ADVENT SOFTWARE INC /DE/
10-Q, 2000-05-15
COMPUTER PROGRAMMING SERVICES
Previous: FTI FUNDS, 40-17F2, 2000-05-15
Next: WORLDWIDE ENTERTAINMENT & SPORTS CORP, 10-Q, 2000-05-15





                       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
<PAGE>


                          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
<PAGE>
                              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
<PAGE>

<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
<PAGE>


                              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
<PAGE>


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
<PAGE>

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
<PAGE>

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>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission