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 June 30, 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 July
31, 2000 was 30,109,407.
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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 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
------------------------------------------------------------------------------------------
(in thousands) (unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term
marketable securities $ 133,954 $ 119,126
Accounts receivable, net 27,339 25,452
Prepaid expenses and other 3,700 3,789
Deferred income taxes 3,209 3,209
------------- --------------
Total current assets 168,202 151,576
------------- --------------
Fixed assets, net 21,094 16,661
Other assets, net 23,576 22,951
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Total assets $ 212,872 $ 191,188
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,928 $ 1,185
Accrued liabilities 8,309 7,962
Deferred revenues 19,277 17,230
Income taxes payable 4,999 3,328
------------- --------------
Total current liabilities 34,513 29,705
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Long-term liabilities:
Other liabilities 973 824
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Total liabilities 35,486 30,529
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Stockholders' equity:
Common stock 301 292
Additional paid-in capital 138,043 130,960
Retained earnings 39,103 29,382
Cumulative other comprehensive income (61) 25
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Total stockholders' equity 177,386 160,659
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Total liabilities and stockholders' equity $ 212,872 $ 191,188
============= ==============
</TABLE>
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License and development fees $ 15,375 $ 11,561 $ 28,478 $ 20,717
Maintenance and other recurring 12,338 9,131 23,221 17,828
Professional services and other 4,964 3,531 8,587 5,898
---------------- ---------------- ---------------- ----------------
Net revenues 32,677 24,223 60,286 44,443
---------------- ---------------- ---------------- ----------------
Cost of revenues:
License and development fees 1,273 880 2,458 1,629
Maintenance and other recurring 3,259 2,445 6,369 4,729
Professional services and other 1,541 1,365 2,801 2,476
---------------- ---------------- ---------------- ----------------
Total cost of revenues 6,073 4,690 11,628 8,834
---------------- ---------------- ---------------- ----------------
Gross margin 26,604 19,533 48,658 35,609
---------------- ---------------- ---------------- ----------------
Operating expenses:
Sales and marketing 10,494 7,835 19,733 14,782
Product development 5,561 4,052 10,485 7,866
General and administrative 2,976 2,417 5,911 4,757
Amortization of intangibles 382 383 764 767
---------------- ---------------- ---------------- ----------------
Total operating expenses 19,413 14,687 36,893 28,172
---------------- ---------------- ---------------- ----------------
Income from operations 7,191 4,846 11,765 7,437
Interest and other income, net 1,604 440 2,964 810
---------------- ---------------- ---------------- ----------------
Income before income taxes 8,795 5,286 14,729 8,247
Provision for income taxes 2,990 1,797 5,008 2,805
---------------- ---------------- ---------------- ----------------
Net income $ 5,805 $ 3,489 $ 9,721 $ 5,442
================ ================ ================ ================
Other comprehensive income, net of tax
Foreign currency translations adjustment (46) (5) (86) 30
---------------- ---------------- ---------------- ----------------
Comprehensive income $ 5,759 $ 3,484 $ 9,635 $ 5,472
================ ================ ================ ================
NET INCOME PER SHARE DATA
Diluted
Net income per share $ 0.17 $ 0.12 $ 0.29 $ 0.19
Shares used in per share calculations 34,103 28,426 33,948 27,948
Basic
Net income per share $ 0.19 $ 0.14 $ 0.33 $ 0.22
Shares used in per share calculations 29,882 25,371 29,664 25,072
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<TABLE>
<CAPTION>
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-------------------------------
2000 1999
------------------------------------------------------------------------------------------------------
(in thousands) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,721 $ 5,442
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on disposal of asset 10 -
Depreciation and amortization 2,933 2,091
Provision for doubtful accounts 955 437
Deferred rent 149 79
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (2,900) (2,773)
Prepaid and other current assets 86 (317)
Accounts payable 751 (575)
Accrued liabilities 377 740
Deferred revenues 2,070 861
Income taxes payable 1,654 355
---------------- ---------------
Net cash provided by operating activities 15,806 6,340
---------------- ---------------
Cash flows from investing activities:
Acquisition of fixed assets (6,622) (2,848)
Deposits and other (1,394) (6,675)
---------------- ---------------
Net cash used in investing activities (8,016) (9,523)
---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 7,092 73,850
---------------- ---------------
Net cash provided by financing activities 7,092 73,850
---------------- ---------------
Effect of exchange rate changes on cash and short-term
marketable securities (54) 42
---------------- ---------------
Net increase in cash and short-term marketable securities 14,828 70,709
Cash and short-term marketable securities at beginning of period 119,126 43,284
---------------- ---------------
Cash and short-term marketable securities at end of period $ 133,954 $ 113,993
================ ===============
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 3,256 $ 2,061
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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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. 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 Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
July 1999, Statement of Financial Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB No. 133 ("SFAS 137") was issued. SFAS 137 deferred the effective date of
SFAS 133 until the first fiscal quarter beginning after June 15, 2000. We have
not engaged in hedging activities or invested in derivative instruments and we
do not believe that implementation of SFAS 133 will have a material impact on
our financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," as amended by SAB 101 A and SAB 101 B. 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.
The accounting and disclosures prescribed by SAB 101 will be effective for our
fiscal year ending December 31, 2000.
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 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.
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3. Net Income Per Share
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Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except for per share data) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net income $ 5,805 $ 3,489 $ 9,721 $ 5,442
Reconciliation of shares used in basic and diluted
per share calculations
Diluted
Weighted average common shares outstanding 29,882 25,371 29,664 25,072
Dilutive effect of stock options 4,221 3,055 4,284 2,876
--------------- -------------- --------------- --------------
Shares used in diluted net income per share calculation 34,103 28,426 33,948 27,948
=============== ============== =============== ==============
Diluted net income per share $ 0.17 $ 0.12 $ 0.29 $ 0.19
=============== ============== =============== ==============
Basic
Weighted average common shares outstanding 29,882 25,371 29,664 25,072
--------------- -------------- --------------- --------------
Shares used in basic net income per share calculation 29,882 25,371 29,664 25,072
=============== ============== =============== ==============
Basic net income per share $ 0.19 $ 0.14 $ 0.33 $ 0.22
=============== ============== =============== ==============
Weighted average options outstanding at June 30,
2000 and 1999 not included in computation of diluted EPS
because the exercise price was greater than the average
market price 123 582 62 294
Price of options not used in diluted EPS calculation $ 52.50 $ 21.375 $ 52.50 $ 21.375
--------------- -------------- --------------- --------------
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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
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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.
Results of Operations
REVENUES
Our net revenues for the second quarter increased 35% to $32.7 million,
compared with net revenues of $24.2 million for the same period in 1999. Net
revenues for the six months ended June 30, 2000 increased 36% to $60.3 million,
compared with net revenues of $44.4 million. These reflect increases in each
component of net revenues. Our net revenues are made up of three components,
license and development fees, maintenance and other recurring as well as
professional services and other.
License revenue and development fees. License revenue and development fees
for the second quarter of 2000 increased 33% to $15.4 million compared with
license revenue and development fees of $11.6 million for the second quarter of
1999. License revenue and development fees for the six months ended June 30,
2000 increased 37% to $28.5 million, compared with $20.7 million from the same
period last year. The increase in license and development fees was primarily due
to increased demand for the Advent Office suite and Geneva product.
Maintenance and other recurring revenue. Maintenance and other recurring
revenue for the second quarter of 2000 increased 35% to $12.3 million, compared
with maintenance and other recurring revenue of $9.1 million for the second
quarter of 1999. Maintenance and other recurring revenue for the six months
ended June 30, 2000 increased 30% to $23.2 million, compared with maintenance
and other recurring revenue of $17.8 million for the same period last year. The
increases were due primarily to a larger client base and multi-product sales to
our existing installed base. In addition, increased demand for implementation
management support and consolidated securities information and data contributed
to the increase in maintenance and other recurring revenues.
Professional services and other revenue. Professional services and other
revenue for the second quarter of 2000 increased 41% to $5.0 million, compared
with professional services and other revenue of $3.5 million for the second
quarter of 1999. Professional services and other revenue for the six months
ended June 30, 2000 increased 46% to $8.6 million, compared with $5.9 million
for the same period last year. The increases were primarily due to higher
product sales activity, which increased demand for our consulting services.
COST OF REVENUES
Our cost of revenues for the second quarter of 2000 increased 29% to $6.1
million, compared with cost of revenues of $4.7 million for the second quarter
of 1999. Cost of revenues for the six months ended June 30, 2000 increased 32%
to $11.6 million, compared with $8.8 million for the same period last year. Cost
of revenues as a percentage of net revenues was relatively stable at 19% for the
three months ended June 30, 2000 and 1999. Cost of revenues as a percentage of
net revenues decreased to 19% for the six months ended June 30, 2000, compared
with 20% for the same period last year. Our cost of revenues is made up of three
components, cost of license and development fees, cost of maintenance and other
recurring as well as cost of professional services and other.
Cost of license and development fees. Cost of license and development fees
increased 45% to $1.3 million in the second quarter of 2000 from $880,000 in the
second quarter of 1999. Cost of license and development fees increased 51% to
$2.5 million in the six months ended June 30, 2000, compared with $1.6 million
in the same period last year. The increase in cost of license and development
fees is directly related to the increase in license and development fees
revenue. Cost of license and development fees as a percentage of the related
revenues remained relatively stable at 8% for the second quarter of 2000
compared to the same period in 1999. Cost of license and development fees as a
percentage of the related revenues increased to 9% from 8% in the six months
ended June 30, 2000, compared with the same period last year, respectively. The
increase is partially due to the redeployment of resources from product
development in response to growing demands in license and development fees
projects.
Cost of maintenance and other recurring revenues. Cost of maintenance and
other recurring revenues increased 33% to $3.3 million for the second quarter of
2000 from $2.4 million for the second quarter of 1999. Cost of maintenance and
other recurring revenues increased 35% to $6.4 million for the six months ended
June 30, 2000, compared with $4.7 million for
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the same period last year. 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 remained
relatively stable at 26% for the second quarter 2000 and 1999 and 27% for the
six months ended June 30, 2000 and 1999.
Cost of professional services and other revenue. Cost of professional
services and other revenue increased 13% to $1.5 million for the second quarter
of 2000, compared with $1.4 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 31% in the second quarter of
2000 from 39% in the second quarter of 1999. Cost of professional services and
other revenue as a percentage of the related revenues decreased to 33% for the
six months ended June 30, 2000, compared with 42% in the same period last year.
The decreases were 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.
OPERATING EXPENSES
Sales and Marketing. Our sales and marketing expenses for the second quarter
of 2000 increased 34% to $10.5 million, compared with $7.8 million for the
second quarter of 1999. Sales and marketing expenses for the six months ended
June 30, 2000 increased 33% to $19.7 million, compared with $14.8 million in the
same period last year. The increase in expense for the three and six months
ended June 30, 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 remained relatively stable at 32% for the second quarter of 2000 and
1999. Sales and marketing expenses as a percentage of net revenues remained
relatively stable at 33% for the six months ended June 30, 2000 and 1999.
Product Development. Our product development expenses for the second quarter
of 2000 increased 37% to $5.6 million, compared with product development
expenses of $4.1 million for the second quarter of 1999. Product development
expenses for the six months ended June 30, 2000 increased 33% to $10.5 million,
compared with $7.9 million in the same period last year. Product development
expenses increased primarily due to a growth in personnel as we increased our
product development efforts for existing product enhancements and new product
introductions. Product development expenses as a percentage of net revenues
remained relatively stable at 17% for the second quarter 2000 compared with the
second quarter 1999. Product development expenses as a percentage of net
revenues decreased to 17% for the six months ended June 30, 2000, compared with
18% in the same period last year. The decrease was primarily due to the
redeployment of resources to license and development fee projects in response to
growing demands in that area.
General and Administrative. Our general and administrative expenses for the
second quarter of 2000 increased 23% to $3.0 million, compared with general and
administrative expenses of $2.4 million for the second quarter of 1999. The
expense increased 24% to $5.9 million for the six months ended June 30, 2000,
compared with $4.8 million in the same period last year. The increase was due to
increased staffing to support our growth. General and administrative expenses as
a percentage of net revenues decreased to 9% in the second quarter of 2000,
compared with 10% in the second quarter of 1999. General and administrative
expenses as a percentage of net revenues decreased to 10% in the six months
ended June 30, 2000, compared with 11% in the same period last year. The
decrease was primarily due to economies of scale.
Interest and Other Income, Net. Interest and other income, net was $1.6
million in the second quarter of 2000, compared with $440,000 in the second
quarter of 1999, reflecting an increase of $1.2 million. Interest and other
income, net was $3.0 million in the six months ended June 30, 2000, compared
with $810,000 in the same period last year, reflecting an increase of $2.2
million. The increase was primarily due to greater interest income earned on
cash invested from the proceeds of our secondary offering in June 1999.
Provision for Income Taxes. For the three and six months ended June 30, 2000
we recorded a tax provision of $3.0 million and $5.0 million, respectively,
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.
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Liquidity and Capital Resources
Our cash, cash equivalents and short-term marketable securities at June 30,
2000 were $134.0 million, increasing by $14.9 million from $119.1 million at
December 31, 1999. The increase was due to $15.8 million provided by operating
activities and $7.1 million provided by financing activities offset by $8.0
million used in investing activities.
The net cash of $15.8 million provided from operating activities for the six
months ended June 30, 2000 was primarily due to net income and increases in
deferred revenues and income taxes payable offset by increases in accounts
receivable. Financing activities provided $7.1 million for the six months ended
June 30, 2000, primarily due to proceeds from exercises of common stock options
and the employee stock purchase plan. Net cash used in investing activities of
$8.0 million for the six months ended June 30, 2000 was related primarily to the
acquisition of fixed assets for the buildout of our newly leased New York office
space as well as prepayments to new strategic partners to further bring new
products and services to our clients.
At June 30, 2000, we had $133.7 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 2001.
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, weeks
or even days of that quarter. As a result, the magnitude of quarterly
fluctuations in revenue or earnings may not be evident until late in or after
the close of a particular 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.
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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 1999, 1998 and 1997, 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. During 2000 we have introduced a number of new products and services which
take advantage of internet technology, including Advent TrustedNetwork, My
Advent, Advent Vista, E-Actions (through our HubData subsidiary), internet
enabled enhancements to Gifts for Windows (through our MicroEdge subsidiary) and
an Application Service Provider program. 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 FACE RISKS RELATED TO OUR NEW BUSINESS AREAS.
We have expanded in recent periods into a number of new business areas to
foster long-term growth including international operations, strategic alliances
and our internet initiatives. These areas are relatively new to our product
development and sales personnel. New business areas require significant
management time and resources prior to generating significant revenues and may
divert management from our core business. There is no assurance that we will
compete effectively or will generate significant revenues in these areas. The
success of our internet initiatives, in particular, are difficult to predict
because they represent new areas of business for our entire industry.
Additionally, to help manage our growth we will need to continually improve our
operational, financial, management and information systems and controls.
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.
11
<PAGE>
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.
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.
12
<PAGE>
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 Application
Service 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.
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 distributor of our
products in Europe. In order to further 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,
regulatory 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 Pty., Ltd. (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.
13
<PAGE>
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 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, technology, products, services or intellectual property. There can be
no assurance that we 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 our 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.
14
<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
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 June 30,
2000 2001 2002 2003 2004 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
Federal Instruments 7,020,000 14,000,000 21,020,000
Weighted Average Interest Rate 6.16 6.81 6.60
Commercial Paper & Short-term obligations 39,260,000 39,260,000
Weighted Average Interest Rate 5.92 5.92
Corporate Notes & Bonds 3,000,000 3,000,000
Weighted Average Interest Rate 5.25 5.25
Municipal Notes & Bonds 45,360,000 8,965,000 3,900,000 58,225,000
Weighted Average Interest Rate 6.18 5.78 4.89 6.03
------------------------------------------------------------------------------------
Total Portfolio, excluding equity securities 94,640,000 22,965,000 3,900,000 - - - 121,505,000
</TABLE>
At June 30, 2000, cash, cash equivalents and short-term marketable
securities totaled approximately $134.0 million, which is comprised of the
$121.5 million in our investment portfolio presented above and $12.5 million in
other cash and cash equivalents.
15
<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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Stockholders, held May 4, 2000, the following
matters were voted upon by stockholders pursuant to proxies solicited pursuant
to Regulation 14A of the Securities Exchange Act of 1934:
The following individuals were elected to the Board of Directors:
NOMINEE FOR AGAINST
-------------------------------- --------------- ----------------
Ms. Stephanie G. DiMarco 19,383,906 63,108
Mr. Peter M. Caswell 19,381,843 65,171
Mr. Frank H. Robinson 19,381,906 65,108
Mr. Wendell G. Van Auken 19,377,706 69,308
Mr. William F. Zuendt 19,381,806 65,208
Mr. Monte Zweben 19,380,610 66,404
The vote for the approval of the Amendment of the Company's Certificate of
Incorporation was as follows:
FOR AGAINST ABSTAIN
----------------- ---------------- ----------------
16,960,640 1,811,104 675,270
The vote for the approval of the Amendment of the Company's 1995 Directors'
Option plan was as follows:
FOR AGAINST ABSTAIN
----------------- ---------------- ----------------
15,150,454 3,606,150 690,410
The vote for ratification of the appointment of PricewaterhouseCoopers LLP
was as follows:
FOR AGAINST ABSTAIN
----------------- ---------------- ----------------
19,438,890 5,229 2,895
ITEM 5. OTHER INFORMATION
None.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
17
<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: August 11, 2000 By: /s/ IRV H. LICHTENWALD
--------------------------
Irv H. Lichtenwald
Senior Vice President of Finance,
Chief Financial Officer
and Secretary
(Principal Financial Officer)
Dated: August 11, 2000 By: /s/ PATRICIA VOLL
-------------------------
Patricia Voll
Vice President of Finance
(Principal Accounting Officer)
18
