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, 2000
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, 2000 was 29,755,187.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income and Comprehensive Income 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 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
- -----------------------------------------------------------------------------
(in thousands) (unaudited) (audited)
ASSETS
Current assets:
Cash, cash equivalents and
short-term marketable securities $ 123,359 $ 119,126
Accounts receivable, net 26,499 25,452
Prepaid expenses and other 3,641 3,789
Deferred income taxes 3,209 3,209
-------------- --------------
Total current assets 156,708 151,576
-------------- --------------
Fixed assets, net 19,558 16,661
Other assets, net 22,420 22,951
-------------- --------------
Total assets $ 198,686 $ 191,188
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,059 $ 1,185
Accrued liabilities 9,035 7,962
Deferred revenues 17,951 17,230
Income taxes payable 2,056 3,328
-------------- --------------
Total current liabilities 30,101 29,705
-------------- --------------
Long-term liabilities:
Other liabilities 916 824
-------------- --------------
Total liabilities 31,017 30,529
-------------- --------------
Stockholders' equity:
Common stock 297 292
Additional paid-in capital 134,089 130,960
Retained earnings 33,298 29,382
Cumulative other comprehensive income (15) 25
-------------- --------------
Total stockholders' equity 167,669 160,659
-------------- --------------
Total liabilities and
stockholders' equity $ 198,686 $ 191,188
============== ==============
- --------------------------------------------------------------------------------
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 INCOME
AND COMPREHENSIVE INCOME
Three Months Ended March 31,
----------------------------------
2000 1999
- --------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited)
Revenues:
License and development fees $ 13,103 $ 9,156
Maintenance and other recurring 10,883 8,697
Professional services and other 3,623 2,367
---------------- ----------------
Net revenues 27,609 20,220
---------------- ----------------
Cost of revenues:
License and development fees 1,185 748
Maintenance and other recurring 3,111 2,284
Professional services and other 1,260 1,113
---------------- ----------------
Total cost of revenues 5,556 4,145
---------------- ----------------
Gross margin 22,053 16,075
---------------- ----------------
Operating expenses:
Sales and marketing 9,239 6,947
Product development 4,924 3,814
General and administrative 2,935 2,340
Amortization of intangibles 382 383
---------------- ----------------
Total operating expenses 17,480 13,484
---------------- ----------------
Income from operations 4,573 2,591
Interest and other income, net 1,360 370
---------------- ----------------
Income before income taxes 5,933 2,961
Provision for income taxes 2,017 1,007
---------------- ----------------
Net income $ 3,916 $ 1,954
---------------- ----------------
Other comprehensive income, net of tax
Foreign currency translations
adjustment (40) 35
---------------- ----------------
Comprehensive income $ 3,876 $ 1,989
================ ================
NET INCOME PER SHARE DATA
Diluted
Net income per share $ 0.12 $ 0.07
Shares used in per share calculations 33,773 27,417
Basic
Net income per share $ 0.13 $ 0.08
Shares used in per share calculations 29,451 24,930
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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<TABLE>
<CAPTION>
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2000 1999
- -----------------------------------------------------------------------------------------
(in thousands) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,916 $ 1,954
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,388 1,037
Provision for doubtful accounts 689 297
Deferred rent 92 57
Cash provided by (used in) operating assets and
liabilities:
Accounts receivable (1,788) (87)
Prepaid and other current assets 146 (155)
Accounts payable (119) (342)
Accrued liabilities 1,099 (876)
Deferred revenues 739 429
Income taxes payable (1,289) (861)
----------- -----------
Net cash provided by operating activities 4,883 1,453
----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (3,921) (1,450)
Deposits and other 145 (175)
----------- -----------
Net cash used in investing activities (3,776) (1,625)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,134 1,552
----------- -----------
Net cash provided by financing activities 3,134 1,552
----------- -----------
Effect of exchange rate changes on cash and
short-term marketable securities (8) 3
----------- -----------
Net increase in cash and short-term marketable securities 4,233 1,383
Cash and short-term marketable securities at beginning
of period 119,126 43,284
----------- -----------
Cash and short-term marketable securities at end of period $ 123,359 $ 44,667
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 3,247 $ 1,861
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
5
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ADVENT SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Advent Software, Inc. ("Advent") and its wholly-owned subsidiaries. We have
eliminated all significant intercompany balances and transactions.
We prepared the condensed consolidated financial statements 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. We recommend that these
interim financial statements be read in conjunction with the audited financial
statements and related notes included in our 1999 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 our 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. In July 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, or SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB No. 133. SFAS 137 deferred the effective date of SFAS 133 until the
first fiscal quarter beginning after June 15, 2000. We have not yet evaluated
the effects of this change on our operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for revenue recognition under certain
circumstances. We have evaluated SAB 101 and do not believe it will have a
material impact on our financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of APB
Opinion No. 25 (Interpretation). The Interpretation is intended to clarify
certain problems that have arisen in practice since the issuance of APB 25. The
Interpretation provides a guidance, some of which is a significant departure
from current practice. The Interpretation generally provides for prospective
application for grants or modifications to existing stock options or awards made
after June 30, 2000. However, for certain transactions the guidance is effective
after December 15, 1998 and January 12, 2000. We believe the adoption of this
pronouncement will have no material impact on our financial position and results
of operations.
6
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3. Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 1999
- ----------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Net income $ 3,916 $ 1,954
Reconciliation of shares used in basic and diluted
per share calculations
Diluted
Weighted average common shares outstanding 29,451 24,930
Dilutive effect of stock options and warrants 4,322 2,487
------------ --------------
Shares used in diluted net income per share calculation 33,773 27,417
============ ==============
Diluted net income per share $ 0.12 $ 0.07
============ ==============
Basic
Weighted average common shares outstanding 29,451 24,930
------------ --------------
Basic net income per share $ 0.13 $ 0.08
============ ==============
</TABLE>
All options outstanding at March 31, 2000 and 1999 were included in the
computation of diluted EPS because the exercise price was less than the average
market price.
4. Stock Split
Our Board of Directors approved a two-for-one split of our Common Stock in
February 2000. The stock split was effected as a stock dividend. Stockholders of
record as of the close of business on February 28, 2000 were issued a
certificate representing one additional Common Share for each share of Common
Stock held on the record date. These certificates were distributed on March 13,
2000. This stock split increased the number of shares of Common Stock
outstanding from approximately 14.8 million shares to approximately 29.6 million
shares.
We have adjusted all shares and per share data in this Form 10-Q to reflect
the stock split.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential" or "continue" or the negative
of such terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors and Forward Looking
Statements," that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels or activity, performance or achievements expressed or implied by
such forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this Form 10-Q or to conform such statements to actual results.
7
<PAGE>
RESULTS OF OPERATIONS
NET REVENUES. Our net revenues for the first quarter of 2000 increased 37%
to $27.6 million, compared with net revenues of $20.2 million for the same
period in 1999, reflecting increases in each component of net revenues. License
revenue and development fees for the first quarter of 2000 increased 43% to
$13.1 million compared with license revenue and development fees of $9.2 million
for the first quarter of 1999. The increase in license and development fees was
primarily due to increased demand for the Advent Office suite and increased
demand for our Geneva software. Maintenance and other recurring revenue for the
first quarter of 2000 increased 25% to $10.9 million, compared with maintenance
and other recurring revenue of $8.7 million for the first quarter of 1999. The
increase was due primarily to a larger client base and multi-product sales to
our existing installed base. In addition, increased demand for implementation
management support contributed to the increase in maintenance and other
recurring revenues. Professional services and other revenue for the first
quarter of 2000 increased 53% to $3.6 million, compared with professional
services and other revenue of $2.4 million for the first quarter of 1999. The
increase was primarily due to higher product sales activity, which increased
demand for our consulting services.
COST OF REVENUES. Our cost of revenues for the first quarter of 2000
increased 34% to $5.6 million, compared with cost of revenues of $4.1 million
for the first quarter of 1999. Cost of revenues as a percentage of net revenues
was relatively stable at 20% for the three months ended March 31, 2000 and 1999.
Cost of license and development fees increased 58% to $1.2 million in the first
quarter of 2000 from $748,000 in the first quarter of 1999. 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 increased to 9% from 8% in the first quarter
of 2000 compared to the same period in 1999, respectively. Cost of maintenance
and other recurring revenues increased 36% to $3.1 million for the first quarter
of 2000 from $2.3 million for the first quarter of 1999. This increase was due
to increased staffing required to support a larger customer base as well as an
increase in implementation management support needed for complex installations.
Cost of maintenance and other recurring revenues as a percentage of the related
revenues increased to 29% in the first quarter of 2000 from 26% in the first
quarter of 1999. The increase was primarily due to increased royalties paid to
third party vendors as a result of increasing data revenues from our clients'
use of proprietary interfaces. Cost of professional services and other revenue
increased 13% to $1.3 million for the first quarter of 2000, compared with $1.1
million for the same period in 1999. 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
decreased to 35% in the first quarter of 2000 from 47% in the first quarter of
1999. The decrease was primarily due to more efficient delivery of services,
such as providing web-based training sessions, as well as changes in the mix of
services provided.
SALES AND MARKETING. Our sales and marketing expenses for the first quarter
of 2000 increased 33% to $9.2 million, compared with sales and marketing
expenses of $6.9 million for the first quarter of 1999. The increase in expense
for the three months ended March 31, 2000 was primarily due to an increase in
sales and marketing personnel and increased marketing efforts towards our Advent
Office suite and our Internet initiatives. Sales and marketing expenses as a
percentage of net revenues decreased to 33% from 34% in the first quarter of
2000 compared to the first quarter of 1999. The decrease was primarily due to
economies of scale.
PRODUCT DEVELOPMENT. Our product development expenses for the first quarter
of 2000 increased 29% to $4.9 million, compared with product development
expenses of $3.8 million for the first quarter of 1999. Product development
expenses increased primarily due to a growth 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 decreased to 18% from 19% for the first quarter of 2000 compared to the
first quarter of 1999. The decrease was primarily due to revenues increasing at
a faster rate than expenses.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses for the
first quarter of 2000 increased 25% to $2.9 million, compared with general and
administrative expenses of $2.3 million for the first quarter of 1999. The
increase was due to increased staffing to support our growth. General and
administrative expenses as a percentage of net revenues decreased to 11% in the
first quarter of 2000, compared with 12% in the first quarter of 1999. The
decrease was primarily due to economies of scale.
8
<PAGE>
INTEREST AND OTHER INCOME, NET. Interest and other income, net was
approximately $1.4 million in the first quarter of 2000, compared with $370,000
in the first quarter of 1999, reflecting an increase of 268%. The increase was
primarily due to greater interest income resulting from increased cash received
from our secondary offering in June 1999.
PROVISION FOR INCOME TAXES. For the three months ended March 31, 2000 we
recorded a tax provision of $2 million based on our pretax income using an
effective tax rate of 34%, which is our anticipated effective tax rate for the
fiscal year 2000. The actual effective tax rate for the entire fiscal year could
vary substantially depending on actual results achieved. We had an effective tax
rate of 34% for fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and short-term marketable securities at March 31,
2000 were $123.4 million, increasing by $4.3 million from $119.1 million at
December 31, 1999. The increase was due to $4.9 million provided by operating
activities and $3.1 million provided by financing activities offset by $3.8
million used in investing activities.
The net cash provided from operating activities for the first quarter 2000 was
primarily due to net income and increases in accrued liabilities and deferred
revenues offset by increases in accounts receivable and decreases in income
taxes payable. Financing activities provided $3.1 million for the first quarter
2000, primarily due to proceeds from the exercise of stock options. Net cash
used in investing activities of $3.8 million for the first quarter was related
primarily to the acquisition of fixed assets for the buildout of our newly
leased New York office space.
At March 31, 2000, we had $126.6 million in working capital. We currently have
no significant capital commitments other than commitments under our operating
leases. We believe that our available sources of funds and anticipated cash
flows from operations will be adequate to finance current operations and
anticipated capital expenditures through at least fiscal 2000.
RISK FACTORS AND FORWARD-LOOKING STATEMENTS
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND WE MAY NOT BE ABLE TO MAINTAIN
OUR EXISTING GROWTH RATES.
Licenses into multi-user networked environments have increased both in
individual size and number, and the timing and size of individual license
transactions are becoming increasingly important factors in quarterly operating
results. The sales cycles for transactions of this size are often lengthy and
unpredictable. We may not be successful in closing large license transactions
such as these on a timely basis or at all. Accordingly, if future revenues from
large site licenses constitute a material portion of our net revenues, the
timing of such licenses could cause additional variability in our quarterly
operating results. We typically ship our software products shortly after receipt
of a signed license agreement and initial payment and, consequently, software
product backlog at the beginning of any quarter typically represents only a
small portion of that quarter's expected revenues. Our expense levels are based
in significant part on our expectations of future revenues and therefore are
relatively fixed in the short term. Due to the fixed nature of these expenses
combined with the relatively high gross margin historically achieved by us on
products and services, an unanticipated decline in net revenues in any
particular quarter is likely to disproportionately adversely affect operating
results.
We have generally realized lower revenues from license fees in the first
quarter of the year than in the last quarter of the prior year. We believe that
this has been due primarily to the concentration by some clients of larger
capital purchases in the fourth quarter of the calendar year and their lower
purchasing activity during the subsequent first quarter. We believe our annual
incentive compensation plans, which tend to produce increased year-end sales
activity, compound this factor. Furthermore, we have often recognized a
substantial portion of each quarter's license revenues in the last month of that
quarter.
Because of the above factors, we believe that period to period comparisons of
our operating results are not necessarily meaningful and that these comparisons
cannot be relied upon as indicators of future performance.
Our stock price has fluctuated significantly since our initial public offering
in November 1995. Like many companies in the technology and emerging growth
sector, our stock price may be subject to wide fluctuations, particularly during
times of high market volatility. If net revenues or earnings in any quarter fail
to meet the investment community's expectations, our stock price is likely to
decline. In addition, our stock price may be affected by broader market trends
unrelated to our performance.
9
<PAGE>
OUR SALES CYCLE IS LONG AND WE HAVE LIMITED ABILITY TO FORECAST THE TIMING AND
AMOUNT OF SPECIFIC SALES.
Because the purchase of our software products often requires significant,
executive-level investment and systems architecture decisions by prospective
customers, we must generally engage in a relatively lengthy sales effort. These
transactions may be delayed during the customer acceptance process because we
must provide a significant level of education to prospective customers regarding
the use and benefit of our products. As a result, the sales cycle associated
with the purchase of our software products is typically between two and nine
months depending upon the size of the client, though it can be considerably
longer, and is subject to a number of significant risks over which we have
little or no control, including customers' budgeting constraints and internal
acceptance procedures. As a result of the length of our sales cycle, we have
limited ability to forecast the timing and amount of specific sales. The timing
of large individual sales is especially difficult to forecast. Because our
expenses are generally relatively fixed in the near term, any shortfall from
anticipated revenues could result in significant variations in our operating
results from quarter to quarter.
The implementation of our solutions involves a significant commitment of
resources by customers and by us over an extended period of time. Also, the size
and complexity of any particular implementation project can cause delays in the
sales cycle that precedes it. Any such delays could seriously harm our business.
WE DEPEND HEAVILY ON OUR PRODUCT, AXYS.
In 1997, 1998 and 1999, we derived a substantial majority of our net revenues
from the licensing of Axys and related products and services. In addition, many
of our other products, such as Moxy, Qube and various data interfaces were
designed to operate with Axys to provide an integrated solution. As a result, we
believe that a majority of our net revenues, at least through 2000, will depend
upon continued market acceptance of Axys, enhancements or upgrades to Axys and
related products and services.
WE ARE CONTINUING TO EXPAND OUR INTERNET INITIATIVE.
To take advantage of the Internet, we are continuing to expand an Internet
initiative under which 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 service, Advent Browser Reporting, was launched in the third quarter of
1998. The third service, Advent TrustedNetwork, was announced during the first
quarter of 2000. As we develop new products and services under our 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. We may not be successful in marketing our
Internet services or in developing other Internet services. Our failure to do so
could seriously harm our business.
WE EXPECT OUR GROSS MARGIN MAY FLUCTUATE OVER TIME.
We also expect that our gross margins may fluctuate from period to period as
we continue to introduce new recurring revenue products, expand our professional
services organization and associated revenue, continue to hire additional
personnel and increase other expenses to support our business. We plan our
expense levels based primarily on forecasted revenue levels. Because these
expenses are relatively fixed in the short term, a fluctuation in revenue could
lead to operating results differing from expectations
WE MUST CONTINUE TO INTRODUCE NEW PRODUCTS AND PRODUCT ENHANCEMENTS.
The market for our products is characterized by rapid technological change,
changes in customer demands and evolving industry standards. As a result, our
future success will continue to depend upon our ability to develop new products
that address the future needs of our target markets and to respond to these
changing standards and practices. Delays in the commencement of commercial
shipments of new products or enhancements may result in client dissatisfaction
and delay or loss of product revenues. In addition, our ability to develop new
products and product enhancements is dependent upon the products of other
software vendors, including system software vendors, such as Microsoft
Corporation, database vendors and development tool vendors. If the products of
these vendors have design defects or flaws, or if these products are
unexpectedly delayed in their introduction, our business could be seriously
harmed.
10
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WE DEPEND UPON FINANCIAL MARKETS.
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.
GENERAL ECONOMIC CONDITIONS MAY REDUCE OUR LICENSE REVENUES.
We believe that the market for large management software systems may be
negatively impacted by a number of factors, including:
o reductions in capital expenditures by large customers;
o poor performance of major financial markets, and
o increasing competition.
The above factors may, in turn, give rise to a number of market trends that may
slow license revenue growth across the industry, including:
o longer sales cycles;
o deferral or delay of information technology projects and generally reduced
expenditures for software; and
o increased price competition.
Although we do not believe these factors have impacted our revenues to date,
the continued presence of these factors in the market for large management
software systems could adversely affect our business and results of operations.
IF OUR RELATIONSHIP WITH INTERACTIVE DATA CORPORATION IS TERMINATED, OUR
BUSINESS MAY BE HARMED.
Many of our clients use our proprietary interface to electronically retrieve
pricing and other data from Interactive Data Corporation (Interactive Data).
Interactive Data pays us a commission based on their revenues from providing
this data to our clients. Our software products have been customized to be
compatible with their system and this software would need to be redesigned if
their services were unavailable for any reason. Termination of our agreement
with Interactive Data would require at least two years notice by either us or
them, or 90 days in the case of material breach. If our relationship with
Interactive Data were terminated or their services were unavailable to our
clients for any reason, replacing these services could be costly and time
consuming.
WE FACE INTENSE COMPETITION.
The market for investment management software is intensely competitive and
highly fragmented, subject to rapid change and highly sensitive to new product
introductions and marketing efforts by industry participants. Our competitors
include providers of software and related services as well as providers of
timeshare services.
Our competitors vary in size, scope of services offered and platforms
supported. In addition, we compete indirectly with existing and potential
clients, many of whom develop their own software for their particular needs and
therefore may be reluctant to license software products offered by independent
vendors like us. Many of our competitors have longer operating histories and
greater financial, technical, sales and marketing resources than we do. We
cannot guarantee that we will be able to compete successfully against current
and future competitors or that competitive pressures will not result in price
reductions, reduced operating margins and loss of market share, any one of which
could seriously harm our business.
11
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WE FACE CHALLENGES IN EXPANDING OUR INTERNATIONAL OPERATIONS.
We market and sell our products in the United States and, to a lesser extent,
internationally. We have established a subsidiary located in Australia to market
and sell our products in Australia. In addition, during 1999 we entered into a
distributor relationship with Advent Europe, an independent entity financially
backed by our existing distributor in Scandinavia. In order to expand our
international operations, we would need to continue to establish additional
facilities, acquire other businesses or enter into additional distribution
relationships in other parts of the world. The expansion of our existing
international operations and entry into additional international markets will
require significant management attention and financial resources. We cannot be
certain that our investments in establishing facilities in other countries will
produce desired levels of revenue. We currently have limited experience in
developing localized versions of our products and marketing and distributing our
products internationally. In addition, international operations are subject to
other inherent risks, including:
o The impact of recessions in economies outside the United States;
o Greater difficulty in accounts receivable collection and longer collection
periods;
o Unexpected changes in regulatory requirements;
o Difficulties in successfully adapting our products to the language and
technology standards of other countries;
o Difficulties and costs of staffing and managing foreign operations;
o Reduced protection for intellectual property rights in some countries;
o Potentially adverse tax consequences; and
o Political and economic instability.
Our international revenues are generally denominated in U.S. dollars, with the
exception of our subsidiary, Advent Australia. The revenues, expenses, assets
and liabilities of our subsidiary, Advent Australia, are primarily denominated
in Australian dollars. We do not currently engage in currency hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, future fluctuations in currency exchange rates may adversely
affect revenues from international sales and the U.S. dollar value of Advent
Australia's revenues, expenses, assets and liabilities.
UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT IN LOSS
OF OR DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS THAT COULD SERIOUSLY HARM OUR
BUSINESS.
Our products may contain undetected software errors or failures when first
introduced or as new versions are released. Despite testing by us and by current
and potential customers, errors may not be found in new products until after
commencement of commercial shipments, resulting in loss of or a delay in market
acceptance, which could seriously harm our business.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY BE SUBJECT TO
INCREASED COMPETITION THAT COULD SERIOUSLY HARM OUR BUSINESS.
Our success depends significantly upon our proprietary technology. We
currently rely on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our proprietary
rights. We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. We cannot assure you that we will develop proprietary products or
technologies that are patentable, that any patent, if issued, would provide us
with any competitive advantages or would not be challenged by third parties, or
that the patents of others will not adversely affect our ability to do business.
Litigation may be necessary to protect our proprietary technology. This
litigation may be time-consuming and expensive. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect proprietary rights
to as great an extent as do the laws of the United States. We cannot assure you
that our means of protecting our proprietary
12
<PAGE>
rights will be adequate or that our competitors will not independently develop
similar technology, duplicate our products or design around any patent that may
be issued to us or other intellectual property rights of ours.
WE FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR DIVESTITURES.
We may acquire or make investments in complementary companies, products or
technologies. In addition, we continually evaluate the performance of all our
products and product lines and may sell or discontinue current products or
product lines. If we buy a company, we could have difficulty in integrating that
company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in assimilating the acquired technology
or products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt, write-off software development costs or
other assets, incur severance liabilities, amortize expenses related to goodwill
and other intangible assets or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could dilute our existing
stockholders' ownership.
In addition, potential acquisition candidates targeted by us may not have
audited financial statements, detailed financial information or any degree of
internal controls. There can be no assurance that an audit subsequent to any
successful completion of an acquisition will not reveal matters of significance,
including issues regarding revenues, expenses, liabilities, contingent or
otherwise, and intellectual property. There can be no assurance that the Company
would be successful in overcoming these or any other significant risks
encountered and the failure to do so could have a material adverse effect upon
the Company's business, operating results and financial condition.
WE MUST ATTRACT AND RETAIN QUALIFIED TECHNICAL AND SALES PERSONNEL.
Our continued success depends, in part, on our ability to identify, attract,
motivate and retain qualified technical, sales and other personnel. Because our
future success is dependent on our ability to continue to enhance and introduce
new products, we are particularly dependent on our ability to identify, attract,
motivate and retain qualified engineers with the requisite education,
backgrounds and industry experience. Competition for qualified engineers,
particularly in Northern California and the San Francisco Bay Area, is intense.
The loss of the services of a significant number of our engineers or sales
people could be disruptive to our development efforts or business relationships
and could seriously harm our business.
13
<PAGE>
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 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, since the formation of Advent Australia,
Pty. Ltd., (Advent Australia) whose revenues and capital spending are transacted
in Australian dollars we have greater exposure to foreign currency fluctuations.
Results of operations from Advent Australia are not material to our operating
results, 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.
<TABLE>
<CAPTION>
Estimated Fair Value
at March 31,
2000 2001 2002 2003 2004 Thereafter Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Federal Instruments 18,850 6,000 24,850
Weighted Average Interest Rate 5.74 6.61 5.95
Commercial Paper & Short-term obligations 37,723 37,723
Weighted Average Interest Rate 5.38 5.38
Corporate Notes & Bonds 3,000 3,000
Weighted Average Interest Rate 5.25 5.25
Municipal Notes & Bonds 28,400 9,285 37,685
Weighted Average Interest Rate 5.18 6.26 5.49
----------------------------------------------------------------------------
Total Portfolio, excluding equity securities $ 87,973 $ 15,285 $ - $ - $ - $ - $ 103,258
</TABLE>
At March 31, 2000, cash, cash equivalents and short-term marketable
securities totaled approximately $123.4 million, which is comprised of the
$103.3 million in our investment portfolio presented above, $20.1 million in
other cash and cash equivalents.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we are involved in litigation incidental to the conduct of
our business. We are not party to any lawsuit or proceeding that, in our
opinion, is likely to seriously harm our business.
Item 2. Changes in Securities
Our Board of Directors approved a two-for-one split of our Common Stock in
February 2000. The stock split was effected as a stock dividend. Stockholders of
record as of the close of business on February 28, 2000 were issued a
certificate representing one additional Common Share for each share of Common
Stock held on the record date. These certificates were distributed on March 13,
2000. This stock split increased the number of shares of Common Stock
outstanding from approximately 14.8 million shares to approximately 29.6 million
shares.
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.
15
<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 12, 2000 By: /s/ IRV H. LICHTENWALD
--------------------------
Irv H. Lichtenwald
Senior Vice President of Finance,
Chief Financial Officer
and Secretary
(Principal Financial Officer)
Dated: May 12, 2000 By: /s/ PATRICIA VOLL
-------------------------
Patricia Voll
Vice President of Finance
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 123,359
<SECURITIES> 0
<RECEIVABLES> 27,344
<ALLOWANCES> 845
<INVENTORY> 0
<CURRENT-ASSETS> 156,708
<PP&E> 31,742
<DEPRECIATION> 12,184
<TOTAL-ASSETS> 198,686
<CURRENT-LIABILITIES> 30,101
<BONDS> 0
0
0
<COMMON> 297
<OTHER-SE> 134,089
<TOTAL-LIABILITY-AND-EQUITY> 167,669
<SALES> 13,103
<TOTAL-REVENUES> 27,609
<CGS> 1,185
<TOTAL-COSTS> 5,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,933
<INCOME-TAX> 2,017
<INCOME-CONTINUING> 3,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,916
<EPS-BASIC> .13
<EPS-DILUTED> .12
</TABLE>