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 March 31, 1999
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
April 30, 1999 was 8,332,109.
<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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MAR 31, DEC 31,
1999 1998
- ----------------------------------------------------------------------------
(in thousands) (unaudited) (audited)
ASSETS
Current assets:
Cash and short-term investments $ 44,667 $ 43,284
Accounts receivable, net 17,240 17,452
Prepaid expenses and other 2,165 2,010
Deferred income taxes 1,900 1,900
------------- -------------
Total current assets 65,972 64,646
------------- -------------
Fixed assets, net 12,225 11,433
Other assets, net 10,926 11,131
------------- -------------
Total assets $ 89,123 $ 87,210
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,445 $ 1,793
Accrued liabilities 5,386 6,270
Deferred revenues 14,919 14,511
Income taxes payable 3,063 3,924
------------- -------------
Total current liabilities 24,813 26,498
------------- -------------
Long-term liabilities:
Other liabilities 594 537
------------- -------------
Total liabilities 25,407 27,035
------------- -------------
Stockholders' equity:
Common stock 83 82
Additional paid-in-capital 49,705 48,154
Retained earnings 13,893 11,939
Cumulative other comprehensive income 35 -
------------- -------------
Total stockholders' equity 63,716 60,175
------------- -------------
Total liabilities and stockholders'
equity $ 89,123 $ 87,210
============= =============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
----------------------------
1999 1998
- ----------------------------------------------------------------------
(in thousands, except per share data) (unaudited)
Revenues:
License and development fees $ 9,156 $ 6,934
Maintenance and other recurring 8,697 5,396
Professional services and other 2,367 1,719
------- -------
Net revenues 20,220 14,049
------- -------
Cost of revenues:
License and development fees 748 521
Maintenance and other recurring 2,284 1,505
Professional services and other 1,113 820
------- -------
Total cost of revenues 4,145 2,846
------- -------
Gross margin 16,075 11,203
------- -------
Operating expenses:
Sales and marketing 6,947 5,089
Product development 3,814 2,661
General and administrative 2,340 1,831
Amortization of intangibles 383 -
------- -------
Total operating expenses 13,484 9,581
------- -------
Income from operations 2,591 1,622
Interest income, net 370 343
------- -------
Income before income taxes 2,961 1,965
Provision for income taxes 1,007 707
------- -------
Net income $ 1,954 $ 1,258
======= =======
Other comprehensive income, net of tax
Foreign currency translation
adjustment 35 -
------- -------
Comprehensive income $ 1,989 $ 1,258
======= =======
NET INCOME PER SHARE DATA
Diluted
Net income per share $ 0.21 $ 0.15
Shares used in per share calculations 9,139 8,489
Basic
Net income per share $ 0.24 $ 0.16
Shares used in per share calculations 8,310 7,903
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
1999 1998
- --------------------------------------------------------------------------------
(in thousands) (unaudited)
Cash flows from operating activities:
Net income $ 1,954 $ 1,258
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,037 922
Provision for doubtful accounts 297 82
Deferred rent 57 104
Cash provided by (used in) operating assets
and liabilities:
Accounts receivable (87) (409)
Prepaid and other current assets (155) 67
Accounts payable (342) 91
Accrued liabilities (876) 462
Deferred revenues 429 1,274
Income taxes payable (861) 529
Net liabilities assumed in pooling of interests
with Microedge - (1,061)
--------- ---------
Net cash provided by operating activities 1,453 3,319
--------- ---------
Cash flows from investing activities:
Acquisition of fixed assets (1,450) (2,044)
Long-term loan (167) -
Deposits (8) -
--------- ---------
Net cash used in investing activities (1,625) (2,044)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,552 681
-------- ---------
Net cash provided by financing activities 1,552 681
-------- ---------
Effect of exchange rate changes on cash
and short-term investments 3 -
Net increase in cash and short-term investments 1,383 1,956
Cash and short-term investments at beginning of period 43,284 36,056
-------- ---------
Cash and short-term investments at end of period $ 44,667 $ 38,012
======== =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 1,861 $ 714
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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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 1998
Report on Form 10-K filed with the SEC. Interim results are not necessarily
indicative of the results to be expected for the full year.
In management's opinion, the condensed consolidated financial statements
include all adjustments necessary to present fairly the financial position and
results of operations for each interim period shown.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In 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. We will adopt SFAS No. 133 as required for our
first quarterly filing of fiscal year 2000.
In December 1998, the Accounting Standards Executive Committee (AcSEC)
released Statement of Position 98-9, or SOP 98-9, Modification of SOP 97-2,
"Software Revenue Recognition," with Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is vendor-specific
objective evidence (VSOE) of the fair values of all the undelivered elements
that are not accounted for by means of long-term contract accounting, (2) VSOE
of fair value does not exist for one or more of the delivered elements, and (3)
all revenue recognition criteria of SOP 97-2 (other than the requirement for
VSOE of the fair value of each delivered element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs of
SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. Retroactive application is prohibited. We
are evaluating the requirements of SOP 98-9 and the effects, if any, on our
current revenue recognition policies.
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3. NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 1,954 $ 1,258
RECONCILIATION OF SHARES USED IN BASIC AND DILUTED
PER SHARE CALCULATIONS
BASIC
Weighted average common shares outstanding 8,310 7,903
------------- -------------
Shares used in basic net income per share calculation 8,310 7,903
============= =============
Basic net income per share $ 0.24 $ 0.16
============= =============
DILUTED
Weighted average common shares outstanding 8,310 7,903
Dilutive effect of stock options and warrants 1,009 586
------------- -------------
Shares used in diluted net income per share calculation 9,319 8,489
============= =============
Diluted net income per share $ 0.21 $ 0.15
============= =============
Options outstanding at March 31, 1999 and 1998 not included
in computation of diluted EPS because the exercise price
was greater than the average market price - 28,000
Price range of options not used in diluted EPS calculation - $ 36.75
------------- -------------
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS
In February 1998, we issued 250,000 shares of common stock in exchange for
all of the outstanding shares of MicroEdge, Inc., a leading provider of software
products to foundations, corporations and other organizations to manage their
grant-making activities. The business combination was accounted for as a pooling
of interests and the results of operations of MicroEdge are included in the
financial statements beginning January 1, 1998.
In May 1998, we issued 170,000 shares of common stock for certain assets of
the Grants Management Division of Blackbaud, Inc., a privately held company
located in Charleston, South Carolina. Through this acquisition we combined the
Grants Management product line of Blackbaud with MicroEdge. This transaction was
accounted for as a purchase and the results of operations of the business and
assets acquired are included in our financial statements from the date of
acquisition. We incurred a charge relating to in-process research and
development and other expenses of $5.4 million in connection with this
transaction.
In November 1998, we issued 15,000 shares of common stock and paid $4.1
million in exchange for all the outstanding shares of HubData, Inc., a
distributor of consolidated securities information and data to investment
management organizations. HubData is located in Cambridge, MA and delivers
services to over 240 institutional investment firms. This business combination
was accounted for as a purchase. We incurred a charge relating to in-process
research and development of $3.0 million in connection with this transaction.
In November 1998, we paid AUS $583,000 (approximately US $370,000) in
exchange for all the outstanding shares of Portfolio Management Systems Pty.,
Ltd., a distributor of Advent products in Australia. This business combination
was
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accounted for as a purchase. This acquisition provides an international channel
for sale of our products and services. Subsequent to the acquisition, we changed
the name of this subsidiary to Advent Australia Pty., Ltd.
RESULTS OF OPERATIONS
Net Revenues. Our net revenues for the first quarter of 1999 increased 44%
to $20.2 million, compared with net revenues of $14 million for the same period
in 1998, reflecting increases in each component of net revenues. License revenue
and development fees for the first quarter of 1999 increased 32% to $9.2 million
compared with license revenue and development fees of $6.9 million for the first
quarter of 1998. The increase in license and development fees was primarily due
to increased sales of Advent Office, multi-product transactions and, to a lesser
extent, higher development fees. Maintenance and other recurring revenue for the
first quarter of 1999 increased 61% to $8.7 million, compared with maintenance
and other recurring revenue of $5.4 million for the first quarter of 1998. The
increase was due primarily to a larger customer base, the addition of Blackbaud
and HubData, and increased demand for implementation management services..
Professional services and other revenue for the first quarter of 1999 increased
38% to $2.4 million, compared with professional services and other revenue of
$1.7 million for the first quarter of 1998. The increase was primarily due to
higher product sales activity, additional interface business resulting from
higher market demand for automated interfaces and increased consulting fees.
Cost of Revenues. Our cost of revenues for the first quarter of 1999
increased 46% to $4.1 million, compared with cost of revenues of $2.8 million
for the first quarter of 1998. Cost of revenues as a percentage of net revenues
was relatively stable at 20% for the three months ended March 31, 1999 and 1998.
Cost of license and development fees increased 44% to $748,000 in the first
quarter of 1999 from $521,000 in the first quarter of 1998. The increase in cost
of license and development fees is directly related to the increase in license
and development fees revenue. Cost of license and development fees as a
percentage of the related revenues remained stable at 8% in the first quarter of
1999 compared to the same period in 1998. We expect cost of license and
development fees to approximate 6-9% of license and development fees revenue in
the future. Cost of maintenance and other recurring revenues increased 52% to
$2.3 million for the first quarter of 1999 from $1.5 million for the first
quarter of 1998. 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
26% in the first quarter of 1999 from 28% in the first quarter of 1998. The
decrease was due primarily to economies of scale. We expect cost of maintenance
to approximate 25-31% of maintenance and other recurring revenues in the future.
Cost of professional services and other revenue increased 36% to $1.1 million
for the first quarter of 1999, compared with $820,000 for the same period in
1998. The increase was primarily due to increased staffing necessary to provide
services to an expanded installed base. Cost of professional services and other
revenue as a percentage of the related revenues remained relatively stable at
47% in the first quarter of 1999 and in the first quarter of 1998. We expect
cost of professional services and other revenue to approximate 43-47% in the
future.
Sales and Marketing. Our sales and marketing expenses for the first quarter
of 1999 increased 37% to $6.9 million, compared with sales and marketing
expenses of $5.1 million for the first quarter of 1998. The increase in expense
for the three months ended March 31, 1999 was primarily due to an increase in
sales and marketing personnel and expenses resulting from the marketing of
Advent Office and Advent Warehouse as well as focused sales and marketing
efforts towards our Internet Initiative. Sales and marketing expenses as a
percentage of net revenues decreased to 34% from 36% in the first quarter of
1999 compared to the first quarter of 1998. The decrease was primarily due to
economies of scale. We expect sales and marketing expenses to approximate 33-36%
of net revenues throughout the year.
Product Development. Our product development expenses for the first quarter
of 1999 increased 43% to $3.8 million, compared with product development
expenses of $2.7 million for the first quarter of 1998. Product development
expenses increased primarily due to an increase in personnel as we increased our
product development efforts to accelerate the rate of product enhancements and
new product introductions. Product development expenses as a percentage of net
revenues remained stable at 19% for the first quarter of 1999 compared to the
first quarter of 1998. We expect product development expenses to continue to
approximate 18-20% of net revenues as we continue to focus on new products and
technology.
In November 1998, we acquired HubData, Inc., a provider of securities
information to investment management organizations. As a result of the
acquisition, we incurred a one-time in-process research and development charge
of $3 million. In determining the IPR&D, we allocated the estimated cash flows
of the projects between the total development work as of the date of the
acquisition and the work to be accomplished subsequent to the acquisition. As of
this filing, we have made progress on the development efforts associated with
the HubData products. In addition, the revenue and costs
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associated with the in-process technology have been materially consistent with
the assumptions we used in the valuation. Since the valuation was based on our
estimates of market potential, product introductions, and technology trends, we
will periodically assess our estimates related to the valuation model to
determine if the assets acquired have been impaired. If we determine that there
has been impairment, there could be additional charges to operations.
General and Administrative. Our general and administrative expenses for the
first quarter of 1999 increased 28% to $2.3 million, compared with general and
administrative expenses of $1.8 million for the first quarter of 1998. The
increase was due to increased staffing to support our growth. General and
administrative expenses as a percentage of net revenues remained relatively
stable at 12% for the first quarter of 1999 and in the first quarter of 1998. We
expect general and administrative expenses to approximate 10-13% of net revenues
in the future.
Interest Income, Net. Our net interest income for the first quarter of 1999
increased 8% to $370,000, compared with net interest income of $343,000 for the
first quarter of 1998. The increase was due to greater interest income generated
from higher cash and short-term investment balances.
Provision for Income Taxes. For the three months ended March 31, 1999 we
recorded a tax provision of $1 million based on our pretax income using an
effective tax rate of 34%, which is our anticipated effective tax rate for the
fiscal year 1999. The actual effective tax rate for the entire fiscal year could
vary substantially depending on actual results achieved. The effective tax rate
for the three months ended March 31, 1998 was 36%. We had an effective tax rate
of 40% for fiscal 1998. The effective tax rate in 1998 was higher due to certain
expenses from acquisitions that were not included in the calculation of the
income tax provision partially offset by the implementation of a tax planning
strategy in the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $44.7 million at March 31, 1999
compared with $43.3 million at December 31, 1998. The increase in cash and
short-term investments was primarily due to cash provided by operating
activities. Although net income was $700,000 higher in the first quarter of 1999
compared with the first quarter of 1998, net cash provided by operating
activities decreased to $1.5 million in the quarter ended March 31, 1999
compared with $3.3 million in the quarter ended March 31, 1998. The decrease is
primarily due to a reduction in accrued liabilities of $876,000 in the first
quarter of 1999 compared with an increase of $462,000 in the first quarter of
1998. Additionally, there was a reduction in income taxes payable during the
first quarter of 1999 of $861,000 while income taxes payable increased by
$529,000 in the first quarter of 1998. Also, in the first quarter of 1999
deferred revenues contributed $429,000 of operating cash, while in the first
quarter of 1998, deferred revenues contributed $1.3 million.
Net cash used in investing activities was $1.6 million and $2 million for
the quarters ended March 31, 1999 and 1998, respectively. Activity in both
periods was primarily due to the acquisition of fixed assets for the buildout of
additional leased properties.
Net cash provided by financing activities was $1.6 million and $681,000 for
the quarters ended March 31, 1999 and 1998, respectively. The activity in both
periods was primarily due to proceeds from the exercise of employee stock
options.
We believe that our existing cash and short-term investments and cash
expected to be generated from operations will be sufficient to meet our
anticipated cash and capital requirements at least through fiscal 1999.
IMPACT OF YEAR 2000 ISSUE
To the best of our knowledge, the products we currently license have been
designed to be and continue to be Year 2000 Compliant. Year 2000 Compliant means
that our products will continue to operate substantially in accordance with
published documentation on and after January 1, 2000. However, some of the
computer programs used in our internal operations may not be Year 2000 Compliant
as these programs 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.
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We have outlined a four-stage plan to comply with Year 2000 processing
standards: assessment, renovation, validation and implementation. The assessment
phase involves identifying the problem, identifying all systems at risk,
prioritizing and developing contingency plans and identifying potential
solutions and costs. The renovation phase involves applying the fixes to the
identified problems and re-evaluating contingency plans once fixes have been
made. The validation phase requires testing the fixes either by paper study or
by a dry run of day-to-day activities. Implementation is the final phase in
which we identify training needs, establish a training plan and start training
people to properly execute the contingency plans. It is our intent to complete
this process by late 1999.
We are currently in the renovation phase, having replaced phone equipment
identified with Year 2000 problems and scheduled replacement of one computer
server. Our next step is to re-evaluate contingency plans, test the fixes and
evaluate the most reasonably likely worst case scenario. We anticipate this
phase of the plan to be completed by early third quarter. 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.
To date, we have spent $56,000 on replacement of phone equipment and plan to
spend another $30,000 on the server replacement. Other costs for replacing
software have been insignificant as most are under maintenance contracts or
under warranty. To date, we have spent approximately $30,000 on reallocation of
personnel resources for the Year 2000 issue. In addition, we expect to
reallocate additional personnel resources, at a cost of approximately $45,000,
to attend to this matter. We believe any other modifications deemed necessary
will be made on a timely basis and estimate that the cost of such modifications
will not have a material effect on our operating results.
Our expectation 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 we will be able to successfully modify on a
timely basis such products, services and systems to comply with Year 2000
requirements, nor that our contingency plans will prove effective in the event
that we fail 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 our operating results. Additionally, we have
initiated communications with third party suppliers of the major computers,
software, and other equipment used, operated, or maintained by us to identify
and, to the extent possible, to resolve issues involving the Year 2000 problem.
However, we have limited or no control over the actions of these third party
suppliers. Thus, while we expect that they will be able to resolve any
significant Year 2000 problems with these systems, there can be no assurance
that these suppliers will resolve any or all Year 2000 problems with these
systems before the occurrence of a material disruption to the business of ours
or any of their customers. Any failure of these third parties to resolve Year
2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition, and results of operations.
Additionally, throughout the remainder of the year 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 and may also delay implementation of any new software until
sometime after January 1, 2000. Although we have not experienced the effects of
such a trend to date, if customers defer purchases of our software because of
such a reallocation, it could adversely effect our operating results.
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 our 1998 Form 10-K Annual
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.
We operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our 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 our relationship with Interactive Data and
price and product/performance competition. In particular, our net revenues and
operating results have varied substantially from period-to-period on a
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quarterly basis and may continue to fluctuate due to a number of factors. Our
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 licenses into multi-user networked environments increase both in
individual size and number, the timing and size of individual license
transactions are becoming increasingly important factors in our 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 our quarterly operating
results. In addition, our results could be adversely impacted by generic issues
surrounding market volatility, global economic uncertainty and reductions in
capital expenditures by large customers. The target clients for our products
include a range of organizations that manage investment portfolios, including
investment advisors, brokerage firms, banks and hedge funds. In addition, we
target 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 our clients is intrinsically linked to the health of the
financial markets. We believe that demand for our 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.
Our future success will continue to depend upon our ability to develop new
products, such as Moxy, Qube, and Geneva, that address the future needs of our
target markets and to respond to emerging industry standards and practices. We
are directing a significant amount of our 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 our business and
operating results. To take advantage of the Internet, we have launched an
Internet Initiative whereby we are 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. The
second is the Advent Browser Reporting product which was launched in the third
quarter of 1998. As we begin development of new products and services under the
Internet Initiative, we have 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 we will be successful in marketing Rex, Advent Browser Reporting or in
developing other Internet services. Our failure to do so could adversely affect
our business and operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". We had no
holdings of derivative financial or commodity instruments at March 31, 1999.
However, we are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Much of our revenue and capital
spending is transacted in U.S. dollars. However, with the acquisition of Advent
Australia, these subsidiary revenues and capital spending are transacted in
Australian dollars. Results of operations from Advent Australia are not material
to the results of operations of Advent. Therefore, we believe that foreign
currency exchange rates should not materially adversely affect our overall
financial position, results of operations or cash flows. We believe that the
fair value of our investment portfolio or related income would not be
significantly impacted by increases or decreases in interest rates due mainly to
the short-term nature of our investment portfolio. However, a sharp increase in
interest rates could have a material adverse affect on the fair value of our
investment portfolio. Conversely, sharp declines in interest rates could
seriously harm interest earnings of our investment portfolio.
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The table below presents principal amounts by expected maturity (in U.S.
dollars) and related weighted average interest rates by year of maturity for our
investment portfolio.
<TABLE>
<CAPTION>
Estimated Fair Value
at December 31,
1999 2000 2001 2002 2003 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
Federal Instruments 3,000,000 1,000,000 4,000,000
Weighted Average Interest Rate 4.51 5.09 4.66
Commercial Paper & Short-term obligations 16,790,000 16,790,000
Weighted Average Interest Rate 3.94 3.94
Corporate Notes & Bonds 1,905,000 1,905,000
Weighted Average Interest Rate 5.44 5.44
Municipal Notes & Bonds 6,800,000 3,750,000 10,550,000
Weighted Average Interest Rate 4.19 4.62 4.34
-------------------------------------------------------------------------------------
Total Portfolio, excluding equity securities $28,495,000 $4,750,000 - - - - $33,245,000
</TABLE>
12
<PAGE>
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.
13
<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: May 17, 1999 By: /s/ STEPHANIE G. DIMARCO
----------------------------
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
Dated: May 17, 1999 By: /s/ IRV H. LICHTENWALD
----------------------------
Irv H. Lichtenwald
Senior Vice President of Finance,
Chief Financial Officer
and Secretary
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 44,667
<SECURITIES> 0
<RECEIVABLES> 17,775
<ALLOWANCES> 535
<INVENTORY> 0
<CURRENT-ASSETS> 65,972
<PP&E> 21,289
<DEPRECIATION> 9,064
<TOTAL-ASSETS> 89,123
<CURRENT-LIABILITIES> 24,813
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 49,705
<TOTAL-LIABILITY-AND-EQUITY> 63,716
<SALES> 9,156
<TOTAL-REVENUES> 20,220
<CGS> 748
<TOTAL-COSTS> 4,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,961
<INCOME-TAX> 1,007
<INCOME-CONTINUING> 1,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,954
<EPS-PRIMARY> .24
<EPS-DILUTED> .21
</TABLE>
