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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, 1998
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 94-2901952
(State of incorporation) (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
17, 1999 was 8,295,388. The aggregate market value of the registrant's Common
Stock held by non-affiliates, based upon the closing price on March 17, 1999, as
reported on the Nasdaq National Market System, was approximately $227.7 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) 1998 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 May 4, 1999 (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 Office(TM), an Enterprise Investment Management
(EIM) solution, is an integrated suite of products designed to automate the
entire investment management process. The Advent Office suite contains Axys(R),
a portfolio accounting and management system, Moxy(R), a trading and order
management system, Qube(R), a client relationship management system, Rex(TM), an
automated reconciliation system, Advent Warehouse(TM), an investment data
warehouse solution, Advent Partner(TM), an investment partnership accounting
system, Advent Browser Reporting(TM), an Internet-based solution to access
Advent Office information, and Open G/L, a component that allows users to
integrate portfolio management data with their general ledger systems. Advent
also provides Geneva(R), a real-time accounting and portfolio management
solution for global financial institutions, and Gifts for Windows(TM), a grants
management solution for the grant-giving community. 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. Our 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. Our strategy is to
develop long-term client relationships and to maintain a high level of lifetime
client satisfaction which we believe will result in additional recurring
revenues from new product licenses, renewals of existing maintenance contracts
and the introduction and adoption of new data products.
Our 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, we
have licensed our products to over 5,400 institutions in 36 countries for use by
more than 30,000 concurrent users.
We were 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. (Front office includes the marketing and customer relationship
management aspect of dealing with customers; middle office focuses on trade
order management and trading workflow; and the back office includes the
accounting functions of the organization.) 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
organizations are demanding highly functional,
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easy-to-use, scalable, cost-effective and flexible software applications that
automate and integrate their mission-critical business functions.
SOFTWARE PRODUCTS
We offer an integrated suite of software products for automating and
integrating work and data flows across the investment management organization,
as well as the information flows between the investment management organization
and external parties. Our 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 component in the Advent Office suite focuses on certain
mission-critical functions of the investment management organization. Each
Advent Office implementation is 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, we believe that our Enterprise
Investment Management solution is well suited for the investment management
functions of corporations, public funds, partnerships, foundations, universities
and non-profit organizations.
An Enterprise Investment Management solution is an evolutionary process
which encompasses three phases:
o Investment Process Integration - involves the integration of front-,
mid-, and back-office components with each other as well as with
standard productivity applications such as Microsoft Word(R) and
Excel(R). This integration eliminates ineffective communication
between processes, minimizes processing errors, and enables growth by
reducing bottlenecks within the company.
o Data Collection and Reconciliation - enables the investment firm to
integrate the external data regarding pricing and settlements so that
the firm can quickly and efficiently settle transactions and monitor
performance in an automated fashion.
o Customer Responsiveness - incorporates the capability for more
effective communication with customers related to their needs and
holdings with the firm. This capability also enables decision makers
for the firm to have timely access to information in order to make
more effective decisions on behalf of the clients.
BACK OFFICE
We offer three portfolio accounting and management systems: Axys, Advent
Partner and Geneva, each targeted at a different market segment, to automate the
back office functions.
Axys, our 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, tracks reclaimable foreign withholding tax, and can identify
components of return attributable to market prices versus currency rate
fluctuations.
Axys also provides integration with a variety of investment tools and data.
These include (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), brokerage firms and custodians (iv) through
the Internet via our custodial data service and software, and (v) Internet
reporting via the Advent Browser Reporting service, our Internet reporting
service.
Advent Partner, introduced in December 1996, is an investment 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, handles
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the complexities of allocating realized and unrealized gains for tax purposes,
allocates performance incentive fees, provides on-demand partner and partnership
reporting on an economic or tax allocation basis and streamlines the production
of partnership tax returns (K-1's).
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.
REX, introduced in February 1997, is the Advent Office solution for
reconciliation management. REX is integrated with Axys and is designed for firms
that want to electronically reconcile their Axys information against their
custodial information. REX automates matching and helps users identify
exceptions, correct or add transactions to their portfolios or communicate and
track changes required by their custodian.
Advent Warehouse, introduced in 1998, is a complete data warehouse solution
that allows investment professionals to readily access investment data
regardless of how the data was created or maintained, without impacting the
performance of their high volume transaction-based Advent Office systems.
Relational technology and data warehousing tools provide an open environment for
ad hoc decision support and customized reporting on enterprise wide investment
information. Investment professionals can take advantage of the sea of
information captured during the investment process to improve client service and
gain competitive advantage.
Advent Browser Reporting for Investors, introduced in 1998, allows investment
managers to post Axys reports to a secure website where individual clients can
access these reports 24 hours a day, 7 days a week. Advent Browser Reporting for
Enterprise Users allows investment professionals the ability to access Axys from
remote locations via the Internet and run Axys reports as if they were in their
office.
MIDDLE OFFICE
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. 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. Moxy also provides Internet-ready electronic order routing based
on the industry standard FIX messaging protocol so that Moxy users can route
trades electronically to any FIX-compliant broker or crossing network that
supports the Internet or other TCP/IP connections. 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.
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FRONT OFFICE
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.
Advent Browser Reporting for Decision Makers puts the power of data analysis
on the portfolio managers desktop via the Internet. Using On-line Analytical
Processing (OLAP) tools, investment data can be sliced and diced to improve the
decision making process.
GRANTS MANAGEMENT
Advent's wholly-owned subsidiary, MicroEdge, acquired in February 1998,
provides grants management systems. Gifts for Windows is a proposal tracking and
grants management system that allows the user to retrieve and classify requests,
generate personalized letters, manage contracts, schedule and monitor activities
and maintain complete organization history track payments, contingencies and
reports due. This software product is primarily used by the philanthropic
community such as foundations, corporations and other organizations to manage
their grant-making activities.
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.
In November 1998, Advent acquired HubData, which consolidates securities
information and data from various third party providers such as Muller Data,
J.J. Kenny, Interactive Data and others, and provides services to a range of
financial institutions via electronic interfaces to many portfolio software
systems.
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, Custodial Data
Service, was launched during the second quarter of 1997. Using the Internet,
Advent's Custodial Data Service 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. The second is
Advent Browser Reporting, introduced in 1998. Advent Browser Reporting is a
reporting component of Advent Office, which provides users the ability to access
Advent Office information through a web browser.
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From time to time, as Advent begins development of new products and
services, including 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.
PROFESSIONAL SERVICES
Professional services consist of consulting, implementation management,
integration management, 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.
Implementation management provides a single point-of-contact who will work
closely with our client's project team to plan the implementation, optimize the
use of Advent products, coordinate Advent resources, advocate on their behalf,
and minimize schedule delays and project risks. Additionally, an Implementation
Manager will document the implementation from planning through production.
Integration management provides services in implementations with more
complex needs. Integration Managers work with the clients during implementation
to integrate their systems and workflows with Advent products. The services
include: development of custom interfaces from back-office systems to Advent's
Axys and Moxy products, configuration and management of large volumes of data,
and strategies for deployment of Advent products for distributed sites.
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 5,400 institutions in 36 countries for use by more
than 30,000 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
Advent Office to mid-sized and large investment management organizations. Advent
has sales offices in San Francisco, CA, New York, NY and Cambridge, MA. 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,
New York, Cambridge, MA and Melbourne, Australia. 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 ValidationSM," 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 and also provides the sales force with
appropriate written and electronic materials to use during the sales process.
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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. In 1998,
1997, and 1996, Advent's product development expenditures were approximately
$12.6 million, $9.4 million, and $6.7 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 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.
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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, 1998, Advent had 481 full-time employees, including 54 in
sales, 75 in professional services, 43 in marketing, 129 in product development,
109 in client services and support and 71 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, CA, New York, NY,
Millburn, NJ, Cambridge, MA, and Melbourne, Australia. Advent has three separate
leases in San Francisco, a 59,000 square foot lease that expires in 2008 with a
5 year extension option, a 32,000 square foot lease in an adjacent building that
expires in 2004, and a 60,000 square foot lease that expires in 2009. These are
Advent's principal executive offices, where product development, marketing,
technical support and production are located. Advent leases two separate office
spaces in New York; a 12,100 square foot lease and another 5,300 square foot
lease in the same building, expiring in 2003 and a 28,500 square foot lease for
MicroEdge, that expires in 2008 with a 5 year extension. Advent has a 1000
square foot lease in New Jersey that expires in 2000. Advent has a 6,700 square
foot lease in Cambridge, MA, which expires in 2003. In addition, there is a
4,000 square foot lease in Melbourne, Australia that expires in 2003. Advent
believes that its facilities are adequate for its near-term 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 17, 1999:
Name Age Position
- -------------------- ----- ------------------------------------------------
Stephanie G. DiMarco 41 Chairman of the Board and Chief Executive
Officer
Peter M. Caswell 42 President and Chief Operating Officer
Lily S. Chang 50 Executive Vice President and Chief Technology
Officer
Irv H. Lichtenwald 43 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.
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PART II
With the exception of the information incorporated by reference to the 1998
Annual Report to Stockholders in Part II of this Form 10-K, Advent's 1998 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 166 stockholders of record at March 17, 1999. 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 1998 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 1998 Annual Report to Stockholders.
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 1998 Annual Report to Stockholders.
In addition, we operate in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. The following discussion
highlights some of these risks.
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, 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. There can be no assurance that we
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 our net revenues, the timing of such
licenses could cause additional variability in our quarterly operating results.
Our 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. 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 immediately preceding quarter. 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 result in increased year-end sales activity
compound this factor. Furthermore, we have often recognized a substantial
portion of our license revenues in the last month of a quarter.
Due to all of the foregoing factors, we believe that period to period
comparisons of our operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
Our stock price has fluctuated significantly since the 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
could decline. In addition, the stock price may be affected by broader market
trends unrelated to our performance
We depend heavily on our product, Axys. In 1996, 1997 and 1998, 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
10
result, we believe that a majority of our net revenues, at least through 1999,
will be dependent upon continued market acceptance of Axys, enhancements or
upgrades to Axys and related products and services.
The success of our new product, Geneva, is uncertain. In 1995, we introduced
Geneva to target organizations with complex international accounting and
reporting requirements, and in late 1997, we announced its full commercial
availability. We are directing a significant amount of our product development
expenditures to the on-going development of Geneva and plan to devote a
significant amount of our future sales and marketing resources to Geneva. We
have 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 we will be successful
in marketing Geneva. Our failure to successfully market Geneva could adversely
affect our business and operating results.
We are developing an Internet Initiative. To take advantage of the Internet,
we have launched an Internet Initiative whereby we are developing services, both
announced and unannounced, to bring Internet based products and services to
clients. The first of these services, Rex, was launched during the first quarter
of 1997. The second service, Advent Browser Reporting, was launched in the third
quarter of 1998. As we begin development of 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. There can be no assurance
that we will be successful in marketing Rex or in developing other Internet
services. Our failure to do so could adversely affect our business and operating
results.
We depend upon new products and product enhancements. 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 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, our 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, our business, operating results and financial
condition could be materially adversely affected.
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. Additionally, during the
next twelve months there is likely to be an increased customer focus on
addressing Year 2000 issues, creating the risk that customers may reallocate
capital expenditures to fix Year 2000 problems of existing systems.
Our relationship with Interactive Data is important. Many of our clients use
our proprietary interface to electronically retrieve pricing and other data from
Interactive Data. Interactive Data pay us a commission based on their revenues
from providing such data to our clients. Our software products have been
customized to be compatible with their system and such software would need to be
redesigned if their services were unavailable for any reason. In the event that
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.
Our competition is intense. 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. Our 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, we compete indirectly with existing and potential clients, many of
whom develop their own software for their particular needs and therefore may be
11
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. There can be no assurance
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
materially adversely affect our business, operating results and financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". We had no
holdings of derivative financial or commodity instruments at December 31, 1998.
However, we are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Much of our revenue and capital
spending is transacted in U.S. dollars. However, with the acquisition of
Portfolio Management Systems, these subsidiary revenues and capital spending are
transacted in Australian dollars. Results of operations from Portfolio
Management Systems are not material to the results of operations of Advent,
therefore, we believe that foreign currency exchange rates should not materially
adversely affect our overall financial position, results of operations or cash
flows. We believe that the fair value of our investment portfolio or related
income would not be significantly impacted by increases or decreases in interest
rates due mainly to the short-term nature of our investment portfolio. However,
a sharp increase in interest rates could have a material adverse affect on the
fair value of our investment portfolio. Conversely, sharp declines in interest
rates could seriously harm interest earnings of our investment portfolio.
The table below presents principal amounts by expected maturity (in U.S.
dollars) and related weighted average interest rates by year of maturity for our
investment portfolio.
ESTIMATED FAIR VALUE
AT DECEMBER 31,
1999 2000 2001 Thereafter Total
------------ ----------- ------ ---------- ------------
Commercial Paper & Short-term obligations $ 6,595,000 $ - $ - $ - $ 6,595,000
Weighted Average Interest Rate 4.07 4.07
Corporate Notes & Bonds 3,405,000 - - - 3,405,000
Weighted Average Interest Rate 7.36 7.36
Municipal Notes & Bonds 10,140,000 2,250,000 - - 12,390,000
Weighted Average Interest Rate 4.52 5.03 4.61
------------ ----------- ------ --------- ------------
Total Portfolio, excluding equity securities $ 20,140,000 $ 2,250,000 $ - $ - $ 22,390,000
============ =========== ====== ========= ============
12
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 45
through 63 of Advent's 1998 Annual Report to Stockholders:
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Operations - Years Ended December 31,
1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity- Years Ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows- Years Ended December 31,
1998, 1997, and 1996
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, 1998, 1997, and 1996 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.
13
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.
14
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.
10.14 Office Lease dated August 1, 1998, between SOMA Partners, L.P.
and Advent for facilities located at 301 Brannan in San
Francisco, California.
13.1 Selected Portions of Advent Software, Inc.'s 1998 Annual Report
to Stockholders.
21.1 Subsidiaries of Advent.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on page 16 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-K
for the year ended December 31, 1997.
(b) Reports on Form 8-K
None
15
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 17th day of March, 1999.
ADVENT SOFTWARE, INC.
By: /s/ Stephanie G. DiMarco
----------------------------
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 below 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 17, 1999
------------------------- Chief Executive Officer and --------------
Stephanie G. DiMarco Director(Principal Executive
Officer)
/s/ Irv H. Lichtenwald Senior Vice President, Chief March 17, 1999
------------------------- Financial Officer and Secretary --------------
Irv H. Lichtenwald (Principal Financial and
Accounting Officer)
/s/ Frank H. Robinson Director March 17, 1999
------------------------- --------------
Frank H. Robinson
/s/ Wendell G. Van Auken Director March 17, 1999
------------------------- --------------
Wendell G. Van Auken
/s/ William F. Zuendt Director March 17, 1999
------------------------- --------------
William F. Zuendt
/s/ Monte Zweben Director March 17, 1999
- -------------------------- --------------
Monte Zweben
16
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Advent Software, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated January 15, 1999 appearing on page 63 of the 1998 Annual Report to
Shareholders of Advent Software,Inc (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
San Francisco, California
January 15, 1999
S-1
Schedule II
ADVENT SOFTWARE, INC
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1996, 1997, and 1998
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Expense Accounts Deductions Period
- ------------------ ---------- --------- -------- ---------- ----------
Allowance for
doubtful accounts:
1996 $ 258,000 $ 115,000 -- $ 138,000 $235,000
1997 $ 235,000 $ 248,000 -- $ 218,000 $265,000
1998 $ 265,000 $ 471,000 -- $ 374,000 $362,000
S-2