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 MARCH 31, 1998
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 April
30, 1998 was 7,946,494.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to the Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MAR 31, DEC 31,
1998 1997
- -------------------------------------------------------------------------------
(in thousands) (unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 38,012 $ 36,056
Accounts receivable, net 12,565 12,226
Prepaid expenses and other 1,224 1,391
Deferred income taxes 1,418 1,418
------------- -------------
Total current assets 53,219 51,091
------------- -------------
Fixed assets, net 8,605 7,424
Other assets, net 758 770
------------- -------------
Total assets $ 62,582 $ 59,285
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 906 $ 814
Accrued liabilities 3,439 2,977
Deferred revenues 8,105 6,832
Income taxes payable 2,160 1,632
------------- -------------
Total current liabilities 14,610 12,255
------------- -------------
Long-term liabilities:
Other liabilities 641 537
------------- -------------
Total liabilities 15,251 12,792
------------- -------------
Stockholders' equity:
Common stock 79 76
Additional paid-in-capital 38,454 37,776
Retained earnings 8,798 8,641
------------- -------------
Total stockholders' equity 47,331 46,493
------------- -------------
Total liabilities and
stockholders' equity $ 62,582 $ 59,285
============= =============
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
-------------------------------
1998 1997
- -------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited)
Revenues:
License and development fees $ 6,934 $ 4,001
Maintenance and other recurring 5,396 4,195
Professional services and other 1,719 1,357
---------- ----------
Net revenues 14,049 9,553
---------- ----------
Cost of revenues:
License and development fees 521 152
Maintenance and other recurring 1,505 967
Professional services and other 820 819
---------- ----------
Total cost of revenues 2,846 1,938
---------- ----------
Gross margin 11,203 7,615
---------- ----------
Operating expenses:
Sales and marketing 5,089 3,284
Product development 2,661 2,121
General and administrative 1,831 1,089
---------- ----------
Total operating expenses 9,581 6,494
---------- ----------
Income from operations 1,622 1,121
Interest income, net 343 265
---------- ----------
Income before income taxes 1,965 1,386
Provision for income taxes 707 535
---------- ----------
Net income $ 1,258 $ 851
========== ===========
NET INCOME PER SHARE DATA
Diluted
Net income per share $ 0.15 $ 0.11
Shares used in per share calculations 8,489 8,012
Basic
Net income per share $ 0.16 $ 0.12
Shares used in per share calculations 7,903 7,396
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
<PAGE>
ADVENT SOFTWARE, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Quarter Ended March 31,
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
(in thousands) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,258 $ 851
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 922 444
Provision for doubtful accounts 82 (53)
Deferred income taxes - (196)
Deferred rent 104 (25)
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (409) 1,261
Prepaid and other current assets 67 (190)
Accounts payable 91 181
Accrued liabilities 462 (267)
Deferred revenues 1,274 304
Income taxes payable 529 864
Net liabilities assumed in pooling of
interests with Microedge (1,061) -
----------- --------
Net cash provided by operating activities 3,319 3,174
----------- --------
Cash flows from investing activities:
Acquisition of fixed assets (2,044) (890)
----------- --------
Net cash used in investing activities (2,044) (890)
----------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 681 201
----------- --------
Net cash provided by financing activities 681 201
----------- --------
Net increase in cash and short-term investments 1,956 2,485
Cash and short-term investments at beginning of year 36,056 31,650
----------- --------
Cash and short-term investments at end of quarter $ 38,012 $ 34,135
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 714 $ -
</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 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 contracts
with multiple obligations (e.g. deliverable and undeliverable products, services
and maintenance), revenue 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 did not result in any significant
changes to Advent's revenue recognition policy.
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 and
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 from January 1, 1998.
-6-
<PAGE>
4. NET INCOME PER SHARE
Three Months Ended March 31, 1998 1997
- -------------------------------------------------------------------------------
Net income $ 1,258 $ 851
Reconciliation of shares used in basic and diluted
per share calculations
Basic
Weighted average common shares outstanding 7,903 7,396
-------- -------
Shares used in basic net income per share calculation 7,903 7,396
======== =======
Basic net income per share $ 0.16 $ 0.12
======== =======
Diluted
Weighted average common shares outstanding 7,903 7,396
Dilutive effect of stock options and warrants 586 616
-------- -------
Shares used in diluted net income per share calculation 8,489 8,012
======== =======
Diluted net income per share $ 0.15 $ 0.11
======== =======
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 and,
accordingly, Advent did not restate its financial statements for periods prior
to January 1, 1998. The results of operations of MicroEdge are included in
Advent's financial statements from January 1, 1998.
RESULTS OF OPERATIONS
NET REVENUES. Advent's net revenues for the first quarter of 1998 increased
47% to $14.0 million, as compared with net revenues of $9.6 million for the
first quarter of 1997, reflecting increases in each component of net revenues.
License and development fees revenue for the first quarter of 1998 increased 73%
to $6.9 million as compared with license revenue of $4.0 million for the first
quarter of 1997. The increase in license and development fees revenue was
primarily due to higher development fees, the addition of MicroEdge, and an
increase in multi-product sales. Maintenance and other recurring revenue for the
first quarter of 1998 increased 29% to $5.4 million, as compared with
maintenance and other recurring revenue of $4.2 million for the first quarter of
1997. The increase was due primarily to a larger customer base and the addition
of MicroEdge. Professional services and other revenue for the first quarter of
1998 increased 27% to $1.7 million, as compared with professional services and
other revenue of $1.4 million for the first quarter of 1997. The increase was
primarily due to higher product sales activity, an increase in multi-product
sales, which generally require more professional services, and the addition of
MicroEdge.
-7-
<PAGE>
COST OF REVENUES. Advent's cost of revenues for the first quarter of 1998
increased 47% to $2.8 million, as compared with cost of revenues of $1.9 million
for the first quarter of 1997. Cost of revenues as a percentage of net revenues
remained at 20% for the first quarter of 1998 and 1997. Cost of license and
development fees as a percentage of the related revenues increased to 8% in the
first quarter of 1998 from 4% in the first quarter of 1997. This increase was
due to higher costs associated with contract development. Cost of maintenance
and other recurring revenues as a percentage of the related revenues increased
to 28% in the first quarter of 1998 from 23% in the first quarter of 1997. This
increase was due to increased staffing required to support larger and more
complicated implementations. Cost of professional services and other revenue as
a percentage of professional services and other revenue decreased to 48% in the
first quarter of 1998 from 60% in the first quarter of 1997. This decrease was
primarily due to economies of scale.
SALES AND MARKETING. Advent's sales and marketing expenses for the first
quarter of 1998 increased 55% to $5.1 million, as compared with sales and
marketing expenses of $3.3 million for the first quarter of 1997. Sales and
marketing expenses as a percentage of net revenues increased to 36% in the first
quarter of 1998 from 34% in the first quarter of 1997. The increase in expense
was primarily due to an increase in sales and marketing personnel, including an
increase in commission expense due to higher revenues. The increase in sales and
marketing expenses as a percentage of net revenues was due to increased sales
and marketing expenses incurred due to focused efforts towards Advent's Internet
Initiative.
PRODUCT DEVELOPMENT. Advent's product development expenses for the first
quarter of 1998 increased 25% to $2.7 million, as compared with product
development expenses of $2.1 million for the first quarter of 1997. Product
development expenses as a percentage of net revenues decreased to 19% in the
first quarter of 1998 from 22% in the first quarter of 1997. Product development
expenses 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 to the addition of MicroEdge.
Product development expenses as a percentage of net revenues decreased primarily
due to those development costs classified as cost of license and development
fees.
GENERAL AND ADMINISTRATIVE. Advent's general and administrative expenses for
the first quarter of 1998 increased 68% to $1.8 million, as compared with
general and administrative expenses of $1.1 million for the first quarter of
1997. General and administrative expenses as a percentage of net revenues
increased to 13% in the first quarter of 1998 from 11% in the first quarter of
1997. The increase in general and administrative expense was primarily due to
the non-recurring costs related to the acquisition of MicroEdge and higher
expenses necessary to support Advent's growth. General and administrative
expenses as a percentage of net revenues increased primarily due to the
non-recurring expenses related to the acquisition of MicroEdge.
INTEREST INCOME, NET. Advent's interest income, net for the first quarter of
1998 increased 29% to $343,000, as compared with interest income, net of
$265,000 for the first quarter of 1997. The increase in the first quarter 1998
as compared with the first quarter of 1997 was due to a higher cash and
short-term investment balance.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $38.0 million at March 31, 1998 as
compared to $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 1998.
-8-
<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 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. 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 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.
-9-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In connection with the February 28, 1998 acquisition of all of the
outstanding stock of MicroEdge, Inc., Advent issued a total of 250,000 shares of
Advent's common stock to the two shareholders of MicroEdge. Advent relied upon
the exemptions from registration provided by Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933, as amended. The two shareholders
were the founders, officers and directors of MicroEdge.
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
4 Form of Declaration of Registration Rights (incorporated by
reference to Advent's Form 8-K dated February 28, 1998 and filed
with the commission on March 13, 1998).
27.1 Financial Data Schedule - Three Months Ended March 31, 1998
27.2 Financial Data Schedule - Year Ended December 31, 1997
27.3 Financial Data Schedule - Nine Months Ended September 30, 1997
27.4 Financial Data Schedule - Six Months Ended June 30, 1997
27.5 Financial Data Schedule - Three Months Ended March 31, 1997
27.6 Financial Data Schedule - Six Months Ended June 30, 1996
(b) Reports on Form 8-K
On March 13, 1998, Advent filed a report on Form 8-K dated
February 28, 1998. The report was filed in connection with the
acquisition by Advent of all the outstanding stock of MicroEdge, Inc.,
a New York corporation. No financial statements were required to be
filed.
-10-
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVENT SOFTWARE, INC.
Dated: May 15, 1998 By: /s/ STEPHANIE G. DIMARCO
----------------------------
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
Dated: May 15, 1998 By: /s/ IRV H. LICHTENWALD
--------------------------
Irv H. Lichtenwald
Senior Vice President of Finance,
Chief Financial Officer
and Secretary
-11-
<PAGE>
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<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 46,417
<TOTAL-LIABILITY-AND-EQUITY> 59,285
<SALES> 23,710
<TOTAL-REVENUES> 48,613
<CGS> 601
<TOTAL-COSTS> 9,071
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,634
<INCOME-TAX> 3,921
<INCOME-CONTINUING> 6,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,713
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.84
</TABLE>
