluted
Net income per share $ 0.35 $ 0.25 $ 0.32 $ 0.55
Shares used in per share calculations 8,782 8,043 8,662 8,020
Basic
Net income per share $ 0.38 $ 0.27 $ 0.34 $ 0.59
Shares used in per share calculations 8,162 7,541 8,023 7,471
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
----------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
(in thousands) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,738 $ 4,380
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Purchased research and development 4,493 -
Depreciation and amortization 2,357 1,364
Provision for doubtful accounts 92 47
Deferred income taxes (1,500) (196)
Deferred rent 395 (76)
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (3,806) (3,117)
Prepaid and other current assets 125 (454)
Accounts payable (4) 155
Accrued liabilities 1,159 283
Deferred revenues 4,357 1,180
Income taxes payable 1,750 1,779
Net liabilities assumed in pooling of interests with Microedge (1,101) -
-------------------------------
Net cash provided by operating activities 11,055 5,345
-------------------------------
Cash flows from investing activities:
Acquisition of fixed assets (4,037) (3,058)
Deposits 106 -
-------------------------------
Net cash used in investing activities (3,931) (3,058)
-------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,770 1,361
-------------------------------
Net cash provided by financing activities 1,770 1,361
-------------------------------
Net increase in cash and short-term investments 8,894 3,648
Cash and short-term investments at beginning of period 36,056 31,650
-------------------------------
Cash and short-term investments at end of period $ 44,950 $ 35,298
===============================
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 1,273 $ 1,043
Supplemental disclosure of non-cash transactions:
Purchase of assets of the Grants Division of
Blackbaud, Inc. for issuance of common stock,
net of purchased research & development $ 2,021 $ 0
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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 1997
Report on Form 10-K filed with the SEC. Interim results are not necessarily
indicative of the results to be expected for the full year.
In management's opinion, the condensed consolidated financial statements
include all adjustments necessary to present fairly the financial position and
results of operations for each interim period shown.
2. Recent Accounting Pronouncements
Advent has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", effective January 1, 1998.
This statement requires the disclosure of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is defined as net income plus revenues, expenses, gains and losses that,
under generally accepted accounting principles, are excluded from net income.
The components of comprehensive income that are excluded from net income are not
significant, individually or in the aggregate, and therefore, no separate
statement of comprehensive income has been presented.
Advent has adopted the provisions of Statement of Position ("SOP") 97-2 on
Software Revenue Recognition, which supersedes SOP 91-1. Under SOP 97-2, revenue
recognized on contracts with multiple obligations (e.g. deliverable and
undeliverable products, services and maintenance) must be allocated to each
component of the contract based on evidence of its fair value which is specific
to Advent. Revenue allocated to undelivered products is recognized when the
criteria for license revenue are met. The adoption of SOP 97-2 has not resulted
in any significant changes to Advent's revenue recognition policy.
In June of 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments, and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management has not yet evaluated the effects of
this change on its operations. The Company will adopt SFAS No. 133 as required
for its first quarterly filing of fiscal year 2000.
3. Acquisition of MicroEdge, Inc.
In February 1998, Advent issued 250,000 shares of Advent's common stock in
exchange for all of the outstanding shares of MicroEdge, Inc., a private
software development company based in New York. MicroEdge is the leading
provider of software products to foundations, corporations and other
organizations to manage their grant-making activities. This business combination
was accounted for as a pooling of interests. The results of operations as well
as the assets and liabilities of MicroEdge in 1997 were not material to the
consolidated results of operations or financial position of Advent. Accordingly,
the Company did not restate its financial statements for periods prior to
January 1, 1998. The results of operations of MicroEdge are included in the
Company's financial statements beginning January 1, 1998.
6
<PAGE>
4. Acquisition of Grants Management Division of Blackbaud, Inc.
In May 1998, Advent issued 170,000 shares of Advent's common stock for
substantially all of the assets of the Grants Management Division of Blackbaud,
Inc., a privately held company located in Charleston, South Carolina. This
acquisition combines the Grants Management product line from Blackbaud with
MicroEdge with a consolidated installed base of over 1,200 organizations and
over 5,000 users. This transaction was accounted for as a purchase. Advent
incurred a one-time write-off of in-process research and development and other
expenses of $5.4 million in connection with this transaction. The results of the
Grants Management product line of Blackbaud, Inc. were not material to Advent's
consolidated results of operations for fiscal year 1997 and 1998.
5. Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income $ 3,062 $ 2,007 $ 2,738 $ 4,380
Reconciliation of shares used in basic and diluted
per share calculations
BASIC
Weighted average common shares outstanding 8,162 7,541 8,023 7,471
----------- ----------- ---------- -----------
Shares used in basic net income per share calculation 8,162 7,541 8,023 7,471
=========== =========== ========== ===========
Basic net income per share $ 0.38 $ 0.27 $ 0.34 $ 0.59
=========== =========== ========== ===========
DILUTED
Weighted average common shares outstanding 8,162 7,541 8,023 7,471
Dilutive effect of stock options and warrants 620 502 639 549
----------- ----------- ---------- -----------
Shares used in diluted net income per share calculation 8,782 8,043 8,662 8,020
=========== =========== ========== ===========
Diluted net income per share $ 0.35 $ 0.25 $ 0.32 $ 0.55
----------- ----------- ---------- -----------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS
In February 1998, Advent issued 250,000 shares of Advent's common stock in
exchange for all of the outstanding shares of MicroEdge, Inc., a private
software development company based in New York. MicroEdge is the leading
provider of software products to foundations, corporations and other
organizations to manage their grant-making activities. This business combination
was accounted for as a pooling of interests. The results of operations as well
as the assets and liabilities of MicroEdge in 1997 were not material to the
consolidated results of operations or financial position of Advent.
In May 1998, Advent issued 170,000 shares of Advent's common stock for
substantially all of the assets of the Grants Management Division of Blackbaud,
Inc., a privately held company located in Charleston, South Carolina. This
acquisition combines the Grants Management product line from Blackbaud with
MicroEdge with a consolidated installed base of over 1,200 organizations and
over 5,000 users. Advent incurred a one-time write-off of in-process research
and development and other expenses of $5.4 million in connection with this
transaction.
7
<PAGE>
RESULTS OF OPERATIONS
NET REVENUES. Advent's net revenues for the third quarter of 1998 increased 44%
to $18.6 million, compared with net revenues of $13 million for the third
quarter of 1997, reflecting increases in each component of net revenues.
Advent's net revenues for the nine months ended September 30, 1998 increased 44%
to $49.4 million, compared with net revenues of $34.2 million for the nine
months ended September 30, 1997, reflecting increases in each component of net
revenues. License revenue and development fees for the third quarter of 1998
increased 43% to $9.7 million compared with license revenue and development fees
of $6.7 million for the third quarter of 1997. License revenue and development
fees for the nine months ended September 30, 1998 increased 55% to $25.2 million
compared with license revenue and development fees of $16.2 million for the nine
months ended September 30, 1997. The increase in license and development fees
revenue for the three and nine months ended September 30, 1998 was primarily due
to higher license and development fees, deployment of multi-product
transactions, and the addition of MicroEdge, Inc. Maintenance and other
recurring revenue for the third quarter of 1998 increased 39% to $6.5 million,
compared with maintenance and other recurring revenue of $4.6 million for the
third quarter of 1997. Maintenance and other recurring revenue for the nine
months ended September 30, 1998 increased 33% to $17.7 million, compared with
maintenance and other recurring revenue of $13.2 million for the nine months
ended September 30, 1997. The increases in both periods were due primarily to a
larger customer base, increased account management service, and the addition of
MicroEdge and Blackbaud. Professional services and other revenue for the third
quarter of 1998 increased 58% to $2.5 million, compared with professional
services and other revenue of $1.6 million for the third quarter of 1997.
Professional services and other revenue for the nine months ended September 30,
1998 increased 38% to $6.5 million, compared with professional services and
other revenue of $4.7 million for the nine months ended September 30, 1997. The
increase for the three and nine months ended September 30, 1998 was primarily
due to higher product sales activity and multi-product sales, which generally
require more professional services, the addition of MicroEdge, and revenues
generated from Advent's fall conference. The fall conference in 1997 was held in
the fourth quarter. This will cause irregular year to year comparisons for the
third and fourth quarters of this year.
COST OF REVENUES. Advent's cost of revenues for the third quarter of 1998
increased 46% to $3.3 million, compared with cost of revenues of $2.3 million
for the third quarter of 1997. Advent's cost of revenues for the nine months
ended September 30, 1998 increased 43% to $9.3 million, compared with cost of
revenues of $6.5 million for the nine months ended September 30, 1997. Cost of
revenues as a percentage of net revenues was stable at 18% for the three months
ended September 30, 1998 and 1997, and 19% for the nine months ended September
30, 1998 and 1997. Cost of license and development fees increased to $777,000 in
the third quarter of 1998 from $143,000 in the third quarter of 1997, and
increased to $1.9 million for the nine months ended September 30, 1998 from
$419,000 for the nine months ended September 30, 1997. Cost of license and
development fees as a percentage of the related revenues increased to 8% in the
third quarter of 1998 from 2% in the third quarter of 1997, and increased to 8%
for the nine months ended September 30, 1998 from 3% for the nine months ended
September 30, 1997. The increase in cost of license and development fees for the
three and nine months ended September 30, 1998 was due to the costs associated
with increased development fee projects. Cost of maintenance and other recurring
revenues increased 13% to $1.5 million for the third quarter of 1998 from $1.4
million for the third quarter of 1997 and increased 32% to $4.6 million for the
nine months ended September 30, 1998, from $3.5 million for the nine months
ended September 30, 1997. This increase was due to increased staffing required
to support a larger customer base and more complex implementations. Cost of
maintenance and other recurring revenues as a percentage of the related revenues
decreased to 24% in the third quarter of 1998 from 29% in the third quarter of
1997 and remained stable at 26% for the nine months ended September 30, 1998 and
1997. The decrease in the third quarter was due to economies of scale. Cost of
professional services and other revenue increased 31% to $1.0 million for the
third quarter of 1998, compared with $782,000 for the third quarter of 1997.
Cost of professional services and other revenue increased 6% to $2.8 million for
the nine months ended September 30, 1998 from $2.6 million for the nine months
ended September 30, 1997. The increase was primarily due to the Advent fall
conference being held in the third quarter. Last year the conference was held in
the fourth quarter. This will cause irregular year to year comparisons for the
third and fourth quarters of this year. Cost of professional services and other
revenue as a percentage of the related revenues decreased to 41% in the third
quarter of 1998 from
8
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49% in the third quarter of 1997 and decreased to 43% for the nine months ended
September 30, 1998 from 55% for the nine months ended September 30, 1997. The
decrease was primarily due to savings associated with decreased staffing in
professional services as the Company redeployed resources from professional
services to implementation management and development fee projects in response
to growing demands in those areas.
SALES AND MARKETING. Advent's sales and marketing expenses for the third
quarter of 1998 increased 48% to $6.0 million, compared with sales and marketing
expenses of $4.0 million for the third quarter of 1997. Advent's sales and
marketing expenses for the nine months ended September 30, 1998 increased 51% to
$16.7 million, compared with sales and marketing expenses of $11.1 million for
the nine months ended September 30, 1997. Sales and marketing expenses as a
percentage of net revenues increased to 32% in the third quarter of 1998 from
31% in the third quarter of 1997. Sales and marketing expenses as a percentage
of net revenues increased to 34% for the nine months ended September 30, 1998
from 32% for the nine months ended September 30, 1997. The increase in expense
for the three and nine months ended September 30, 1998 was primarily due to an
increase in sales and marketing personnel and expenses resulting from the
introduction of Advent Office and Advent Warehouse as well as focused sales and
marketing efforts towards our Internet initiative.
PRODUCT DEVELOPMENT. Advent's product development expenses for the third
quarter of 1998 increased 32% to $3.3 million, compared with product development
expenses of $2.5 million for the third quarter of 1997. Advent's product
development expenses for the nine months ended September 30, 1998 increased 31%
to $8.9 million, compared with product development expenses of $6.8 million for
the nine months ended September 30, 1997. Product development expenses for the
three and nine months ended September 30, 1998 increased 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, and
due to the addition of MicroEdge. Product development expenses as a percentage
of net revenues decreased to 17% in the third quarter of 1998 from 19% in the
third quarter of 1997. Product development expenses as a percentage of net
revenues decreased to 18% for the nine months ended September 30, 1998 from 20%
for the nine months ended September 30, 1997. Product development expenses as a
percentage of net revenues for the three and nine months ended September 30,
1998 decreased, primarily due to the redeployment of resources from product
development to license and development fee projects in response to growing
demands in that area.
GENERAL AND ADMINISTRATIVE. Advent's general and administrative expenses for
the third quarter of 1998 increased 29% to $1.8 million, compared with general
and administrative expenses of $1.4 million for the third quarter of 1997.
Advent's general and administrative expenses for the nine months ended September
30 1998, increased 41% to $5.2 million, compared with general and administrative
expenses of $3.7 million for the nine months ended September 30, 1997. The
increase for the three and nine months ended September 30, 1998 was due to
increased staffing to support the growth of the Company. General and
administrative expenses as a percentage of net revenues decreased to 10% for the
third quarter of 1998 from 11% in the third quarter of 1997. General and
administrative expenses as a percentage of net revenues were unchanged at 11%
for the nine months ended September 30, 1998, compared with the nine months
ended September 30, 1997. The decrease for the third quarter of 1998 compared
with the third quarter of 1997 is due to economies of scale.
PURCHASED RESEARCH AND DEVELOPMENT AND OTHER. In May 1998, Advent issued
170,000 shares of Advent's common stock for substantially all of the assets of
the Grants Management Division of Blackbaud, Inc., a privately held company
located in Charleston, South Carolina. Advent incurred a one-time write-off of
in-process research and development and other expenses of $5.4 million in
connection with this transaction.
INTEREST INCOME, NET. Advent's net interest income for the third quarter of
1998 increased 9% to $352,000, compared with net interest income of $323,000 for
the third quarter of 1997. Advent's net interest income for the nine months
ended September 30, 1998 increased 21% to $1.1 million, compared with net
interest income of $894,000 for the nine months ended September 30, 1997. The
increase in the third quarter 1998 and the nine months ended September 30, 1998,
compared with the third quarter of 1997
9
<PAGE>
and the nine months ended September 30, 1998 was due to a higher cash and
short-term investment balance.
PROVISION FOR INCOME TAXES. For the nine months ended September 30, 1998 the
Company recorded a tax provision of $2,099 based on its pretax income using an
effective tax rate of 43.4%. Income tax expense does not bear a normal
relationship to income before income taxes primarily due to the tax impact of
the costs arising from the Company's acquisitions. The Company implemented a tax
planning strategy in the third quarter, which reduced the effective tax rate to
34% and expects the rate to approximate 34% going forward. However, the annual
effective rate for 1998 will be higher since this tax strategy was not effective
for the entire year. The actual effective tax rate for the entire fiscal year
could vary substantially depending on actual results achieved. The Company had
an effective tax rate of 36.9% for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $44.9 million at September 30, 1998
compared with $36.1 million at December 31, 1997. 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 1999.
IMPACT OF YEAR 2000 ISSUE
Some of the computer programs used by Advent in its internal operations
rely on time-sensitive software that was written using two digits rather than
four to identify the applicable year. These programs may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Additionally, as Advent is in the
business of software production, year 2000 issues may affect products which are
being sold externally, although, to the best of the Company's knowledge,
Advent's products have been designed to be and continue to be Year 2000
Compliant. Year 2000 Compliant means that Advent's products will continue to
operate substantially in accordance with Advent's published documentation on and
after January 1, 2000.
The Company is currently conducting an in-depth review of the internal systems
that it uses to conduct day-to-day business in order to identify and modify
those products, services and systems that are not Year 2000 Compliant. The
Company believes any modifications deemed necessary will be made on a timely
basis and estimates that the cost of such modifications will not have a material
effect on the Company's operating results. Additionally, the Company is in the
process of evaluating the need for contingency plans with respect to Year 2000
requirements, both in internal operations and for its product sales. The
necessity of any contingency plan must be evaluated on a case-by-case basis and
will vary considerably in nature depending on the Year 2000 issue it may need to
address.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve Year 2000 compliance is a forward-looking statement
subject to risks and uncertainties. Actual results may vary materially as a
result of a number of factors, including, among others, those described in this
paragraph. There can be no assurance that the Company will be able to
successfully modify on a timely basis such products, services and systems to
comply with Year 2000 requirements, nor that the Company's contingency plans
will prove effective in the event that the Company fails to achieve Year 2000
Compliance, nor that the cost of such procedures will not exceed original
estimates, any of which could have a material adverse effect on the Company's
operating results. Additionally, during the next twelve months there is likely
to be an increased customer focus on addressing Year 2000 issues, creating the
risk that customers may reallocate capital expenditures to fix year 2000
problems of existing systems. Although Advent has not experienced the effects of
such a trend to date, if customers defer purchases of the Company's software
because of such a reallocation, it could adversely effect the Company's
operating results.
10
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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 1997 Annual
Report to Stockholders, incorporated by reference in Advent's 1997 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. License 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. In addition, the Company's
results could be adversely impacted by generic issues surrounding market
volatility, global economic uncertainty and reductions in capital expenditures
by large customers.
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 to
the on-going development of Geneva. The failure to achieve widespread market
acceptance of Geneva on a timely basis would adversely affect Advent's business
and operating results. To take advantage of the Internet, Advent has launched an
Internet initiative whereby it is developing services, both announced and
unannounced, to bring Internet-based products and services to clients. The first
of these services, Rex, was launched during the second quarter of 1997. As
Advent begins development of new products and services under its Internet
initiative, it has and will continue to enter into development agreements with
information providers, clients, or other companies in order to accelerate the
delivery of new products and services. There can be no assurance that Advent
will be successful in marketing Rex or in developing other Internet services.
Advent's failure to do so could adversely affect Advent's business and operating
results.
11
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVENT SOFTWARE, INC.
Dated: November 13, 1998 By: /s/ STEPHANIE G. DIMARCO
----------------------------
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
Dated: November 13, 1998 By: /s/ IRV H. LICHTENWALD
--------------------------
Irv H. Lichtenwald
Senior Vice President of Finance,
Chief Financial Officer
and Secretary
13
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