SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1997
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 of incorporation)
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)
Securities registered pursuant to Section 12(b) of the Acts: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The number of shares of the registrant's Common Stock outstanding as of March
25, 1998 was 7,901,000. The aggregate market value of the registrant's Common
Stock held by non-affiliates, based upon the closing price on March 27, 1998, as
reported on the Nasdaq National Market System, was approximately $176.0 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Parts II and
III of this Form 10-K: (1) 1997 Annual Report to Stockholders of the Registrant
(Part II of this Form 10-K); and (2) Definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders to be held April 30, 1998 (Part III
of this Form 10-K).
PART I
Item 1. BUSINESS
Overview
Advent Software, Inc. (Advent) is a leading provider of stand-alone and
client/server software products, data interfaces and related services that
automate and integrate certain mission-critical functions of investment
management organizations. Advent's suite of complementary products for the
front, middle and back office includes Axys(TM), Advent Partner(TM) and
Geneva(R), Advent's portfolio accounting and management systems; Moxy(R), a
trading and order management system; Qube(R), a client management system and
Rex(TM), an automated transaction and position reconciliation system. These
products address the need to facilitate the management of increasingly large and
complex information and data flows both within investment management
organizations and between such organizations and third parties, such as
brokerage firms, clients, custodians, banks, pricing services and other data
providers. Advent's products are designed to reduce client costs, improve the
accuracy of client information, and generally enable clients to devote more time
to improving the service they provide to their customers rather than focusing on
operational details. Advent's strategy is to develop long-term client
relationships and to maintain a high level of lifetime client satisfaction which
Advent believes will result in additional recurring revenues from new product
licenses, renewals of existing maintenance contracts and the introduction of new
data products.
Advent's clients include many of the world's leading investment management
organizations. These organizations vary significantly in size, assets under
management and the complexity of their investment environments. At present,
Advent has licensed its products to over 4,500 institutions in 22 countries for
use by more than 25,000 concurrent users.
Advent was incorporated in 1983 in California and reincorporated in the
State of Delaware in November 1995.
Industry Background
The investment management business includes a range of organizations that
manage investment portfolios, including investment advisors, brokerage firms,
banks and hedge funds. In addition, corporations, public funds, foundations,
universities and non-profit organizations manage investment portfolios and
perform similar portfolio management functions. Recently, the investment
management industry has experienced significant growth which, in combination
with other factors, has led to increasing demand for software products that
automate, simplify and integrate functions within investment management
organizations. This increasing demand is driven by several industry dynamics.
Financial assets under management have increased substantially during the last
decade. As the value of total financial assets under management has increased,
there has been a substantial increase in the number of investment management
organizations and a steady introduction of increasingly sophisticated financial
instruments. As a result, investment managers are faced with increasingly
complicated portfolio accounting and management requirements. Investment
management organizations are subject to extensive and evolving industry
standards and government regulations. These dynamics have increased the volume
and complexity of information and data flows within investment management
organizations and between such organizations and third parties, such as
brokerage firms, clients, custodians, banks, pricing services and other data
providers. Consequently, investment management organizations require more
sophisticated and integrated software products for their front, middle and back
offices. In order to operate efficiently within this environment, investment
management organizations must automate and integrate their mission-critical and
labor-intensive functions, including (i) investment decision support and client
relationship management, (ii) order management and trading and (iii) portfolio
accounting, performance measurement, report generation and compliance.
Investment management organizations historically have relied on internally
developed systems, timesharing services or simple spreadsheet-based systems to
manage information flows. Due to inherent limitations in each of these types of
systems, investment management
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organizations are demanding highly functional,
easy-to-use, scalable, cost-effective and flexible software applications that
automate and integrate their mission-critical business functions.
Software Products
Advent offers a suite of stand-alone and client/server software products
that automate and integrate work and data flows across the front, middle and
back offices within the investment management organization, as well as the
information flows between the investment management organization and external
parties. Advent's products are intended to reduce client costs, improve the
accuracy of client information and generally enable clients to improve the
service they provide to their customers rather than focusing on operational
details. Each software product is focused on certain mission-critical functions
of the front, middle or back offices of investment management organizations.
Individual products are tailored to meet the needs of a particular market
segment, as determined by size, assets under management and complexity of the
investment environment. In addition, Advent believes its products are well
suited for the investment management functions of corporations, public funds,
foundations, universities and non-profit organizations.
[Chart Appears Here]
Portfolio Accounting and Management
Advent offers three portfolio accounting and management systems, Axys,
Advent Partner and Geneva, each targeted at a different segment of the
investment management industry.
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Axys, Advent's core product, introduced in 1993, is a highly functional
portfolio accounting and management system targeted towards investment
management organizations of all sizes. Axys provides investment professionals
with broad portfolio accounting functionality, timely decision support,
sophisticated performance measurement and flexible reporting. Specifically,
clients can record, account for and report on a variety of investment
instruments, including equities, fixed income, mutual funds and cash. Axys users
gain access on demand to portfolio holdings, asset allocation, realized and
unrealized gains and losses, actual and projected income and other valuable
data. Portfolio performance can be measured for individual portfolios or related
groups, and for any specified time period. Investment professionals can choose
from over 200 pre-defined reports with flexible "as-of" reporting, which can be
customized as to formats and fonts. Clients can easily generate fully customized
reports with the assistance of the Axys Report Writer. Clients can also produce
presentation-quality graphics via an integrated link with Microsoft Excel's
charting capability. In addition, Axys offers integrated multicurrency
capabilities which, among other things, allows reports to be restated in any
currency, withholding tax to be automatically calculated, and components of
return attributable to market prices versus currency rate fluctuations to be
identified.
Axys also provides integration with a variety of investment tools and data,
including (i) trade order management via Moxy, (ii) pricing, corporate actions,
analytics and fundamental data via interfaces to data vendors, (iii) automatic
data entry and reconciliation of trades with interfaces to The Depository Trust
Corporation ( DTC ), and to certain brokerage firms and custodians, (iv)
automatic transaction and position reconciliation through the Internet via Rex,
Advent's custodial reconciliation service and software, and (v) Internet
reporting via the Axys WebView service, Advent's Internet reporting service.
Advent Partner, introduced in December 1996, is a tax layering and
partnership allocation solution which integrates with Axys. This product is
specifically designed for hedge funds, venture funds and limited investment
partnerships who face the complex and time-consuming task of consistently and
accurately accounting for and reporting on partnership tax allocation and other
activities. The Windows-based system tracks partner-specific information, layers
realized and unrealized gains, allocates performance incentive fees, provides
on-demand partner and partnership reporting on a book or tax allocation basis
and streamlines the production of partnership tax returns.
Geneva, introduced to target organizations in 1995 and made commercially
available in October 1997, is a high-end portfolio management system designed to
meet the needs of large, global investment management organizations with
complex, international accounting requirements. Geneva offers feature-rich
global accounting, extensive reporting and sophisticated multicurrency
capabilities. In addition, Geneva's highly flexible design allows users to add
newly created financial instruments and tailor accounting treatments to their
specific needs.
Trading and Order Management
Moxy, introduced in 1995, automates and streamlines the trading and order
management process. Moxy can be integrated with any portfolio accounting system,
facilitates accurate trade order management and preparation, tracks trade order
status, automates the allocation of block trades across multiple portfolios and
electronically interfaces with Axys to provide an integrated solution. Moxy
supports fixed income, mutual funds, and equity trading and offers multicurrency
capabilities. Moxy enables investment managers to accurately adjust portfolio
holdings, rebalance portfolios against models, interactively assess "what-if"
scenarios and automatically create orders to be executed. For traders, Moxy
tracks cash and positions during the trading day, enables the accurate
preparation of block trades and internal electronic trade tickets, facilitates
compliance with investment restrictions and trading requirements and minimizes
trading errors.
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Moxy also allows traders and others to view the status of orders via
customizable screens and maintain an electronic audit trail of the trade
process. Moxy automates the allocation process of partial and complete
executions and allows the user to send allocation results by fax directly from
the computer to brokers and banks. Moxy allows clients using OASYS, an
electronic allocation system, to communicate allocations to brokers
electronically. In the future, Moxy will have additional electronic links that
instantly communicate trade and allocation information to brokers and
custodians. Moxy electronically posts allocated trades into Axys on demand,
eliminating time-consuming and error-prone manual entry.
Client Management
Qube, introduced in 1995, is designed to help securities professionals
develop and improve client relationships by automating scheduling, client
communications and client data. For example, Qube enables investment
professionals to interactively screen client investment profiles and notes of
conversations to identify appropriate candidates for various investment
opportunities. In addition, Qube can be used to enhance direct marketing
campaigns by matching clients with market opportunities. Qube captures extensive
investment profile information, has on-line query capability, networking
features and mail merge capabilities and facilitates information sharing across
professionals in an office. Moreover, Qube is designed to be integrated with
Axys, allowing users to provide accurate and timely portfolio information to
clients.
Maintenance Support and Data Interfaces
Advent earns recurring revenues by offering a choice of maintenance
contracts and by providing proprietary interfaces to external sources of
critical data. These interfaces allow clients to (i) download pricing, corporate
actions and other data from third party vendors such as Interactive Data, a
wholly owned indirect subsidiary of Pearson plc (Interactive Data), and (ii)
interface with DTC, certain brokerage firms and custodians for trading activity.
Advent continually analyzes the ongoing external data needs of its clients and
expects to offer new data products in the future. Many of Advent's clients use
Advent's proprietary interface to electronically retrieve pricing and other data
from Interactive Data. Interactive Data pays Advent a commission based on
Interactive Data's revenues from providing such data to Advent's clients.
Due to the mission-critical nature of Advent's products, many clients
purchase annual maintenance contracts which entitle them to technical support
and product upgrades as they become available. Advent continually upgrades and
enhances its products to respond to changing market needs, evolving regulatory
requirements and new technologies.
Internet Initiative
Advent believes that the Internet can be a low-cost communications platform
to integrate external information into Advent products, thereby providing Advent
clients with straight through processing of business information. To take
advantage of the Internet, Advent has launched an Internet Initiative whereby it
is developing services, both announced and unannounced, to bring Internet-based
products and services to clients. The first of these services, Rex, was launched
during the second quarter of 1997. Rex is an electronic reconciliation service
which allows Advent clients to automate the tedious and time consuming tasks
associated with reconciling positions and transactions across custodians. Using
the Internet, Rex consolidates communication and information from all
participating custodians, enabling Advent clients to quickly and easily
reconcile transactions and holdings with a click of the mouse.
From time to time, as Advent begins development of new products and services
under its Internet Initiative, it plans to continue to enter into development
agreements with information providers, clients, or other companies in order to
accelerate the delivery of new products and services.
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Professional Services
Professional services consists of consulting, systems integration, custom
programming, and training. To ensure a successful product implementation,
consultants assist clients with the initial installation of a system, assist in
the conversion of the client's historical data and provide ongoing training and
education. Consulting services may be required for as little as two days for
small systems or up to many weeks for large implementations. Advent believes
that its consulting services facilitate a client's early success with its
products, strengthen the relationship with the client and generate valuable
feedback for Advent.
Advent's systems integration services develop new interfaces, either at the
request of existing clients or external organizations such as brokerage firms,
custodians, DTC, pricing services, and other data providers. These interfaces
are designed to provide easier and faster data entry, automatic reconciliation
or confirmations. These interfaces are licensed as an option which clients can
obtain when configuring the Axys system or later as their information needs
change. In addition, Advent also uses its systems integration services to
develop interfaces which Advent expects will satisfy anticipated needs of its
clients.
Advent provides its clients with custom programming services that enable
clients to tailor end-user reports to their own specifications. Advent also
provides training sessions to its clients at various sites across the country.
Clients
Advent's clients vary significantly in size and assets under management and
include investment advisors, brokerage firms, banks, hedge funds, corporations,
public funds, universities and non-profit organizations. At present, Advent has
licensed its products to over 4,500 institutions in 22 countries for use by more
than 25,000 concurrent users.
Sales and Marketing
Sales
Advent sells its products and services through a direct sales organization
comprised of field sales and telesales representatives. Advent's field sales
force is organized by geographic region and is primarily responsible for selling
Axys and Moxy to mid-sized and large investment management organizations. Advent
has sales offices in San Francisco, New York and Boston. Advent's telesales
organization is primarily focused on selling Advent's products to existing Axys
clients and small and mid-sized investment management organizations. Advent's
telesales representatives are located in San Francisco. Advent's sales force is
supported by extensive ongoing product and sales training.
Marketing
The marketing department is responsible for assessing market opportunities,
product planning and management and specific sales support. In addition to its
traditional marketing functions, the marketing organization is actively involved
in a process called "Market Validation(SM)," using a system of interaction with
and input from potential and existing clients, product development, sales and
client services and support departments to define the scope, features and
functionality of new products and product upgrades. In addition, product
managers are responsible for all phases of a product life cycle from product
development through product introduction and beyond. The marketing department is
also responsible for corporate marketing, including generating client leads,
targeted direct mail campaigns, seminars, advertising, trade shows and
conferences and public relations efforts. The marketing department also provides
the sales force with appropriate written and electronic materials to use during
the sales process.
Product Development
In recent years, Advent has substantially increased its product development
expenditures in order to accelerate the rate of new product introductions,
incorporate new technologies and sustain the quality of its products.
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In 1997, 1996, and 1995, Advent's product development expenditures were
approximately $9.4 million, $6.7 million and $4.2 million, respectively.
In addition to engineering, quality assurance and documentation, Advent's
product development activities include the identification and validation of
product specifications.
Advent's new products and product upgrades require varying degrees of
development time, depending upon the complexity of the accounting requirements
and securities regulations which they are intended to address, as well as the
number and type of features incorporated. Advent has primarily relied upon the
internal development of its products. Advent has in the past acquired, and may
again in the future acquire, additional technologies or products from third
parties or consultants. Advent intends to continue to support industry standard
operating environments, client/server architectures and network protocols.
There can be no assurance that Advent will be successful in developing,
introducing and marketing new products or product enhancements on a timely and
cost effective basis, if at all, or that its new products and product
enhancements will adequately meet the requirements of the marketplace or achieve
market acceptance. Delays in the commencement of commercial shipments of new
products or enhancements may result in client dissatisfaction and delay or loss
of product revenues. If Advent is unable, for technological or other reasons, to
develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or client requirements,
or if new products or new versions of existing products do not achieve market
acceptance, Advent's business, operating results and financial condition would
be materially adversely affected. In addition, Advent's ability to develop new
products and product enhancements is dependent upon the products of other
software vendors, including certain system software vendors, such as Microsoft
Corporation, database vendors and development tool vendors. In the event that
the products of such vendors have design defects or flaws, or if such products
are unexpectedly delayed in their introduction, Advent's business, operating
results and financial condition could be materially adversely affected. Software
products as complex as those offered by Advent, particularly Advent's new Geneva
product, may contain undetected defects or errors when first introduced or as
new versions are released. Although Advent has not experienced material adverse
effects resulting from any software errors, there can be no assurance that,
despite testing by Advent and its clients, defects or errors will not be found
in new products after commencement of commercial shipments, resulting in loss of
or delay in market acceptance, which could have a material adverse effect upon
Advent's business, operating results and financial condition.
Competition
The market for investment management software is segmented by the relative
size of the organizations that manage investment portfolios. In addition, the
market in each segment is intensely competitive and highly fragmented, subject
to rapid change and highly sensitive to new product introductions and marketing
efforts by industry participants. Advent's competitors include providers of
software and related services as well as providers of timeshare services.
Competitors vary in size, scope of services offered and platforms supported. In
addition, Advent competes 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 such as
Advent. With respect to the market for its portfolio accounting products, Advent
currently competes primarily with Shaw Data, a division of SunGard Data Systems,
Inc., Thomson Financial, a division of The Thomson Corporation, and with a
number of other smaller companies. Advent believes that the principal
competitive factors affecting its market include product performance and
functionality, ease of use, scalability, ability to integrate external data
sources, product and company reputation, client service and support and price.
There can be no assurance that Advent 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 the loss of market
share, any one of which could materially adversely affect Advent's business,
operating results and financial condition.
-7-
Intellectual Property and Other Proprietary Rights
Advent's success is dependent in part on its ability to protect its
proprietary technology. Advent relies on a combination of copyright and
trademark laws, trade secrets, software security measures, confidentiality
agreements and license agreements to establish and protect its proprietary
rights and its software. Despite these efforts, it may be possible for
unauthorized third parties to copy certain portions of Advent's products or to
reverse engineer or otherwise obtain and use proprietary information of Advent.
Advent does not have any patents, and existing copyright laws afford only
limited protection. In addition, Advent cannot be certain that others will not
develop substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with Advent's products,
thereby substantially reducing the value of Advent's proprietary rights.
Furthermore, there can be no assurance that any confidentiality agreements
between Advent and its employees or any license agreements with its clients will
provide meaningful protection of Advent's proprietary information in the event
of any unauthorized use or disclosure of such proprietary information. In
addition, the laws of certain countries do not protect Advent's proprietary
rights to the same extent as do the laws of the United States. Accordingly,
there can be no assurance that Advent will be able to protect its proprietary
software against unauthorized third party copying or use, which could adversely
affect Advent's business, operating results and financial condition.
Employees
As of December 31, 1997, Advent had 325 full-time employees, including 34 in
sales, 67 in professional services, 19 in marketing, 83 in product development,
68 in client services and support and 54 in finance, administration, operations
and general management. Advent believes that it maintains competitive
compensation, benefits, equity participation and work environment policies to
assist in attracting and retaining qualified personnel. Advent's success depends
to a significant extent upon a limited number of members of senior management
and other key employees, including Stephanie DiMarco, Advent's Chairman of the
Board and Chief Executive Officer. The loss of the service of one or more senior
managers or other employees could have a material adverse effect upon Advent's
business, operating results and financial condition. None of Advent's employees
is represented by a labor union. Advent has not experienced any work stoppages
and considers its relations with its employees to be good.
Item 2. PROPERTIES
Advent leases office space in facilities in San Francisco, New York and New
Jersey. Advent has three separate leases in San Francisco, a 33,000 square foot
lease that expires in 1998 with a 1 or 5 year extension option, another 23,700
square foot lease in the same building that expires in 2000, and a 16,000 square
foot lease in an adjacent building that expires in 2004. This is Advent's
principal executive office and is where product development, marketing,
technical support and production are located. Advent leases three separate
office spaces in New York; a 12,100 square foot lease and another 5,300 square
foot lease expire in 2003 and a 9,800 square foot lease expires in 1999. In
addition, Advent has a 1000 square foot lease in New Jersey that expires in
2000. Advent believes that its facilities are adequate for its current needs and
that suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of Advent as of March 27, 1998:
Name Age Position
Stephanie G. DiMarco 40 Chairman of the Board and Chief Executive Officer
Peter M. Caswell 41 President and Chief Operating Officer
Lily S. Chang 49 Executive Vice President and Chief Technology
Officer
Irv H. Lichtenwald 42 Senior Vice President, CFO and Secretary
- ----------
Ms. DiMarco founded Advent in June 1983 and, since such date, has served as
Chief Executive Officer. She became Chairman of the Board in September 1995. In
addition, she served as President until April of 1997, when Peter Caswell was
promoted to President and Chief Operating Officer. Ms. DiMarco holds a B.S. in
Business Administration from the University of California at Berkeley.
Mr. Caswell joined Advent in December 1993 as Vice President, Sales and
Professional Services. In 1996 Mr. Caswell took on responsibility for Advent's
marketing efforts and was promoted to Senior Vice President. In April 1997, Mr.
Caswell became President and Chief Operating Officer. From May 1986 to December
1993, Mr. Caswell held various management positions, including Vice President
and General Manager, Western Region, with Dun & Bradstreet Software Services,
Inc. and its predecessor, Management Science America, Inc., a supplier of
computer software for finance, marketing, manufacturing and human resource
functions. Mr. Caswell holds a diploma in Management Studies (M.B.A. equivalent)
and a Higher National Diploma in Agriculture (B.S. equivalent) from Seale Hayne
College in England.
Ms. Chang joined Advent in May 1993 as Vice President, Technology. In April
of 1997, Ms. Chang was promoted to Executive Vice President, Technology and was
also named Chief Technology Officer. From July 1989 to May 1993, Ms. Chang held
various positions, including Vice President, Strategic Accounts and Vice
President of Oracle Financial Applications, with Oracle Corporation, a software
licensing and consulting business. Ms. Chang holds a B.S. in Biochemistry from
Taiwan University.
Mr. Lichtenwald joined Advent in March 1995 as Chief Financial Officer.
From February 1984 to March 1995, Mr. Lichtenwald served as Chief Financial
Officer of Trinzic Corporation, a computer software developer, and its
predecessor Aion Corporation. From February 1982 to February 1984, he served as
controller of Visicorp, a computer software developer. Mr. Lichtenwald holds an
M.B.A. from the University of Chicago and a B.B.A. from Saginaw Valley State
College. Mr. Lichtenwald is a Certified Public Accountant.
PART II
With the exception of the information incorporated by reference to the 1997
Annual Report to Stockholders in Part II of this Form 10-K, Advent's 1997 Annual
Report to Stockholders is not deemed to be filed as part of this Form 10-K.
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Advent had approximately 120 stockholders of record at March 27, 1998. Other
information required by this Item is incorporated by reference to the sections
entitled "Selected Financial Data - Price Range of Common Stock" and "Corporate
Information - Stock Information" in Advent's 1997 Annual Report to Stockholders.
Item 6. SELECTED FINANCIAL DATA
Other information required by this Item is incorporated by reference to the
sections entitled "Selected Financial Data - Selected Annual Data" and
"-Selected Quarterly Data" in Advent's 1997 Annual Report to Stockholders.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Advent's 1997 Annual Report to Stockholders.
In addition, Advent operates in a rapidly changing environment that involves
a number of risks, some of which are beyond Advent's control. The following
discussion highlights some of these risks.
Period to Period Fluctuations. As Advent's licenses into multi-user
networked environments have increased both in individual size and number, the
timing and size of individual license transactions are becoming increasingly
important factors in Advent's quarterly operating results. The sales cycles for
transactions of this size are often lengthy and unpredictable. There can be no
assurance that Advent will be successful in closing large license transactions
such as these on a timely basis or at all. Accordingly, if in the future
revenues from large site licenses constitute a material portion of Advent's net
revenues, the timing of such licenses could cause additional variability in
Advent's quarterly operating results. Advent's software products typically are
shipped 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.
Advent's expense levels are based in significant part on Advent's 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 Advent on products and services, an
unanticipated decline in net revenues in any particular quarter is likely to
disproportionately adversely affect operating results.
Advent generally has realized lower revenues from license fees in the first
quarter of the year than in the immediately preceding quarter. Advent believes
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, compounded by Advent's
annual incentive compensation plans which result in increased year-end sales
activity. Furthermore, Advent has often recognized a substantial portion of its
license revenues in the last month of a quarter.
Due to all of the foregoing factors, Advent believes that period to period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
Advent's stock price has fluctuated significantly since the initial public
offering in November 1995. Like many companies in the technology and emerging
growth sector, Advent's stock price may be subject to wide fluctuations. If net
revenues or earnings in any quarter fail to meet the investment community's
expectations, there could be an immediate impact on Advent's stock price. In
addition, the stock price may be affected by broader market trends unrelated to
Advent's performance
Product Concentration. During 1995, 1996 and 1997, Advent derived a
substantial majority of its net revenues from the licensing of Axys and related
products and services. In addition, many of Advent's other products, such as
Moxy, Qube and various data interfaces, were designed to operate with Axys to
provide an integrated solution. As a result, Advent believes that a majority of
its net revenues, at least through 1998, will be dependent upon continued market
acceptance of Axys, enhancements or upgrades to Axys and related products and
services.
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Geneva. In 1995, Advent introduced Geneva to target organizations with
complex international accounting and reporting requirements, and, in 1997,
announced its full commercial availability. To date, revenues derived from
licenses of Geneva have not been material. Advent is directing a significant
amount of its product development expenditures to the on-going development of
Geneva and plans to devote a significant amount of its future sales and
marketing resources to Geneva. Advent has limited experience in developing
products for this market. Because of such limited client experience, there can
be no assurance that Geneva will not require substantial software enhancements
or modifications to satisfy performance requirements of clients or to fix design
defects or previously undetected errors. Further, there can be no assurance that
Advent will be successful in marketing Geneva. Advent's failure to successfully
market Geneva could adversely affect Advent's business and operating results.
Internet Initiative. To take advantage of the Internet, Advent has launched
an Internet Initiative whereby it is developing services, both announced and
unannounced, to bring Internet based products and services to clients. The first
of these services, Rex, was launched during the second quarter of 1997. As
Advent begins development of new products and services under its Internet
Initiative, it has and will continue to enter into development agreements with
information providers, clients, or other companies in order to accelerate the
delivery of new products and services. There can be no assurance that Advent
will be successful in marketing Rex or in developing other Internet services.
Advent's failure to do so could adversely affect Advent's business and operating
results.
New Products and Product Enhancements. Advent's future success will continue
to depend upon its ability to develop new products that address the future needs
of its target markets and to respond to emerging industry 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, Advent's ability to develop new products and product
enhancements is dependent upon the products of other software vendors, including
certain system software vendors, such as Microsoft Corporation, database vendors
and development tool vendors. In the event that the products of such vendors
have design defects or flaws, or if such products are unexpectedly delayed in
their introduction, Advent's business, operating results and financial condition
could be materially adversely affected.
Financial Markets. The target clients for Advent's products include a range
of organizations that manage investment portfolios, including investment
advisors, brokerage firms, banks and hedge funds. In addition, Advent targets
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 Advent's clients is intrinsically linked to the health of the financial
markets. Advent believes that demand for its 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
Relationship with Interactive Data. Many of Advent's clients use Advent's
proprietary interface to electronically retrieve pricing and other data from
Interactive Data. Interactive Data pays Advent a commission based on Interactive
Data's revenues from providing such data to Advent's clients. Advent's software
products have been customized to be compatible with Interactive Data's system
and such software would need to be redesigned if Interactive Data's services
were unavailable for any reason. In the event that Advent's relationship with
Interactive Data were terminated or Interactive Data's services were unavailable
to Advent's clients for any reason, replacing these services could be costly and
time consuming.
Competition. The market for investment management software is segmented by
the relative size of the organizations that manage investment portfolios. In
addition, the market in each segment is intensely competitive and highly
fragmented, subject to rapid change and highly sensitive to new product
introductions and marketing efforts by industry participants. Advent's
competitors include providers of software and related services as well as
providers of timeshare services.
-11-
Competitors vary in size, scope of services offered and platforms supported.
In addition, Advent competes 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 such as Advent. Many of Advent's competitors have
longer operating histories and greater financial, technical, sales and
marketing resources than Advent. There can be no assurance that Advent 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 materially
adversely affect Advent's business, operating results and financial condition.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(1) Financial Statements.
The following financial statements of Advent and the Report of
Independent Accountants are incorporated by reference to page 39
through 53 of Advent's 1997 Annual Report to Stockholders:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Operations - Years Ended December 31, 1997,
1996, and 1995
Consolidated Statements of Stockholders' Equity- Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows- Years Ended December 31, 1997,
1996, and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedules.
The following financial statement schedules of Advent for the
years ended December 31, 1997, 1996, and 1995 are filed as part of
this Form 10-K and should be read in conjunction with Advent's
Financial Statements.
Report of Independent Accountants S-1
Schedule II --- Valuation and Qualifying Accounts S-2
Schedules not listed above have been omitted because they are
not applicable or are not required or because the required
information is included in the Financial Statements or Notes
thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-12-
PART III
Certain information required by Part III is omitted from this Form 10-K in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, (Proxy
Statement) not later than 120 days after the end of the fiscal year covered by
this Form 10-K and certain information included therein is incorporated herein
by reference. Only those sections of the Proxy Statement that specifically
address the items set forth herein are incorporated by reference and such
incorporation does not include, specifically, the Performance Graph included in
such Proxy Statement.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Advent's directors required by this Item is
incorporated by reference to Advent's Proxy Statement.
The information concerning Advent's executive officers required by this Item
is incorporated by reference herein to the section of the Form 10-K in Part I,
Item 4, entitled "Executive Officers of Advent."
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is to be set forth in Advent's Proxy Statement and such
information is hereby incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report
on Form 10-K:
1. Consolidated Financial Statements required to be filed by Item
8 of Form 10-K. See the list of Financial Statements contained in
Item 8 of this Report.
2. Financial Statement Schedules required to be filed by Item 8
of Form 10-K. See the list of Financial Statement Schedules
contained in Item 8 of this Report.
-13-
3. Exhibits.
The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules are
filed as part of, or incorporated by reference into, this
Form 10-K.
Exhibit
Number Description of Document
2.1+ Agreement and Plan of Merger between Registrant and Advent Software,
Inc., a California corporation, effective November 10, 1995.
3.1+ Certificate of Incorporation of Registrant.
3.2+ Amended and Restated Certificate of Incorporation of Registrant.
3.3 Amended and Restated Bylaws of Registrant.
4.1+ Specimen Common Stock Certificate of Registrant.
10.1+ Form of Indemnification Agreement for Executive Officers and Directors.
10.2+ 1992 Stock Plan, as amended, and form of stock option agreement.
10.3+ 1993 Profit Sharing & Employee Savings Plan, as amended.
10.4+ 1995 Employee Stock Purchase Plan and form of subscription agreement.
10.5+ 1995 Director Option Plan and form of stock option agreement.
10.6+ Common Stock Option Agreement between Advent and Maurice J. Duca dated
September 15, 1989 as amended by the Amendment and Correction to
Common Stock Option Agreement dated July 1993.
10.7+ Full Service Office Lease dated April 14, 1992, as amended, between
Brannan Street Properties and Advent for facilities located at
301 Brannan in San Francisco, California.
10.8+ Standard Form of Lease dated November 6, 1992 between Broadway
Management Company as agent for 500 Fifth Avenue Associates and
Advent for facilities located at 500 Fifth Avenue, New York,
New York.
10.9+ Severance Agreement between Advent and Peter M. Caswell dated
December 10, 1993.
10.10+* Agreement between Advent and Interactive Data Corporation dated
January 1, 1995.
10.13** Lease dated January 28, 1992 between Orient Overseas Associates
and Data Exchange, Inc. for facilities located at 88 Pine Street,
a/k/a Wall Street Plaza, New York, New York.
13.1 Selected Portions of Advent Software, Inc.'s 1997 Annual Report to
Stockholders.
21.1 Subsidiaries of Advent.
23.1 Consent of Coopers & Lybrand LLP, Independent Accountants.
24.1 Power of Attorney (included on page 15 of this Form 10-K).
27.1 Financial Data Schedule.
- ----------
+ Incorporated by reference to the exhibit filed with Advent's
registration statement filed on Form SB-2 (commission file number
33-97912-LA), declared effective on November 15, 1995
* Confidential treatment requested as to certain portions of this exhibit.
** Incorporated by reference to Advent's Annual Report on Form 10-KSB for the
year ended December 31, 1995.
(b) Reports on Form 8-K
None
-14-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 25th day of March, 1998.
ADVENT SOFTWARE, INC.
STEPHANIE G. DIMARCO
By: /s/ ________________________
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephanie G. DiMarco and Irv H. Lichtenwald,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- -------------------------- ------------------------------------ --------------
/s/ STEPHANIE G. DIMARCO Chairman of the Board and March 27, 1998
- ------------------------- Chief Executive Officer --------------
Stephanie G. DiMarco (Principal Executive Officer)
/s/ IRV H. LICHTENWALD Senior Vice President, Chief March 27, 1998
- ----------------------- Financial Officer and Secretary --------------
Irv H. Lichtenwald (Principal Financial and
Accounting Officer)
/s/ FRANK H. ROBINSON Director March 27, 1998
- ---------------------- --------------
Frank H. Robinson
/s/ WENDELL G. VAN AUKEN Director March 27, 1998
- ------------------------- --------------
Wendell G. Van Auken
/s/ WILLIAM F.ZUENDT Director March 27, 1998
- ------------------- --------------
William F. Zuendt
/s/ MONTE ZWEBEN Director March 27, 1998
- ----------------- --------------
Monte Zweben
-15-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Advent Software, Inc.:
Our report on the consolidated financial statements of Advent Software, Inc.
has been incorporated by reference in this report on Form 10-K from page 53 of
the 1997 Annual Report to Shareholders of Advent Software, Inc. In connection
with our audit of such consolidated financial statements, we have audited the
related financial statement schedule listed in the index on page 12 of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material aspects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 20, 1998
S-1
Schedule II
ADVENT SOFTWARE, INC
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1995, 1996, and 1997
Column A Column B Column C Column D Column E Column F
-------------- ---------- -------- -------- -------- --------
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Expense Accounts Deduction Period
----------- ---------- ------- -------- --------- ----------
Allowance for doubtful
accounts
1995.................... $ 67,000 $240,000 -- $ 49,000 $258,000
1996.................... $258,000 $115,000 -- $138,000 $235,000
1997.................... $235,000 $248,000 -- $218,000 $265,000
S-2