---



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2004
|- | -------------------------------------------------------------------------------------------------------------------------------------



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 or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



301 Brannan Street,
San Francisco, California 94107

(Address of principal executive offices and zip code)



(415) 543-7696

(Registrants telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes
x No ̈



The number of shares of the registrants Common Stock outstanding as of April 30, 2004 was 33,147,625.



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INDEX



|                              |  |                                                                                       |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|Item 1.                       |  | Financial Statements                                                                  |  |   
|                              |  | Condensed Consolidated Balance Sheets                                                 |  | 3 
|                              |  | Condensed Consolidated Statements of Operations                                       |  | 4 
|                              |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5 
|                              |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 36
|Item 4.                       |  | Controls and Procedures                                                               |  | 36
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 37
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                             |  | 37
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 37
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 37
|Item 5.                       |  | Other Information                                                                     |  | 37
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                      |  | 37
|Signatures                    |  | 38                                                                                   



2



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PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                           |  |               |         |   |                  |   |         |  
|------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                           |  | March 31,2004 |         |   | December 31,2003 |  
|                                           |  | (Unaudited)   |         |   |                  |  
|ASSETS                                     |  |               |         |   |                  |   |         |  
|Current assets:                            |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                  |  | $             | 87,276  |   |                  | $ | 83,334  |  
|Marketable securities                      |  |               | 79,806  |   |                  |   | 76,738  |  
|Accounts receivable, net                   |  |               | 18,452  |   |                  |   | 17,448  |  
|Prepaid expenses and other                 |  |               | 9,868   |   |                  |   | 11,526  |  
|Income taxes receivable                    |  |               | 1,639   |   |                  |   | 1,639   |  
|                                           |  |               |         |   |                  |   |         |  
|Total current assets                       |  |               | 197,041 |   |                  |   | 190,685 |  
|Property and equipment, net                |  |               | 21,479  |   |                  |   | 23,381  |  
|Goodwill                                   |  |               | 86,426  |   |                  |   | 86,504  |  
|Other intangibles, net                     |  |               | 26,769  |   |                  |   | 30,495  |  
|Other assets, net                          |  |               | 14,387  |   |                  |   | 15,438  |  
|                                           |  |               |         |   |                  |   |         |  
|Total assets                               |  | $             | 346,102 |   |                  | $ | 346,503 |  
|                                           |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |               |         |   |                  |   |         |  
|Current liabilities:                       |  |               |         |   |                  |   |         |  
|Accounts payable                           |  | $             | 2,206   |   |                  | $ | 1,320   |  
|Accrued liabilities                        |  |               | 15,491  |   |                  |   | 17,245  |  
|Deferred revenues                          |  |               | 37,357  |   |                  |   | 36,123  |  
|Income taxes payable                       |  |               | 7,988   |   |                  |   | 8,206   |  
|                                           |  |               |         |   |                  |   |         |  
|Total current liabilities                  |  |               | 63,042  |   |                  |   | 62,894  |  
|Deferred income taxes                      |  |               | 2,708   |   |                  |   | 2,812   |  
|Other long-term liabilities                |  |               | 2,274   |   |                  |   | 2,338   |  
|                                           |  |               |         |   |                  |   |         |  
|Total liabilities                          |  |               | 68,024  |   |                  |   | 68,044  |  
|                                           |  |               |         |   |                  |   |         |  
|Stockholders equity:                      |  |               |         |   |                  |   |         |  
|Common stock                               |  |               | 331     |   |                  |   | 329     |  
|Additional paid-in capital                 |  |               | 301,644 |   |                  |   | 299,459 |  
|Accumulated deficit                        |  |               | (31,314 | ) |                  |   | (30,158 | )
|Accumulated other comprehensive income     |  |               | 7,417   |   |                  |   | 8,829   |  
|                                           |  |               |         |   |                  |   |         |  
|Total stockholders equity                 |  |               | 278,078 |   |                  |   | 278,459 |  
|                                           |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity |  | $             | 346,102 |   |                  | $ | 346,503 |  
|                                           |  |               |         |   |                  |   |         |  



The accompanying notes
are an integral part of these condensed consolidated financial statements.



3



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ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                       |  |                             |        |   |      |   |         |  
|-------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                       |  | Three Months EndedMarch 31, |       
|                                       |  | 2004                        |        |   | 2003 |  
|Net revenues:                          |  |                             |        |   |      |   |         |  
|License and development fees           |  | $                           | 8,008  |   |      | $ | 6,742   |  
|Maintenance and other recurring        |  |                             | 22,886 |   |      |   | 21,140  |  
|Professional services and other        |  |                             | 5,942  |   |      |   | 5,162   |  
|                                       |  |                             |        |   |      |   |         |  
|Total net revenues                     |  |                             | 36,836 |   |      |   | 33,044  |  
|                                       |  |                             |        |   |      |   |         |  
|Cost of revenues:                      |  |                             |        |   |      |   |         |  
|License and development fees           |  |                             | 594    |   |      |   | 554     |  
|Maintenance and other recurring        |  |                             | 6,880  |   |      |   | 7,379   |  
|Professional services and other        |  |                             | 4,687  |   |      |   | 3,807   |  
|Amortization of developed technology   |  |                             | 1,342  |   |      |   | 1,435   |  
|                                       |  |                             |        |   |      |   |         |  
|Total cost of revenues                 |  |                             | 13,503 |   |      |   | 13,175  |  
|                                       |  |                             |        |   |      |   |         |  
|Gross margin                           |  |                             | 23,333 |   |      |   | 19,869  |  
|                                       |  |                             |        |   |      |   |         |  
|Operating expenses:                    |  |                             |        |   |      |   |         |  
|Sales and marketing                    |  |                             | 8,793  |   |      |   | 11,455  |  
|Product development                    |  |                             | 7,852  |   |      |   | 9,367   |  
|General and administrative             |  |                             | 5,981  |   |      |   | 5,312   |  
|Amortization of other intangibles      |  |                             | 2,024  |   |      |   | 1,925   |  
|Restructuring charges (benefit)        |  |                             | (43    | ) |      |   | 3,489   |  
|                                       |  |                             |        |   |      |   |         |  
|Total operating expenses               |  |                             | 24,607 |   |      |   | 31,548  |  
|                                       |  |                             |        |   |      |   |         |  
|Loss from operations                   |  |                             | (1,274 | ) |      |   | (11,679 | )
|Interest income and other expense, net |  |                             | 126    |   |      |   | 172     |  
|                                       |  |                             |        |   |      |   |         |  
|Loss before income taxes               |  |                             | (1,148 | ) |      |   | (11,507 | )
|Benefit from income taxes              |  |                             |       |   |      |   | (4,027  | )
|                                       |  |                             |        |   |      |   |         |  
|Net Loss                               |  | $                           | (1,148 | ) |      | $ | (7,480  | )
|                                       |  |                             |        |   |      |   |         |  
|Net loss per share:                    |  |                             |        |   |      |   |         |  
|Basic and diluted                      |  | $                           | (0.03  | ) |      | $ | (0.23   | )
|                                       |  |                             |        |   |      |   |         |  
|Weighted average shares:               |  |                             |        |   |      |   |         |  
|Basic and diluted                      |  |                             | 33,066 |   |      |   | 32,390  |  
|                                       |  |                             |        |   |      |   |         |  



The accompanying notes
are an integral part of these condensed consolidated financial statements.



4



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ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                |  | Three Months EndedMarch 31, |        
|                                                                                |  | 2004                        |         |   | 2003 |  
|Cash flows from operating activities:                                           |  |                             |         |   |      |   |         |  
|Net loss                                                                        |  | $                           | (1,148  | ) |      | $ | (7,480  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Non-cash stock based compensation                                               |  |                             | 12      |   |      |   |        |  
|Depreciation and amortization                                                   |  |                             | 5,508   |   |      |   | 5,504   |  
|Non-cash restructuring charges                                                  |  |                             |        |   |      |   | 410     |  
|Loss on disposition of fixed assets                                             |  |                             | 245     |   |      |   |        |  
|Provision for (reduction of) doubtful accounts                                  |  |                             | (2      | ) |      |   | 102     |  
|Other than temporary loss on investments                                        |  |                             |        |   |      |   | 500     |  
|Loss on investments                                                             |  |                             | 251     |   |      |   | 69      |  
|Deferred income taxes                                                           |  |                             | (105    | ) |      |   | (22     | )
|Other                                                                           |  |                             | 78      |   |      |   | 23      |  
|Changes in operating assets and liabilities:                                    |  |                             |         |   |      |   |         |  
|Accounts receivable                                                             |  |                             | (1,002  | ) |      |   | 1,020   |  
|Prepaid and other assets                                                        |  |                             | 2,600   |   |      |   | (144    | )
|Income taxes receivable                                                         |  |                             |        |   |      |   | 6,289   |  
|Accounts payable                                                                |  |                             | 886     |   |      |   | (50     | )
|Accrued liabilities                                                             |  |                             | (2,572  | ) |      |   | (168    | )
|Deferred revenues                                                               |  |                             | 1,215   |   |      |   | 1,180   |  
|Income taxes payable                                                            |  |                             | (218    | ) |      |   | (2,349  | )
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                             | 5,748   |   |      |   | 4,884   |  
|                                                                                |  |                             |         |   |      |   |         |  
|Cash flows from investing activities:                                           |  |                             |         |   |      |   |         |  
|Purchases of property and equipment                                             |  |                             | (491    | ) |      |   | (1,876  | )
|Purchases of marketable securities                                              |  |                             | (23,627 | ) |      |   | (32,711 | )
|Sales and maturities of marketable securities                                   |  |                             | 20,173  |   |      |   | 47,566  |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                             |  |                             | (3,945  | ) |      |   | 12,979  |  
|                                                                                |  |                             |         |   |      |   |         |  
|Cash flows from financing activities:                                           |  |                             |         |   |      |   |         |  
|Proceeds from exercises of stock options                                        |  |                             | 2,175   |   |      |   | 764     |  
|Common stock repurchased                                                        |  |                             |        |   |      |   | (14,308 | )
|Repayment of capital leases                                                     |  |                             |        |   |      |   | (61     | )
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                             |  |                             | 2,175   |   |      |   | (13,605 | )
|                                                                                |  |                             |         |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                    |  |                             | (36     | ) |      |   | 165     |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                       |  |                             | 3,942   |   |      |   | 4,423   |  
|Cash and cash equivalents at beginning of period                                |  |                             | 83,334  |   |      |   | 78,906  |  
|                                                                                |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                      |  | $                           | 87,276  |   |      | $ | 83,329  |  
|                                                                                |  |                             |         |   |      |   |         |  



The accompanying notes
are an integral part of these condensed consolidated financial statements.



5



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ADVENT SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. Basis of Presentation



The condensed consolidated financial statements include the accounts of
Advent Software, Inc. (Advent) and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.



We have prepared the condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission
(SEC) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have
been omitted in these interim statements pursuant to such SEC rules and regulations. We recommend that these interim financial statements be read in conjunction with the audited financial statements and related notes included in our 2003 Annual
Report on Form 10-K filed with the SEC. Interim results are not necessarily indicative of the results to be expected for the full year, and we make no representation thereto.



In our opinion, the condensed consolidated financial statements include all adjustments necessary to present fairly the
financial position and results of operations for each interim period shown. All such adjustments occur in the ordinary course of business and are of a normal, recurring nature. Certain prior year amounts have been reclassified to conform to the
current year presentation. These reclassifications do not affect net revenues, net income or loss or stockholders equity.



2. Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities. FIN 46 expands upon and strengthens existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable
interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes in which either (a) the equity investors in the entity do not have the characteristics of a controlling financial interest or (b) the
equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest entitys activities or is entitled to receive a majority of the entitys residual returns or both (primary beneficiary).



We adopted the provisions of FIN 46 in the first quarter of 2004. In
conjunction with the adoption of FIN 46, we determined that our independent European distributor, Advent Europe Holding BV (Advent Europe) is a variable interest entity, but that we are not the primary beneficiary. In accordance with FIN
46, we are not required to consolidate this distributor. We established our relationship with Advent Europe in 1998. Advent Europe and its subsidiaries have had the exclusive right to sell our software products, excluding Geneva, in certain
locations in Europe and the Middle East. From 2001 through 2003, we purchased five of Advent Europes subsidiaries. As discussed in Note 12, we signed a definitive agreement on April 28, 2004 to purchase the remaining independent distributor
businesses of Advent Europe in the United Kingdom and Switzerland, as well as certain assets of Advent Europe, for initial consideration of $3.2 million and additional potential consideration of approximately $6.0 million. We currently have no other
exposure to loss as a result of our involvement with Advent Europe.



3.
Stock-Based Compensation



We use the intrinsic value-based
method as prescribed in the Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) to account for all of our stock-based employee compensation plans and have
adopted the disclosure-only alternative of SFAS No. 123 Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure. We are
required to disclose the pro forma effects on operating results as if we had elected to use the fair value approach to account for all our stock-based employee compensation plans. Stock-based compensation for non-employees is based on the fair value
of the related stock or options.



6



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The fair value of warrants, options or stock exchanged for services is expensed over the period
benefited. The warrants and options are valued using the Black-Scholes option pricing model.



If compensation had been determined based on the fair value at the grant date for awards in the three month periods ended March 31, 2004 and 2003, respectively, consistent with the provisions of SFAS No. 123, our net
loss and net loss per share would have been as follows:



|                                                                                                                        |  |                                      |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                                                        |  | Three MonthsEnded March 31,          |       
|                                                                                                                        |  | 2004                                 |        |   | 2003 |  
|                                                                                                                        |  | (in thousands, exceptper share data) |       
|Net loss  as reported                                                                                                  |  | $                                    | (1,148 | ) |      | $ | (7,480 | )
|Stock-based employee compensation expense included in reported net loss                                                 |  |                                      | 12     |   |      |   |       |  
|Total stock based employee compensation expense determined under fair value based method for all options, net of tax(1) |  |                                      | (2,551 | ) |      |   | (1,908 | )
|                                                                                                                        |  |                                      |        |   |      |   |        |  
|Net loss  pro forma                                                                                                    |  | $                                    | (3,687 | ) |      | $ | (9,388 | )
|                                                                                                                        |  |                                      |        |   |      |   |        |  
|Reported net loss per share  basic and diluted                                                                         |  | $                                    | (0.03  | ) |      | $ | (0.23  | )
|                                                                                                                        |  |                                      |        |   |      |   |        |  
|Pro forma net loss per share  basic and diluted                                                                        |  | $                                    | (0.11  | ) |      | $ | (0.29  | )
|                                                                                                                        |  |                                      |        |   |      |   |        |  



|(1) | Assumes an effective tax rate of 0% and 35% for the three months ended March 31, 2004 and
2003, respectively.
|--- | -------------------------------------------------------------------------------------------------------------



The weighted-average
grant-date fair value of options granted were $19.68 and $8.25 per option for the three months ended March 31, 2004 and 2003, respectively. The estimated weighted-average grant-date fair value of the Employee Stock Purchase Plan (ESPP)
rights were $15.21 and $18.79 per option for the three months ended March 31, 2004 and 2003, respectively. The ESPP plan periods begin every six months in the second and fourth quarter of each year.



The fair value of each option grant and Employee Stock Purchase Plan rights
were estimated on the date of grant using the Black-Scholes valuation model with the following weighted average assumptions:



|                              |  |                             |  |         
|----------------------------- |  | --------------------------- |  | --------
|                              |  | Three Months EndedMarch 31,
|                              |  | 2004                        |  | 2003    
|Stock Options:                |  |                             |  |         
|Risk-free interest rate       |  | 2.89%                       |  | 2.87%   
|Volatility                    |  | 67%                         |  | 73%     
|Expected life                 |  | 5 years                     |  | 5 years 
|Expected dividends            |  | None                        |  | None    
|Employee Stock Purchase Plan: |  |                             |  |         
|Risk-free interest rate       |  | 1.00%                       |  | 1.10%   
|Volatility                    |  | 67%                         |  | 75%     
|Expected life                 |  | 6 months                    |  | 6 months
|Expected dividends            |  | None                        |  | None    



7



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4. Net Loss Per Share



The following table sets forth the computation of basic and diluted net loss per share:



|                                            |  |                                       |        |   |      |   |        |  
|------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | -
|                                            |  | Three Months EndedMarch 31,           |       
|                                            |  | 2004                                  |        |   | 2003 |  
|                                            |  | (in thousands, except per share data) |       
|Net loss                                    |  | $                                     | (1,148 | ) |      | $ | (7,480 | )
|Weighted average shares  basic and diluted |  |                                       | 33,066 |   |      |   | 32,390 |  
|                                            |  |                                       |        |   |      |   |        |  
|Net loss per share  basic and diluted      |  | $                                     | (0.03  | ) |      | $ | (0.23  | )
|                                            |  |                                       |        |   |      |   |        |  



As the Company
incurred net losses in the three month periods ended March 31, 2004 and 2003, options to purchase 5.9 million and 4.2 million shares, respectively, of the Companys common stock were excluded from the computation of diluted net loss per share,
as the effect would have been anti-dilutive.



5. Goodwill



The changes in the carrying value of goodwill for the three months ended
March 31, 2004 were as follows:



|                             |  |                |        |  
|---------------------------- |  | -------------- | ------ | -
|                             |  | Goodwill       |       
|                             |  | (in thousands) |       
|Balance at December 31, 2003 |  | $              | 86,504 |  
|Additions                    |  |                | 996    |  
|Other adjustments            |  |                | (1,074 | )
|                             |  |                |        |  
|Balance at March 31, 2004    |  | $              | 86,426 |  
|                             |  |                |        |  



Additions to goodwill
for the three months ended March 31, 2004 consisted of $811,000 for the achievement of certain earn-out provisions of the Advent Outsource Data Management acquisition agreement and consideration of $185,000 paid to the former shareholders of Techfi
Corporation which had been held in escrow for protection against undisclosed liabilities. Other adjustments represented translation adjustments between the European currencies and the U.S. dollar in the first quarter of 2004.



6. Other Intangibles



The following is a summary of other intangibles as of March 31, 2004:



|                          |  |                                  |  |       |        |                         |   |         |     |  |   |       
|------------------------- |  | -------------------------------- |  | ----- | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                          |  | AverageAmortizationPeriod(Years) |  | Gross |        | AccumulatedAmortization |   |         | Net
|                          |  | (in thousands)                  
|Purchased technologies    |  | 3.5                              |  | $     | 19,770 |                         | $ | (12,356 | )   |  | $ | 7,414 
|Customer relationships    |  | 5.4                              |  |       | 30,867 |                         |   | (14,387 | )   |  |   | 16,480
|Other intangibles         |  | 4.4                              |  |       | 6,403  |                         |   | (3,528  | )   |  |   | 2,875 
|                          |  |                                  |  |       |        |                         |   |         |     |  |   |       
|Balance at March 31, 2004 |  |                                  |  | $     | 57,040 |                         | $ | (30,271 | )   |  | $ | 26,769
|                          |  |                                  |  |       |        |                         |   |         |     |  |   |       



8



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The following is a summary of other intangibles as of December 31, 2003:



|                             |  |                                  |  |       |        |                         |   |         |     |  |   |       
|---------------------------- |  | -------------------------------- |  | ----- | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                             |  | AverageAmortizationPeriod(Years) |  | Gross |        | AccumulatedAmortization |   |         | Net
|                             |  | (in thousands)                  
|Purchased technologies       |  | 4.2                              |  | $     | 19,784 |                         | $ | (11,024 | )   |  | $ | 8,760 
|Customer relationships       |  | 4.9                              |  |       | 31,444 |                         |   | (12,840 | )   |  |   | 18,604
|Other intangibles            |  | 5.0                              |  |       | 6,405  |                         |   | (3,274  | )   |  |   | 3,131 
|                             |  |                                  |  |       |        |                         |   |         |     |  |   |       
|Balance at December 31, 2003 |  |                                  |  | $     | 57,633 |                         | $ | (27,138 | )   |  | $ | 30,495
|                             |  |                                  |  |       |        |                         |   |         |     |  |   |       



The changes in the
carrying value of other intangibles for the three months ended March 31, 2004 were as follows:



|                             |  |                |        |   |                         |   |         |     |  |   |        |  
|---------------------------- |  | -------------- | ------ | - | ----------------------- | - | ------- | --- |  | - | ------ | -
|                             |  | Gross          |        |   | AccumulatedAmortization |   |         | Net | 
|                             |  | (in thousands) |       
|Balance at December 31, 2003 |  | $              | 57,633 |   |                         | $ | (27,138 | )   |  | $ | 30,495 |  
|Amortization                 |  |                |       |   |                         |   | (3,366  | )   |  |   | (3,366 | )
|Other adjustments            |  |                | (593   | ) |                         |   | 233     |     |  |   | (360   | )
|                             |  |                |        |   |                         |   |         |     |  |   |        |  
|Balance at March 31, 2004    |  | $              | 57,040 |   |                         | $ | (30,271 | )   |  | $ | 26,769 |  
|                             |  |                |        |   |                         |   |         |     |  |   |        |  



Amortization expense
totaled $3.4 million for the three months ended March 31, 2004 and 2003. Other adjustments for the three month period ended March 31, 2004 represented translation adjustments between the European currencies and the U.S. dollar.



Based on the carrying amount of the other intangibles as of March 31, 2004,
the estimated future amortization is as follows (in thousands):



|                                    |  |   |       
|----------------------------------- |  | - | ------
|Year Ended December 31,             |  |  
|2004 (April 1 to December 31, 2004) |  | $ | 9,596 
|2005                                |  |   | 8,310 
|2006                                |  |   | 4,912 
|2007                                |  |   | 2,282 
|2008                                |  |   | 1,179 
|Thereafter                          |  |   | 490   
|                                    |  |   |       
|Total amortization                  |  | $ | 26,769
|                                    |  |   |       



7. Balance Sheet Detail



The following is a summary of other assets, net:



|                        |  |                |        |                  |   |       
|----------------------- |  | -------------- | ------ | ---------------- | - | ------
|                        |  | March31, 2004  |        | December31, 2003
|                        |  | (in thousands)
|Long-term investments   |  | $              | 8,632  |                  | $ | 8,903 
|Long-term prepaids      |  |                | 4,504  |                  |   | 5,096 
|Other                   |  |                | 1,251  |                  |   | 1,439 
|                        |  |                |        |                  |   |       
|Total other assets, net |  | $              | 14,387 |                  | $ | 15,438
|                        |  |                |        |                  |   |       



9



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Long-term investments include equity investments in several privately held companies, most of which can
still be considered in the start-up or development stages. In 2002, we acquired approximately 15% of the outstanding stock of LatentZero Limited (LatentZero), a privately-held company located in the United Kingdom, for $7 million. Our
investment is accounted for under the equity method of accounting because our Chief Executive Officer is a member of LatentZeros board of directors.



In the three months ended March 31, 2003, we recorded write-downs of $500,000 on various long-term equity investments, as a result of other-than-temporary
declines in the estimated fair value of such investments. In the three months ended March 31, 2004 and 2003, we recorded a loss of $271,000 and income of $11,000, respectively, as our pro rata share of net loss and net income on our equity method
investment. These amounts are included in interest income and other expenses, net on our Condensed Consolidated Statements of Operations.



The following is a summary of accrued liabilities:



|                               |  |                |        |                  |   |       
|------------------------------ |  | -------------- | ------ | ---------------- | - | ------
|                               |  | March 31,2004  |        | December 31,2003
|                               |  | (in thousands)
|Salaries and benefits payables |  | $              | 6,680  |                  | $ | 7,479 
|Other                          |  |                | 8,811  |                  |   | 9,766 
|                               |  |                |        |                  |   |       
|Total accrued liabilities      |  | $              | 15,491 |                  | $ | 17,245
|                               |  |                |        |                  |   |       



Other accrued
liabilities includes the accrual for restructuring charges (see Note 9).



The following is a summary of other long-term liabilities:



|                                  |  |                |       |                  |   |      
|--------------------------------- |  | -------------- | ----- | ---------------- | - | -----
|                                  |  | March 31,2004  |       | December 31,2003
|                                  |  | (in thousands)
|Deferred rent                     |  | $              | 2,108 |                  | $ | 2,156
|Other                             |  |                | 166   |                  |   | 182  
|                                  |  |                |       |                  |   |      
|Total other long-term liabilities |  | $              | 2,274 |                  | $ | 2,338
|                                  |  |                |       |                  |   |      



8. Comprehensive Income (Loss)



The components of comprehensive loss were as follows:



|                                                     |  |                             |        |   |      |   |        |  
|---------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                     |  | Three Months EndedMarch 31, |       
|                                                     |  | 2004                        |        |   | 2003 |  
|                                                     |  | (in thousands)              |       
|Net loss                                             |  | $                           | (1,148 | ) |      | $ | (7,480 | )
|Unrealized loss on marketable securities, net of tax |  |                             | (60    | ) |      |   | (51    | )
|Foreign currency translation adjustments             |  |                             | (1,352 | ) |      |   | (425   | )
|                                                     |  |                             |        |   |      |   |        |  
|Comprehensive loss                                   |  | $                           | (2,560 | ) |      | $ | (7,956 | )
|                                                     |  |                             |        |   |      |   |        |  



10



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The components of accumulated other comprehensive income were as follows:



|                                                                     |  |                |       |   |                  |   |       |  
|-------------------------------------------------------------------- |  | -------------- | ----- | - | ---------------- | - | ----- | -
|                                                                     |  | March 31,2004  |       |   | December 31,2003 |  
|                                                                     |  | (in thousands) |      
|Accumulated net unrealized loss on marketable securities, net of tax |  | $              | (127  | ) |                  | $ | (67   | )
|Accumulated foreign currency translation adjustments                 |  |                | 7,544 |   |                  |   | 8,896 |  
|                                                                     |  |                |       |   |                  |   |       |  
|Accumulated other comprehensive income                               |  | $              | 7,417 |   |                  | $ | 8,829 |  
|                                                                     |  |                |       |   |                  |   |       |  



9. Restructuring Charges (Benefit)



In response to the downturn in the financial services
industry, the decline in information technology spending and duplicative efforts in parts of our business as a result of our various acquisitions, we implemented several phases of restructuring beginning in 2003. These plans were implemented to
reduce costs and improve operating efficiencies by better aligning our resources to our near term revenue opportunities.



The restructuring charges (benefit) recorded for the three month periods ended March 31, 2004 and 2003 were:



|                                 |  |                             |      |   |      |   |      
|-------------------------------- |  | --------------------------- | ---- | - | ---- | - | -----
|                                 |  | Three Months EndedMarch 31,
|                                 |  | 2004                        |      |   | 2003
|                                 |  | (in thousands)             
|Facility exit costs              |  | $                           | (163 | ) |      | $ | 2,100
|Severance and benefits           |  |                             | 120  |   |      |   | 979  
|Property and equipment abandoned |  |                             |     |   |      |   | 410  
|                                 |  |                             |      |   |      |   |      
|Total                            |  | $                           | (43  | ) |      | $ | 3,489
|                                 |  |                             |      |   |      |   |      



For the three months
ended March 31, 2004, we recorded a net restructuring benefit of $43,000 consisting of a $163,000 adjustment related to entering into a final sub-lease agreement on one of our vacated facilities in New York and a $16,000 adjustment to non-cash
severance. These adjustments were partially offset by a restructuring charge of $136,000 related to the termination of nine employees, located primarily in New York.



For the three months ended March 31, 2003, we recorded restructuring charges of $3.5 million. These charges consisted of
$2.1 million related to the closing and consolidating of excess office space, primarily in New York and Australia; $1.0 million of severance and benefits related to the termination of 39 employees; and $410,000 related to the abandonment and
write-off of certain equipment, furniture and leasehold improvements.



The following table sets forth an analysis of the components of the restructuring charges and the payments and non-cash charges made against the accrual as of March 31, 2004:



|                                           |  |                   |       |   |                      |   |      |       |  |   |       |  
|------------------------------------------ |  | ----------------- | ----- | - | -------------------- | - | ---- | ----- |  | - | ----- | -
|                                           |  | FacilityExitCosts |       |   | SeveranceandBenefits |   |      | Total | 
|                                           |  | (in thousands)    |      
|Accrued restructuring at December 31, 2003 |  | $                 | 2,181 |   |                      | $ | 164  |       |  | $ | 2,345 |  
|Restructuring charges                      |  |                   |      |   |                      |   | 136  |       |  |   | 136   |  
|Cash paid                                  |  |                   | (574  | ) |                      |   | (170 | )     |  |   | (744  | )
|Adjustment of prior restructuring costs    |  |                   | (163  | ) |                      |   | (16  | )     |  |   | (179  | )
|                                           |  |                   |       |   |                      |   |      |       |  |   |       |  
|Accrued restructuring at March 31, 2004    |  | $                 | 1,444 |   |                      | $ | 114  |       |  | $ | 1,558 |  
|                                           |  |                   |       |   |                      |   |      |       |  |   |       |  



11



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As of March 31, 2004, the remaining excess facility costs are stated at estimated fair value, net of
estimated sublease income of approximately $780,000. We expect to pay remaining obligations in connection with vacated facilities no later than over the remaining lease terms, which expire on various dates through 2008. We expect to pay the
remaining severance and benefits in 2004.



10. Common Stock Repurchase



During 2001 and 2002, Advents Board of Directors
(the Board) authorized the repurchase of up to four million shares of outstanding common stock. No shares of common stock were repurchased during the first quarter of 2004. In the first quarter of 2003, we repurchased and retired 1.0
million shares of our common stock at a cost of $14.3 million. As of March 31, 2004, we have repurchased and retired 3.8 million shares of common stock since inception of the stock repurchase program at a total cost of $78.8 million. The stock
repurchase program has been suspended by the Board and therefore, any further stock repurchases are subject to Board approval.



11. Commitments and Contingencies



We lease office space and equipment under non-cancelable operating lease agreements, which expire at various dates through May 2012. As of March 31, 2004,
our remaining operating lease commitments through 2012 are approximately $43.9 million. Future minimum rentals to be received under non-cancelable sub-leases total $0.9 million.



We have contingent liabilities related to our acquisitions of Advent Netherlands BV and Advent Outsource Data Management in
the form of potential earn-out distributions. These earn-outs are recorded as additional goodwill, if earned. Under the terms of the purchase agreement of Advent Netherlands BV, the earn-out provision is based on a formula equal to 50% of any
operating margins which exceed 20% for the year ending December 31, 2004. As of March 31, 2004, no additional consideration was earned based on this formula. Under the terms of the purchase agreement of Advent Outsource Data Management, there is an
earn-out provision of up to $5 million under a formula based on revenue results through December 31, 2004. Through March 31, 2004, $811,000 had been earned and recorded as additional goodwill under this provision (see Note 5). Additional
consideration earned under these earn-out provisions will be paid in 2005.



From time to time we are subject to various other legal proceedings, claims and litigation arising in the ordinary course of business. We do not expect that the ultimate costs to resolve these matters will have a
material adverse effect on our consolidated financial position, results of operations, or cash flows.



12. Subsequent Event



On April 28, 2004, we signed a definitive agreement to purchase the remaining independent distributor businesses of Advent Europe in the United Kingdom and Switzerland, as well as certain assets of Advent Europe. The initial consideration
of $3.2 million consists of $380,000 in cash and $2.8 million of assumed liabilities, with additional potential consideration of approximately $6.0 million. The initial $380,000 cash consideration was paid and liabilities of $2.8 million assumed at
the close of transaction on May 3, 2004. An additional $2.4 million is due upon the satisfaction of two post-closing conditions associated with the business transaction. The balance of the consideration is contingent on the achievement of certain
revenue goals in 2004.



12



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes. The following discussion
contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements can be identified by the use of terminology
such as may, will, should, expect, plan anticipate, believe, estimate, predict, potential, continue or other similar
terms and the negative of such terms and include statements about our products and expected financial performance.Such forward-looking statements are based on our current plans and expectations and involve known and unknown risks and
uncertainties which may cause our actual results or performance to be materially different from any results or performance expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the Risk
Factors set forth below as well as other risks identified from time to time in other SEC reports. You should not place undue reliance on our forward-looking statements, as they are not guarantees of future results, levels of activity or
performance and represent our expectations only as of the date they are made.



Overview



Advent Software, Inc.
(Advent, the Company, or we) was founded and incorporated in 1983 in California and reincorporated in Delaware in November 1995. We offer integrated software solutions for automating and integrating data and work
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 increase operational efficiency, improve the accuracy of client
information and enable better decision-making. Each solution focuses on specific mission-critical functions of the investment management organization and is tailored to meet the needs of the particular client, as determined by size, assets under
management and complexity of the investment environment.



We
also have a wholly-owned subsidiary, Second Street Securities, which is an SEC-registered broker/dealer that provides independent research and brokerage services to institutional investors and registered investment advisors on a fully-disclosed
basis. Second Street Securities offers our customers the ability to pay for Advent products and services through brokerage commissions and to soft dollar third-party products and services.



During the first quarter of 2004, we continued to focus on growing and
strengthening our core business and related services. Our software revenues came from activity in our core products: Axys, Moxy, Partner, Geneva, as well as MicroEdges Foundation Power. Our growth in software license revenues primarily came
from sales of these core products in medium-sized accounts, particularly to our existing clients. We were also able to sell our Geneva product into the larger enterprise market.



We have also focused on bringing enhanced functionality and new products to the market. In the first quarter of 2004, we
released two new versions of our products: Geneva 5.2 and Moxy 4.2.



Geneva 5.2 features even more comprehensive security types and transaction coverage. We view alternative asset investments as a high growth area, and Geneva is positioned to meet the needs of firms whose business models include alternative
assets. Version 5.2 includes functionality to process revolving debt, term loans, distressed debt and inflation protection bonds. Our challenge is to continue to add functionality that anticipates the markets needs and provides a sophisticated
platform to meet complex business requirements.



Moxy 4.2 is a
version of our trade order management solution that was designed to be used stand alone, independent from Axys, our mid-market portfolio accounting solution. This new version of Moxy is designed for banks and trusts that traditionally
use a bank industry-specific trust accounting system as their system of record. One of our partners, SEI Investments Management Corporation (SEI), is distributing this product. The success of this product will depend in large part on
being able to seamlessly integrate Moxy into our customers portfolio processing and accounting systems. Outside of the SEI hosted environment, we will also license this version of Moxy to banks and trusts, as it features integration with all
the major trust accounting systems.



13



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We have also been aligning our cost structure so that it is more in line with current revenue levels. Our
total expenses of $38.1 million in the first quarter of 2004 are down from $44.7 million in the same period last year. The current cost structure reflects the restructuring activities from the prior year and continued cost-cutting initiatives. While
restructuring charges were minimal this quarter, we do expect to record restructuring charges of approximately $5.0 million associated with building abandonment in the second quarter of 2004.



In the second quarter of 2004, we purchased the remaining independent
distributor businesses of Advent Europe Holding BV (Advent Europe) in the United Kingdom and Switzerland. We now control all of our European operations. Over the last nine months, we have added significant customers in Europe, and we see
this as an increasingly important market for us in the future. Our challenge will be to successfully integrate the new European entities and continue growth in the international markets.



Going forward, our goal is to return to profitability. Our ability to achieve this target will depend upon our ability to
license software and sell services to new and existing customers and to renew maintenance contracts at similar levels to what we achieved in the first quarter of 2004. Our cost structure, excluding the impact of our acquisitions of the remaining
distributor businesses of Advent Europe in the United Kingdom and Switzerland, must remain approximately flat with current levels of expenditure or decrease in order to reach profitability. In the second quarter of 2004, we will begin recording
additional revenues and expenses associated with these recent acquisitions. We expect these incremental revenues and expenses to be relatively small and not have a material impact on our results of operations in the second quarter of 2004. We expect
total net revenues to be flat to slightly higher in the second quarter of 2004. While recent experience indicates that our customers and prospects are willing to make capital investments, there is still uncertainty as to our ability to achieve the
amount of revenue growth required for profitability.



Critical Accounting
Policies and Estimates



Our discussion and analysis of our
financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and
judgments, including those related to revenue recognition, valuation of long-lived assets, intangible assets and goodwill and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.



We believe our most
critical accounting policies and estimates include the following:



| |  | revenue recognition;
| | - | --------------------



| |  | income taxes;
| | - | -------------



| |  | impairment of long-lived assets; and
| | - | ------------------------------------



| |  | restructuring charges and related accruals.
| | - | -------------------------------------------



Revenue recognition. We recognize revenue from software licenses, development fees, maintenance, other recurring revenues, professional services
and other revenues. In addition, we earn commissions from customers who use our broker/dealer, Second Street Securities, to soft dollar the purchase of non-Advent product and services. Soft dollaring enables the customers to
use the commissions earned on trades to pay all or part of the fees owed to us for non-Advent products or services. The commission revenues earned from soft dollaring non-Advent products or services are recorded as other revenues in
professional services and other revenues on our Consolidated Statements of Operations.



We offer a wide variety of products and services to a large number of financially sophisticated customers. While many of our lower priced license transactions, maintenance contracts, subscription-based transactions
and professional services projects conform to a standard structure, many of our larger transactions are complex and may require significant review and judgment in our application of generally accepted accounting principles.



14



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Software license and development fees. We recognize revenue from the licensing of software when
persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured. We use a signed license agreement as evidence of an arrangement. Sales
through our distributors, primarily Advent Europe Holdings, our European distributor, are evidenced by a master agreement governing the relationship together with binding order forms and signed contracts from the distributors customers.
Revenue is recognized upon shipment to the distributors customer and when all other revenue recognition criteria have been met. Delivery occurs when product is delivered to a common carrier F.O.B shipping point. While many of our arrangements
generally do not include acceptance provisions, certain complex deals may involve acceptance criteria. If acceptance provisions are provided, delivery is deemed to occur upon acceptance. We assess whether the fee is fixed and determinable based on
the payment terms associated with the transaction. We assess whether the collectibility of the resulting receivable is reasonably assured based on a number of factors, including the credit worthiness of the customer determined through review of
credit reports, our transaction history with the customer, other available information and pertinent country risk if the customer is located outside the United States. Software licenses are sold with maintenance and, frequently, professional
services. We allocate revenue to delivered components, normally the license component of the arrangement, using the residual value method, based on objective evidence of the fair value of the undelivered elements, which is specific to us. We offer
term licenses as an alternative to perpetual licenses and recognize revenue for term licenses ratably over the period of the contract term. To date, revenue from term licenses has not been material. However, we expect term licenses to increase as a
proportion of total licenses in the future.



Development fees
are derived from contracts that we have entered into with other companies, including customers and development partners. Agreements for which we receive development fees generally provide for the development of technologies and products that are
expected to become part of our general product offerings in the future. Revenues for license development projects are recognized primarily using the percentage-of-completion method of accounting, based on costs incurred to date compared with the
estimated cost of completion.



If a customer chooses to enter
into a soft dollar arrangement through our in-house broker/dealer subsidiary, Second Street Securities, the soft dollar arrangement does not change or modify the original fixed or determinable fee in the written contract. The
customer is required to pay the original fee within one year. If insufficient trading volume is generated to pay the entire original fee within one year, the customer is still required to render payment within one year. If the customer chooses to
use a third-party broker/dealer, the original payment terms apply, regardless of the arrangement with the third-party broker/dealer. The option to soft dollar a transaction does not alter the underlying revenue recognition for the
transaction; all the revenue recognition criteria listed in the Software license section above must be assessed in determining how the revenue will be recognized.



Our standard practice is to enforce our contract terms and not allow our customers to return software. We have, however, on
limited occasions allowed customers to return software and have recorded sales returns reserves as offsets to revenue in the period the sales return becomes probable.



We do have three situations where we provide a contractual limited right of return to end-user customers only: in
shrink-wrap license agreements for Advent products, our MicroEdge product and our NPO product. The shrink-wrap license agreement for Advent product provides for a right of return within seven days of delivery of the software. The MicroEdge software
license agreement allows for a thirty-day money back guarantee. The NPO license agreement allows for a seven-day right of return. We recognize revenue on delivery since the fee is fixed and determinable, the buyer is obligated to pay, the risk of
loss passes to the customer, and we have the ability to estimate returns. Our ability to estimate returns is based on a long history of experience with relatively homogenous transactions and the fact that the return period is short. We have recorded
a sales returns reserve (contra revenue account) to account for these situations based on our historical experience.



Maintenance and other recurring revenues. We offer annual maintenance programs that provide for technical support and updates to our software
products. Maintenance fees are charged in the initial licensing year and for renewals of annual maintenance in subsequent years. We offer other recurring revenue services that are either subscription-based or transaction-based, and primarily include
the provision of software interfaces to, and the



15



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capability to download securities information from, third party data providers. Fair value for maintenance is based upon renewal rates stated in the
contracts or, in limited cases, separate sales of renewals to other customers. We recognize revenue for maintenance ratably over the contract term. We recognize revenue from recurring revenue transactions either ratably over the subscription period
or as the transactions occur.



Subscription-based revenues and
any related set-up fees are recognized ratably over the term of the agreement.



Professional services and other revenues. We offer a variety of professional services that include project management, implementation, data conversion, integration, custom report writing and training. Fair
value for professional services is based upon separate sales of these services by us to other customers. Our professional services are generally billed based on hourly rates together with reimbursement for travel and accommodation expenses. Our
professional services and other revenue also include revenue from our semi-annual user conferences. We generally recognize revenue as these professional services are performed. Certain professional services arrangements involve acceptance criteria.
In these cases, revenue is recognized upon acceptance.



Commission revenues received from soft dollar transactions for products and services not related to Advent products and services are recorded as other revenues. Revenues for these soft dollar transactions are
recognized on a trade-date basis as securities transactions occur.



Income taxes. We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as
deferred tax assets and liabilities. Generally accepted accounting principles require us to evaluate whether or not we will realize a benefit from net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net
deferred tax assets to an amount that will more likely than not be realized. Significant factors considered by management in assessing the need for a valuation allowance include the following:



| |  | our historical operating results;
| | - | ---------------------------------



| |  | the length of time over which the differences will be realized;
| | - | ---------------------------------------------------------------



| |  | tax planning opportunities; and
| | - | -------------------------------



| |  | expectations for future earnings.
| | - | ---------------------------------



In considering whether or not we will realize a benefit from net deferred tax assets, recent losses must be given substantially more weight than any
projections of future profitability. In 2003, we determined that, under applicable accounting principles, based on our history of consecutive losses since the second quarter of 2002, it was more likely than not that we would not realize any value
for our net deferred tax assets. Accordingly, we established a valuation allowance equal to 100% of the amount of these assets. Income tax expense recorded in the future will be reduced to the extent sufficient positive evidence materializes to
support a reversal of, or decrease in, the valuation allowance.



Impairment of long-lived assets. We review our goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable, or at least once a year. We are required to test
our goodwill for impairment at the reporting unit level. We have determined that we have only one reporting unit. The test for goodwill impairment is a two-step process:



The first step compares the fair value of our reporting unit with its carrying amount, including goodwill. If the fair value
of our reporting unit exceeds its carrying amount, goodwill of our reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary.



The second step, used to measure the amount of impairment loss, compares the implied fair value of our reporting unit
goodwill with the carrying amount of that goodwill. If the carrying amount of our reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.



16



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During the fourth quarter of 2003, we completed our annual impairment test which indicated there was no
impairment. There were no events or changes in circumstances during the first quarter of 2004 which triggered an impairment review.



We review our other long-lived assets including property and equipment and other intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable. Factors we consider important which could trigger an impairment review include the following:



| |  | significant underperformance relative to expected historical or projected future operating results;
| | - | ---------------------------------------------------------------------------------------------------



| |  | significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
| | - | -------------------------------------------------------------------------------------------------------------



| |  | significant negative market or economic trends;
| | - | -----------------------------------------------



| |  | significant decline in our stock price for a sustained period; and
| | - | ------------------------------------------------------------------



| |  | our market capitalization relative to net book value.
| | - | -----------------------------------------------------



Recoverability is measured by a comparison of the assets carrying amount to their expected future undiscounted net cash flows. If such assets are
considered to be impaired, the impairment to be recognized is measured based on the amount by which the carrying amount of the asset exceeds its fair value.



We hold minority interests in several privately held companies having operations or technology in areas within our strategic focus. Most of these
investments can be considered as early stage investment opportunities and are classified as other assets on our balance sheet. One of these investments is accounted for under the equity method of accounting. We record an investment write-down when
we believe an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying
value of the investments that may not be reflected in an investments current carrying value, thereby possibly requiring an impairment charge in the future. We estimate an investments carrying value based primarily on its revenue and
implied valuation based on revenue multiples for similar public companies, supplemented by any recent valuation events, such as an equity financing.



Restructuring charges and related accruals. Beginning in 2003, we developed and implemented formalized plans for restructuring our business to
better align our resources to market conditions and recorded significant charges. In connection with these plans, we recorded estimated expenses for severance and benefits, lease cancellations, asset write-offs and other restructuring costs. Given
the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made at the time the original decisions were made, including evaluating real estate market conditions
for expected vacancy periods and sub-lease rents. We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we believe that these estimates accurately reflect the costs of our restructuring
plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion of such provisions.



Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities. FIN 46 expands upon and strengthens existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable
interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes in which either (a) the equity investors in the entity do not have the characteristics of a controlling financial interest or (b) the
equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest entitys activities or is entitled to receive a majority of the entitys residual returns or both (primary beneficiary).



17



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We adopted the provisions of FIN 46 in the first quarter of 2004. In conjunction with the adoption of FIN
46, we determined that our independent European distributor, Advent Europe, is a variable interest entity, but that we are not the primary beneficiary. In accordance with FIN 46, we are not required to consolidate this distributor. On April 28,
2004, we signed a definitive agreement to purchase the remaining independent distributor businesses of Advent Europe in the United Kingdom and Switzerland, as well as certain assets of Advent Europe, for initial consideration of $3.2 million and
additional potential consideration of approximately $6.0 million. We currently have no other exposure to loss as a result of our involvement with Advent Europe. See Distributor Relationship below for additional information regarding our
relationship with Advent Europe.



Reclassifications



Certain prior period amounts, as detailed below, have been reclassified
to conform to the current period presentation to better reflect our view of the current business. These reclassifications do not affect total net revenues, net income or loss, cash flows, or stockholders equity.



Revenues. We had previously classified all soft dollar
fees from our broker/dealer subsidiary as license and development fees. These soft dollar fees reflect transactions relating to licenses of Advents products and services as well as soft dollar fees relating to third
party products and services. Because soft dollar fees from third party products and services have been increasing as a percentage of total soft dollar fees, and license and development revenues have declined from previous
levels, we believe it is more appropriate to exclude soft dollar fees related to third party products and services from license and development fees revenue, and we began presenting these amounts as professional services and other
revenue. The amount reclassified was approximately $1.4 million for the three month period ended March 31, 2003. Soft dollar revenues relating to Advent products and services remain in license and development fees revenue and accounted
for less than 5% of total license and development fees revenue for all periods presented.



Revenue from our project management team had previously been classified in maintenance and other recurring revenue. We have determined this revenue is better classified as professional services revenue, because the
project management and consulting teams often work closely together and the nature of the projects is now typically non-recurring. The amount reclassified was $734,000 for the first quarter of 2003.



Expenses. We reclassified the expenses relating to soft
dollar fees for third party products from cost of license to cost of professional services and other. In addition, other reclassifications were made to cost of revenues and operating expenses. In the past, employees in product development,
maintenance and professional services were typically called on to assist in the sales process. As a result, a certain proportion of these expenses were allocated to sales and marketing. As our organizational structure matured, the functional groups
became more distinct. Our current view of the business is based on a stricter delineation between the functional groups. Overall, cost of revenues increased and operating expenses decreased as a result of these reclassifications by approximately
$1.5 million for the three month period ended March 31, 2003.



Amortization of Developed Technology. In the fourth quarter of 2003, we began presenting amortization of developed technology within cost of revenues. Through our various acquisitions, we have purchased technologies which are either
licensed directly to our customers or used internally to provide services to our customers for which we derive revenue. As a result of our acquisitions from 2001 through the middle of 2003, the amortization related to purchased technology has
increased. We believe that presenting this amortization within cost of revenues more accurately presents our total cost of revenues and gross margin. We have reclassified approximately $1.4 million for the first quarter of 2003, which was previously
included in amortization of other intangibles within operating expenses, to amortization of developed technology within cost of revenues.



Accounts Receivable and Deferred Revenues. In the first quarter of 2004, we have discontinued netting down specific revenue reserves which were
included in deferred revenues against their corresponding receivables. The result is an increase in our accounts receivable balance with a corresponding increase in deferred revenues. We have determined that for presentation purposes, the
discontinuation of the net-down for the reserves gives more visibility to our receivables and deferred revenue accounts. We have reclassified $1.6 million for the fourth quarter of 2003 resulting in corresponding increases in both accounts
receivable and deferred revenue.



In addition to the
reclassifications described above, corresponding reclassifications were also made on our balance sheets and statements of cash flows.



18



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Distributor Relationship



We rely on a number of alliances to help us achieve market acceptance of our products and to leverage our development,
sales, and marketing resources. In 1998 we established one such relationship with a company in Scandinavia to distribute our products throughout Scandinavia. In the third quarter of 1999, this distributor formed Advent Europe. Advent Europe and its
subsidiaries have had the exclusive right to distribute our software products, excluding Geneva, in certain locations in Europe and the Middle East. Incorporated in the Netherlands, Advent Europe is an independent entity, is not financially backed
by us and is entirely capitalized by independent third party investors. It makes tax and language modifications to our software products to fit the various needs of the local jurisdictions and then markets and licenses the products and related
services. All transactions between Advent Europe and us are at arms-length. Our revenues from this distributor in each of the three month periods ended March 31, 2004 and 2003 were less than 3% of our total net revenue.



Advent Europe has had the contingent put right to require us to
purchase any one or any group of its subsidiaries. Our requirement to purchase was contingent upon the distributor achieving specified operating margins in excess of 20% and specified customer satisfaction criteria. The purchase price was equal to
two times the preceding twelve months total revenue of the purchased subsidiary, plus potential additional consideration equal to 50% of operating margins that exceed 20%, achieved in the two years subsequent to the acquisition. This purchase price
could be varied by mutual agreement. In addition, we have had the call right to purchase any one or any group of Advent Europes subsidiaries under certain conditions. From 2001 through 2003, in accordance with the provisions
described above, we purchased five of Advent Europes subsidiaries. We adopted the provisions of FIN 46 in the first quarter of 2004 and determined that Advent Europe is a variable interest entity because, among other reasons, it was thinly
capitalized and the third party investors did not have sufficient equity at risk. However, we did not consolidate Advent Europe because we are not the primary beneficiary as we are not obligated to absorb the majority of the entitys expected
losses and we have not received a majority of the entitys returns.



On April 28, 2004, we signed a definitive agreement to purchase the remaining independent distributor businesses of Advent Europe in the United Kingdom and Switzerland, as well as certain assets of Advent Europe, for
initial consideration of $3.2 million and additional potential consideration of approximately $6.0 million. See Note 12 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the purchase.



19



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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003



The following table sets forth, for the periods indicated, certain financial
information as a percentage of total net revenues:



|                                       |  |                             |    |  |      |   
|-------------------------------------- |  | --------------------------- | -- |  | ---- | --
|                                       |  | Three Months EndedMarch 31, |   
|                                       |  | 2004                        |    |  | 2003 |   
|Net revenues:                          |  |                             |    |  |      |   
|License and development fees           |  | 22                          | %  |  | 20   | % 
|Maintenance and other recurring        |  | 62                          |    |  | 64   |   
|Professional services and other        |  | 16                          |    |  | 16   |   
|                                       |  |                             |    |  |      |   
|Total net revenues                     |  | 100                         |    |  | 100  |   
|                                       |  |                             |    |  |      |   
|Cost of revenues:                      |  |                             |    |  |      |   
|License and development fees           |  | 2                           |    |  | 2    |   
|Maintenance and other recurring        |  | 19                          |    |  | 22   |   
|Professional services and other        |  | 13                          |    |  | 12   |   
|Amortization of developed technology   |  | 3                           |    |  | 4    |   
|                                       |  |                             |    |  |      |   
|Total cost of revenues                 |  | 37                          |    |  | 40   |   
|                                       |  |                             |    |  |      |   
|Gross margin                           |  | 63                          |    |  | 60   |   
|                                       |  |                             |    |  |      |   
|Operating expenses:                    |  |                             |    |  |      |   
|Sales and marketing                    |  | 24                          |    |  | 35   |   
|Product development                    |  | 21                          |    |  | 28   |   
|General and administrative             |  | 16                          |    |  | 16   |   
|Amortization of other intangibles      |  | 5                           |    |  | 6    |   
|Restructuring charges (benefit)        |  |                            |    |  | 10   |   
|                                       |  |                             |    |  |      |   
|Total operating expenses               |  | 66                          |    |  | 95   |   
|                                       |  |                             |    |  |      |   
|Loss from operations                   |  | (3                          | )  |  | (35  | ) 
|Interest income and other expense, net |  |                            |    |  |     |   
|                                       |  |                             |    |  |      |   
|Loss before income taxes               |  | (3                          | )  |  | (35  | ) 
|Benefit from income taxes              |  |                            |    |  | (12  | ) 
|                                       |  |                             |    |  |      |   
|Net Loss                               |  | (3                          | )% |  | (23  | )%
|                                       |  |                             |    |  |      |   



NET REVENUES



|                   |  |                                    |        |                         |   |        |  |   |       |  |    |  
|------------------ |  | ---------------------------------- | ------ | ----------------------- | - | ------ |  | - | ----- |  | -- | -
|                   |  | Three Months EndedMarch 31,        |        | Change OverPrior Period |  
|                   |  | 2004                               |        | 2003                    |   | Amount |  | % |      
|                   |  | (in thousands, except percentages) |       
|Total net revenues |  | $                                  | 36,836 |                         | $ | 33,044 |  | $ | 3,792 |  | 11 | %



Our net revenues are
made up of three components: license and development fees; maintenance and other recurring; and professional services and other. License revenues are derived from the licensing of software products, while development fees are derived from
development contracts that we have entered into with other companies, including customers and development partners. Maintenance and other recurring revenues are derived from maintenance fees charged in the initial licensing year, renewals of annual
maintenance services in subsequent years and recurring revenues derived from our subscription-based and transaction-based services. Professional services and other revenues include fees for consulting, training services, soft dollaring
of third-party products and services and our user conferences.



20



---

Each of the major revenue categories has historically varied as a percentage of net revenues and we
expect this variability to continue in future periods. This variability is partially due to the timing of the introduction of new products, the relative size and timing of individual software licenses, as well as the size of the implementation, the
resulting proportion of the maintenance and professional services components of these license transactions and the amount of client use of pricing and related data. We expect a small amount of incremental revenues in the second quarter of 2004 as a
result of our acquisition of the remaining distributor businesses of Advent Europe in the United Kingdom and Switzerland. We expect total net revenues to be flat to slightly higher in the second quarter of 2004.



License Revenue and Development Fees



|                             |  |                                    |       |   |                         |   |       |        |  |   |       |  |    |  
|---------------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | ----- |  | -- | -
|                             |  | Three Months EndedMarch 31,        |       |   | Change OverPrior Period |  
|                             |  | 2004                               |       |   | 2003                    |   |       | Amount |  | % |      
|                             |  | (in thousands, except percentages) |      
|License and development fees |  | $                                  | 8,008 |   |                         | $ | 6,742 |        |  | $ | 1,266 |  | 19 | %
|Percent of net revenues      |  |                                    | 22    | % |                         |   | 20    | %      |  |   |       |  |    |  



The increase in
license revenue and development fees reflected two main factors. First, we believe that the overall economic outlook and conditions within the financial services industry improved, which contributed to increases in capital expenditures by our
customers. Second, our focus on selling our core products resulted in higher sales, particularly in our Advent Office products. Revenues from Axys, Moxy, and Partner comprised almost half of license sales in the first quarter of 2004. In addition,
we had significant growth in revenue from our Foundation Power product as well as our Qube product. The increases in the Advent Office products were slightly offset by a decrease in Geneva license revenue compared with the first quarter of 2003. Our
Geneva deals are generally complex transactions and may include acceptance criteria which can result in deferral of revenue. We expect license and development fee revenue to be relatively flat in the second quarter of 2004 with modest growth year
over year.



We typically license our products on a per server,
per user basis with the price per customer varying based on the selection of the products licensed, the number of site installations and the number of authorized users. We earn development fees when we provide product solutions which are not part of
our standard product offering but will be incorporated into our future releases. For the three months ended March 31, 2004 and 2003, revenue from development fees has been less than 6% of total license and development fees revenue.For the
three months ended March 31, 2004 and 2003, soft dollar revenues generated from Advent product and services paid for through soft dollar transactions have represented less than 5% of total license and development revenues.



Maintenance and Other Recurring Revenues



|                                         |  |                                    |        |   |                         |   |        |        |  |   |       |  |   |  
|---------------------------------------- |  | ---------------------------------- | ------ | - | ----------------------- | - | ------ | ------ |  | - | ----- |  | - | -
|                                         |  | Three Months EndedMarch 31,        |        |   | Change OverPrior Period |  
|                                         |  | 2004                               |        |   | 2003                    |   |        | Amount |  | % |      
|                                         |  | (in thousands, except percentages) |       
|Maintenance and other recurring revenues |  | $                                  | 22,886 |   |                         | $ | 21,140 |        |  | $ | 1,746 |  | 8 | %
|Percent of net revenues                  |  |                                    | 62     | % |                         |   | 64     | %      |  |   |       |  |   |  



Maintenance and other
recurring revenues increased slightly from the first quarter of 2003, reflecting continuing maintenance revenues from our established customer base. The maintenance renewal rate was within the 82% to 88% range that we have experienced over the last
few quarters. Recurring revenue increased slightly as a result of our receiving a revenue share from transaction charges generated by a new partner program. We expect that maintenance and recurring revenues will increase slightly each quarter in
2004, reflecting additions to the customer base.



21



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Professional Services and Other Revenues



|                                         |  |                                    |       |   |                         |   |       |        |  |   |     |  |    |  
|---------------------------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | --- |  | -- | -
|                                         |  | Three MonthsEnded March 31,        |       |   | Change OverPrior Period |  
|                                         |  | 2004                               |       |   | 2003                    |   |       | Amount |  | % |    
|                                         |  | (in thousands, except percentages) |      
|Professional services and other revenues |  | $                                  | 5,942 |   |                         | $ | 5,162 |        |  | $ | 780 |  | 15 | %
|Percent of net revenues                  |  |                                    | 16    | % |                         |   | 16    | %      |  |   |     |  |    |  



Professional services
and other revenues include consulting, project management, custom integration, custom work, and training. Professional services related to Advent Office products generally can be completed and accepted in a relatively short time period while
services related to Geneva products may require a six to nine month implementation period. Therefore, the revenues associated with professional services reflect a mix of services related to current quarter license revenue as well as transactions
from prior quarters. Generally, our consulting revenues lag our license revenues by one or two quarters.



In the first quarter of 2004, increases in our custom integration and custom work associated with Advent Office and Geneva implementations were partially
offset by decreases in consulting and project management. We also had a slight increase in revenues earned from third party products paid for through soft dollar transactions. We expect that revenues from Professional Services will be relatively
flat in the second quarter of 2004.



COST OF REVENUES



|                        |  |                                    |        |   |                         |   |        |        |  |   |     |  |   |  
|----------------------- |  | ---------------------------------- | ------ | - | ----------------------- | - | ------ | ------ |  | - | --- |  | - | -
|                        |  | Three Months EndedMarch 31,        |        |   | Change OverPrior Period |  
|                        |  | 2004                               |        |   | 2003                    |   |        | Amount |  | % |    
|                        |  | (in thousands, except percentages) |       
|Total cost of revenues  |  | $                                  | 13,503 |   |                         | $ | 13,175 |        |  | $ | 328 |  | 2 | %
|Percent of net revenues |  |                                    | 37     | % |                         |   | 40     | %      |  |   |     |  |   |  



Our cost of revenues
is made up of four components: cost of license and development fees; cost of maintenance and other recurring; cost of professional services and other; and amortization of developed technology.



Cost of License and Development Fees



|                                     |  |                                    |     |   |                         |   |     |        |  |   |    |  |   |  
|------------------------------------ |  | ---------------------------------- | --- | - | ----------------------- | - | --- | ------ |  | - | -- |  | - | -
|                                     |  | Three Months EndedMarch 31,        |     |   | Change OverPrior Period |  
|                                     |  | 2004                               |     |   | 2003                    |   |     | Amount |  | % |   
|                                     |  | (in thousands, except percentages) |    
|Cost of license and development fees |  | $                                  | 594 |   |                         | $ | 554 |        |  | $ | 40 |  | 7 | %
|Percent of license revenues          |  |                                    | 7   | % |                         |   | 8   | %      |  |   |    |  |   |  



Cost of license and
development fees consists primarily of royalties and other fees paid to third parties, the fixed direct labor involved in producing and distributing our software, labor costs associated with generating development fees and cost of product media
including duplication, manuals and packaging materials. The increase in the first quarter of 2004 primarily reflected an increase in the cost of product media including duplication, manuals and packaging materials associated with the release of
Geneva 5.2 and Moxy 4.2. We expect cost of license and development fees to remain relatively flat for the remainder of 2004.



22



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Cost of Maintenance and Other Recurring



|                                        |  |                                    |       |   |                         |   |       |        |  |   |      |   |  |    |   
|--------------------------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | ---- | - |  | -- | --
|                                        |  | Three Months Ended March 31,       |       |   | Change OverPrior Period |  
|                                        |  | 2004                               |       |   | 2003                    |   |       | Amount |  |   | %    |  
|                                        |  | (in thousands, except percentages) |      
|Cost of maintenance and other recurring |  | $                                  | 6,880 |   |                         | $ | 7,379 |        |  | $ | (499 | ) |  | (7 | )%
|Percent of maintenance revenues         |  |                                    | 30    | % |                         |   | 35    | %      |  |   |      |   |  |    |   



Cost of maintenance
and other recurring revenues is primarily comprised of the direct costs of providing technical support and other services for recurring revenues and royalties paid to third party subscription-based and transaction-based vendors. The decrease in the
first quarter of 2004 was due primarily to the reduction in personnel and related costs associated with restructuring activities implemented during 2003. The decrease was partially offset by increases in outside services and royalties related to the
increase in our data subscription revenues. We expect cost of maintenance and other recurring revenues to be relatively flat in the second quarter of 2004.



Cost of Professional Services and Other



|                                          |  |                                    |       |   |                         |   |       |        |  |   |     |  |    |  
|----------------------------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | --- |  | -- | -
|                                          |  | Three MonthsEnded March 31,        |       |   | Change OverPrior Period |  
|                                          |  | 2004                               |       |   | 2003                    |   |       | Amount |  | % |    
|                                          |  | (in thousands, except percentages) |      
|Cost of professional services and other   |  | $                                  | 4,687 |   |                         | $ | 3,807 |        |  | $ | 880 |  | 23 | %
|Percent of professional services revenues |  |                                    | 79    | % |                         |   | 74    | %      |  |   |     |  |    |  



Cost of professional
services and other revenue consists primarily of personnel related costs associated with the client services and support organization in providing consulting, custom report writing and conversions of data from clients previous systems. Also
included are direct costs associated with third-party consultants, travel expenses and soft dollar transactions for third party products. The increase in the first quarter of 2004 was primarily due to increases in employee bonus programs and outside
services, and higher soft dollar product fee expenses resulting from increases in third party revenues. We expect cost of professional services and other revenues to be relatively flat in the second quarter of 2004.



Amortization of Developed Technology



|                                     |  |                                    |       |   |                         |   |       |        |  |   |     |   |  |    |   
|------------------------------------ |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | --- | - |  | -- | --
|                                     |  | Three MonthsEnded March 31,        |       |   | Change OverPrior Period |  
|                                     |  | 2004                               |       |   | 2003                    |   |       | Amount |  |   | %   |  
|                                     |  | (in thousands, except percentages) |      
|Amortization of developed technology |  | $                                  | 1,342 |   |                         | $ | 1,435 |        |  | $ | (93 | ) |  | (6 | )%
|Percent of net revenues              |  |                                    | 3     | % |                         |   | 4     | %      |  |   |     |   |  |    |   



Amortization of
developed technology represents amortization of acquisition-related intangible assets. Amortization of developed technology has remained relatively flat following several major acquisitions in 2001 and 2002. We expect amortization of developed
technology to be approximately $1.3 million in the second quarter of 2004.



23



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OPERATING EXPENSES



Sales and Marketing



|                        |  |                                    |       |   |                         |   |        |        |  |   |        |   |  |     |   
|----------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ------ | ------ |  | - | ------ | - |  | --- | --
|                        |  | Three Months EndedMarch 31,        |       |   | Change OverPrior Period |  
|                        |  | 2004                               |       |   | 2003                    |   |        | Amount |  |   | %      |  
|                        |  | (in thousands, except percentages) |      
|Sales and marketing     |  | $                                  | 8,793 |   |                         | $ | 11,455 |        |  | $ | (2,662 | ) |  | (23 | )%
|Percent of net revenues |  |                                    | 24    | % |                         |   | 35     | %      |  |   |        |   |  |     |   



Sales and marketing
expenses consist primarily of the costs of personnel involved in the sales and marketing process, sales commissions, advertising and promotional materials, sales facilities expense, trade shows, and seminars. The decrease in expenses in the first
quarter of 2004 was due to a reduction in personnel and related costs of $3.0 million associated with restructuring activities implemented during 2003 and a $273,000 fee reduction resulting from the termination of a vendor relationship for our
Wealthline product. These decreases were partially offset by employee incentive and bonus programs of $616,000. We expect sales and marketing expenses to be approximately $1.0 million higher in the second quarter of 2004 as a result of costs
associated with a European marketing conference and additional headcount associated with the acquisitions in the United Kingdom and Switzerland.



Product Development



|                        |  |                                    |       |   |                         |   |       |        |  |   |        |   |  |     |   
|----------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | ------ | - |  | --- | --
|                        |  | Three Months EndedMarch 31,        |       |   | Change OverPrior Period |  
|                        |  | 2004                               |       |   | 2003                    |   |       | Amount |  |   | %      |  
|                        |  | (in thousands, except percentages) |      
|Product development     |  | $                                  | 7,852 |   |                         | $ | 9,367 |        |  | $ | (1,515 | ) |  | (16 | )%
|Percent of net revenues |  |                                    | 21    | % |                         |   | 28    | %      |  |   |        |   |  |     |   



Product development
expenses consist primarily of salary and benefits for our development staff as well as contractors fees and other costs associated with the enhancements of existing products and services and development of new products and services. The
decrease in expenses in the first quarter of 2004 was due to a reduction in personnel and related costs of $1.1 million associated with restructuring activities implemented during 2003 and reductions in the utilization of outside contractors and
services totaling $627,000. These decreases were partially offset by employee bonus programs of $248,000. We expect product development expenses to be slightly higher in the second quarter of 2004 as a result of the ramp of new products
introductions.



General and Administrative



|                           |  |                                    |       |   |                         |   |       |        |  |   |     |  |    |  
|-------------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | --- |  | -- | -
|                           |  | Three Months EndedMarch 31,        |       |   | Change OverPrior Period |  
|                           |  | 2004                               |       |   | 2003                    |   |       | Amount |  | % |    
|                           |  | (in thousands, except percentages) |      
|General and administrative |  | $                                  | 5,981 |   |                         | $ | 5,312 |        |  | $ | 669 |  | 13 | %
|Percent of net revenues    |  |                                    | 16    | % |                         |   | 16    | %      |  |   |     |  |    |  



General and
administrative expenses consist primarily of personnel costs for finance, administration, operations and general management, as well as legal and accounting expenses. The increase in expenses was due to costs of $425,000 associated with
discontinuing an offsite web hosting service and $135,000 for employee bonus programs. We expect general and administrative expenses to be slightly higher in the second quarter of 2004 as a result of increased accounting and compliance costs
associated with the Sarbanes-Oxley Act of 2002 and costs associated with the acquisitions in the United Kingdom and Switzerland.



24



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Amortization of Other Intangibles



|                                  |  |                                    |       |   |                         |   |       |        |  |   |    |  |   |  
|--------------------------------- |  | ---------------------------------- | ----- | - | ----------------------- | - | ----- | ------ |  | - | -- |  | - | -
|                                  |  | Three MonthsEnded March 31,        |       |   | Change OverPrior Period |  
|                                  |  | 2004                               |       |   | 2003                    |   |       | Amount |  | % |   
|                                  |  | (in thousands, except percentages) |      
|Amortization of other intangibles |  | $                                  | 2,024 |   |                         | $ | 1,925 |        |  | $ | 99 |  | 5 | %
|Percent of net revenues           |  |                                    | 5     | % |                         |   | 6     | %      |  |   |    |  |   |  



Amortization of other
intangibles represents amortization of non-technology related intangible assets. Amortization of other intangibles has remained relatively flat following several major acquisitions in 2001 and 2002. We expect amortization of other intangibles to be
approximately $2.0 million in the second quarter of 2004.



Restructuring Charges (Benefit)



|                                |  |                                    |     |   |                         |   |       |        |  |   |        |   |  |      |   
|------------------------------- |  | ---------------------------------- | --- | - | ----------------------- | - | ----- | ------ |  | - | ------ | - |  | ---- | --
|                                |  | Three MonthsEnded March 31,        |     |   | Change OverPrior Period |  
|                                |  | 2004                               |     |   | 2003                    |   |       | Amount |  |   | %      |  
|                                |  | (in thousands, except percentages) |    
|Restructuring charges (benefit) |  | $                                  | (43 | ) |                         | $ | 3,489 |        |  | $ | (3,532 | ) |  | (101 | )%
|Percent of net revenues         |  |                                    |    | % |                         |   | 10    | %      |  |   |        |   |  |      |   



In response to the
downturn in the financial services industry, the decline in information technology spending and duplicative efforts in parts of our business as a result of our acquisitions, we implemented several phases of restructuring beginning in 2003. These
plans were implemented to reduce costs and improve operating efficiencies by better aligning our resources to our near term revenue opportunities.



For the three months ended March 31, 2004, we recorded a net restructuring benefit of $43,000 consisting of a $163,000 adjustment related to the final
sub-lease agreement on one of our vacated facilities in New York and a $16,000 adjustment to non-cash severance. These items were partially offset by a restructuring charge of $136,000 related to the termination of 9 employees located primarily in
New York.



For the three months ended March 31, 2003, we
recorded restructuring charges of $3.5 million. These charges consisted of $2.1 million related to the closing and consolidating excess office space, primarily in New York and Australia; $1.0 million of severance and benefits related to the
termination of 39 employees; and $410,000 related to the abandonment and write-off of certain equipment, furniture and leasehold improvements.



The following table sets forth an analysis of the components of the restructuring charges and the payments and non-cash charges made against the accrual
as of March 31, 2004:



|                                           |  |                   |       |   |                      |   |      |       |  |   |       |  
|------------------------------------------ |  | ----------------- | ----- | - | -------------------- | - | ---- | ----- |  | - | ----- | -
|                                           |  | FacilityExitCosts |       |   | SeveranceandBenefits |   |      | Total | 
|                                           |  | (in thousands)    |      
|Accrued restructuring at December 31, 2003 |  | $                 | 2,181 |   |                      | $ | 164  |       |  | $ | 2,345 |  
|Restructuring charges                      |  |                   |      |   |                      |   | 136  |       |  |   | 136   |  
|Cash paid                                  |  |                   | (574  | ) |                      |   | (170 | )     |  |   | (744  | )
|Adjustment of prior restructuring costs    |  |                   | (163  | ) |                      |   | (16  | )     |  |   | (179  | )
|                                           |  |                   |       |   |                      |   |      |       |  |   |       |  
|Accrued restructuring at March 31, 2004    |  | $                 | 1,444 |   |                      | $ | 114  |       |  | $ | 1,558 |  
|                                           |  |                   |       |   |                      |   |      |       |  |   |       |  



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As of March 31, 2004, the remaining excess facility costs are stated at estimated fair value, net of
estimated sublease income of approximately $780,000. We expect to pay remaining obligations in connection with vacated facilities no later than over the remaining lease terms, which expire on various dates through 2008. We expect to pay the
remaining severance and benefits in 2004. As a result of our restructuring activities implemented to date, we have reduced our total expenses by approximately $20 million on an annual basis.



We have vacated one of our facilities in San Francisco, California, and
intend to sub-lease the vacated space after obtaining the proper permits and completing leasehold improvements. We expect to record a restructuring charge, net of projected sub-lease income, of approximately $5.0 million in the second quarter of
2004.



Interest Income and Other Expense, Net



Interest income and other expense, net consists of interest income,
realized gains and losses on short-term investments, our pro rata share of net income or loss on our equity method investment and foreign currency gains and losses. For the three months ended March 31, 2004 and 2003, interest income and other
expenses, net totaled $126,000 and $172,000, respectively.



The
decrease in interest income and other expense, net for first quarter of 2004 primarily reflected lower interest income as a result of lower average interest rates. Interest income and other expense, net in the first quarter of 2004 also reflected
our pro rata share of net loss of $271,000 on our equity method investment and losses of $245,000 on retirement of fixed assets, compared to write-downs of $500,000 on various long-term equity investments in the first quarter of 2003 resulting from
other-than-temporary declines in the estimated fair market values.



Benefit from Income Taxes



For the three
months ended March 31, 2004, we recorded no tax benefit, compared to a benefit from income taxes of $4.0 million recorded in the three months ended March 31, 2003. We account for income taxes under an asset and liability approach that requires the
expected future tax consequences of temporary differences between book and tax bases of assets and liabilities to be recognized as deferred tax assets and liabilities. During the fourth quarter of 2003, we established a full valuation allowance
against our deferred tax assets in the United States because we determined it is more likely than not that these deferred tax assets will not be realized in the foreseeable future.



LIQUIDITY AND CAPITAL RESOURCES



Our cash, cash equivalents and marketable securities at March 31, 2004 were $167.1 million, compared with $160.1 million at December 31, 2003.



Cash Flows from Operating Activities



Our cash flows from operating activities represent the most significant
source of funding for our operations. Operating activities provided $5.7 million and $4.9 million for the three month periods ended March 31, 2004 and 2003, respectively. Our cash provided by operating activities generally follows the trend in our
net revenues and operating results. Our net loss in the first quarter of 2004 was more than offset by non-cash charges including depreciation, amortization, loss on disposition of fixed assets and loss on investments.



Other sources of cash in the first quarter of 2004 included a decrease in
prepaid and other assets, and increases in accounts payable and deferred revenues. The decrease in prepaid and other assets reflected prepaid expense amortization and collection of a receivable for a litigation settlement recorded in the fourth
quarter of 2003. The increases in accounts payable and deferred revenues primarily reflected timing of payments and collections. Uses of cash in the first quarter of 2004 included a decrease in accrued liabilities and an increase in accounts
receivable. The decrease in accrued liabilities reflected cash payments for employee benefits and restructuring obligations. The increase in accounts receivable primarily reflected timing of collections and days sales outstanding increased by two
days from the prior quarter.



We expect that cash provided by
operating activities may fluctuate in future periods as a result of a number of factors including fluctuations in our net revenues and operating results, amount of revenue deferred, collection of accounts receivable, and timing of payments.



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Cash Flows from Investing Activities



Net cash used in investing activities of $3.9 million for the three months ended March 31, 2004, consisted primarily of net
purchases of marketable securities of $3.5 million. Net cash provided by investing activities of $13.0 million for the three months ended March 31, 2003 consisted of net sales and maturities of marketable securities of $14.9 million, partially
offset by purchases of property and equipment of $1.9 million



On April 28, 2004, we signed a definitive agreement to purchase the remaining independent distributor businesses of Advent Europe in the United Kingdom and Switzerland, as well as certain assets of Advent Europe, for initial consideration
of $3.2 million and additional potential consideration of approximately $6.0 million. See Note 12 of the Notes to Condensed Consolidated Financial Statement for additional information regarding the purchase. Going forward, we may consider acquiring
additional businesses from time to time. We do not expect a significant change in our expenditures for property and equipment in 2004.



Cash Flows from Financing Activities



Net cash provided by financing activities for the three months ended March 31, 2004 of $2.2 million reflected proceeds from the exercise of stock options.
Net cash used in financing activities for the three months ended March 31, 2003 of $13.6 million primarily reflected the repurchase of 1.0 million shares of our common stock for $14.3 million, partially offset by stock issued through employee stock
purchase and stock option plans of $0.8 million.



We
periodically consider whether to repurchase shares of our common stock, and may in the future continue our share repurchase program. However, this decision will depend on a number of factors, including share price, and will require a repurchase
authorization from our Board of Directors.



At March 31, 2004,
we had $134.0 million in working capital. We currently have no significant capital commitments other than commitments under our operating leases, which declined from $46.2 million at December 31, 2003 to $43.9 million at March 31, 2004.



The following table summarizes our contractual cash
obligations under our operating lease obligations (in thousands):



|                                    |  |   |       
|----------------------------------- |  | - | ------
|Year Ended December 31,             |  |  
|2004 (April 1 to December 31, 2004) |  | $ | 6,513 
|2005                                |  |   | 8,546 
|2006                                |  |   | 8,101 
|2007                                |  |   | 6,656 
|2008                                |  |   | 6,252 
|Thereafter                          |  |   | 7,836 
|                                    |  |   |       
|Total operating lease obligations   |  | $ | 43,904
|                                    |  |   |       



At March 31, 2004 and
December 31, 2003, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.



We have taken numerous actions over the last year to
strengthen our cash position and balance sheet and to improve our ability to generate positive cash flow from operating activities. Many of these actions were taken in the last half of 2003 in order to offset the negative impacts on our net revenues
resulting from the downturn in the financial services industry and decreased information technology spending.



Based upon our past performance and current expectations, we believe that our cash and cash equivalents, marketable securities and cash generated from
operations will be sufficient to satisfy our working capital needs, capital expenditures, investment requirements and financing activities for at least the next 12 months.



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RISK FACTORS



Investors should carefully consider the risks described below before making an investment decision. These risks are not the only ones we face.
Additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of
these risks. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission, including our condensed
consolidated financial statements and related notes thereto.



Our
Operating Results May Fluctuate Significantly.



Licenses
into multi-user networked environments have varied both in individual size and number, and the timing and size of individual license transactions are important factors in quarterly operating results. The sales and contracting cycles for these
transactions are often lengthy and unpredictable. We may not be successful in closing large license transactions such as these on a timely basis or at all. Accordingly, because revenues from large licenses may vary as a portion of our net revenues,
the timing of such licenses causes additional variability in our quarterly operating results. Software product backlog at the beginning of any quarter in the past has typically represented an immaterial portion of that quarters expected
revenues. Our backlog is primarily comprised of deferred revenues from our maintenance and term contracts, professional services not yet delivered, and certain software license orders that have not met all requirements for revenue recognition. As we
are beginning to increase term licenses and enter into more complex transactions which may have acceptance criteria, more of our revenue may be required to be deferred. 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 on our products, an unanticipated decline in net revenues in any
particular quarter may adversely affect our operating results. We have often recognized a substantial portion of each quarters license revenues in the last month, weeks or even days of the quarter. As a result, the magnitude of quarterly
fluctuations in revenue or earnings may not be evident until late in or after the close of a particular quarter and a disruption late in the quarter may have a disproportionately large negative impact on our quarterly results. These factors have
impacted and may continue to impact our results.



In addition,
we experience seasonality in our license revenue. The fourth quarter of the year typically has the highest license revenue, followed by lower revenue in the first quarter of the succeeding year. We believe that this seasonality results primarily
from customer budgeting cycles. We expect this seasonality to continue in the future.



Because of the above factors, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.



Our Sales Cycle is Long and We Have Limited Ability to Forecast the Timing
and Amount of Specific Sales.



The purchase of our
software products often requires prospective customers to provide significant executive-level sponsorship and to make major systems architecture decisions. As a result, we must generally engage in a relatively lengthy sales and contracting effort.
Sales transactions may therefore be delayed during the customer decision process because we must provide a significant level of education to prospective customers regarding the use and benefit of our products. This was exacerbated by the adverse
economic conditions that caused existing and potential clients to reduce or cancel expenditures and delay decisions related to acquisition of software and related services. While we have seen somewhat improved economic conditions in the past two
quarters, customers are still very cautious about capital and information technology expenditures. As a result, the sales cycle associated with the purchase of our solution is typically between two and twelve months depending upon the size of the
client, and is subject to a number of significant risks over which we have little or no control, including customers budgeting constraints, internal selection procedures, and changes in customer personnel, among others. As a result of a
lengthy and unpredictable sales cycle, we have limited ability to forecast the timing and amount of specific license sales. The timing of large individual license sales is especially difficult to forecast, and we may not be successful in closing
large license transactions on a timely basis or at all. In addition, customers may postpone their purchases of our existing products or product



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enhancements in advance of the anticipated introduction of new products or product enhancements by us or our competitors. Because our expenses are relatively
fixed in the near term, any shortfall from anticipated revenues could result in a significant variation in our operating results from quarter to quarter.



We Depend upon Financial Markets.



The target clients for our products include a range of financial services organizations that manage investment portfolios, including asset managers,
investment advisors, brokerage firms, banks, family offices, hedge funds and others. 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 solutions has been, and could continue to be, disproportionately affected by fluctuations, disruptions,
instability or downturns in the financial services industry 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. Also, recent
investigative efforts into various mutual fund and other financial industry practices could impact our business if the industry experiences a decline in business. In addition, a slowdown in the formation of new investment firms or a decline in the
growth of assets under management would cause a decline in demand for our solutions. We believe that the downturn in the financial services industry and the decline in information technology spending continued to negatively impact the demand for our
products in the past two years, and that continuing uncertainty about financial markets and the financial services sector could have a material adverse effect on our business and results of operations.



We Depend Heavily on Our Product, Axys



Historically, we have derived a majority of our net revenues from the
licensing of Axys, and related ancillary products and services. In addition, many of our other applications, such as Partner, Moxy, Qube and various data interfaces were designed to operate with Axys to provide an integrated solution. As a result,
we believe that for the foreseeable future a majority of our net revenues will depend upon continued market acceptance of Axys, enhancements or upgrades to Axys and related products and services. As our clients include a range of organizations,
including asset managers, investment advisors, brokerage firms, banks, family offices, hedge funds and others, the degree of continued market acceptance will also depend on the number of firms within each type of organization and the degree to which
Axys previously penetrated those firms.



Adverse Economic Conditions May
Reduce Our Revenues.



We believe that the market for large
investment management software systems may be negatively impacted by a number of factors, including reductions in capital expenditures by large customers, poor performance of major financial markets, and increasing competition. Those factors may, in
turn, give rise to a number of market trends which we have experienced in the past two years that have slowed revenue growth across the financial services industry, including longer sales and contracting cycles, deferral or delay of information
technology projects and generally reduced expenditures for software and related services. If the downturn in the financial services industry and information technology spending continues, the presence of these factors in the market for large
investment management solutions will likely materially adversely affect our business and results of operations.



We Face Intense Competition.



The market for investment management software is intensely competitive and highly fragmented, is subject to rapid change and is sensitive to new product
introductions and marketing efforts by industry participants. Our largest single source of competition is from proprietary systems used by existing and potential clients, many of whom develop their own software for their particular needs and
therefore may be reluctant to license software products offered by independent vendors like Advent. Other competitors include providers of software and related services as well as providers of outsourced services, and include some of the following
vendors: Beauchamp, Charles River Development, CheckFree Corporation, divisions of Sunguard, Eagle, a subsidiary of Mellon Financial Corporation, Eze Castle Software, Financial Models Company, Inc., FT Integretorsia, Indata, Linedata, Macgregor
Financial Technologies, Schwab Performance Technologies, SS&C Technologies, Inc., and the Portia division of Thomson Financial.



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Our competitors vary in size, scope of services offered and platforms supported. Many of our competitors
have longer operating histories and greater financial, technical, sales and marketing resources than we do. In addition, we also face competition from potential new entrants into our market that may develop innovative technologies or business
models. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressures will not result in price reductions, reduced operating margins or loss of market share, any one of which
could seriously harm our business.



We Must Continue to Introduce New
Products and Product Enhancements.



The market for our
products is characterized by rapid technological change, changes in customer demands and evolving industry standards. New products based on new technologies or new industry standards can render existing products obsolete and unmarketable. As a
result, our future success will continue to depend upon our ability to develop new products or product enhancements that address the future needs of our target markets and to respond to these changing standards and practices. We may not be
successful in developing, introducing and marketing new products or product enhancements on a timely and cost effective basis, or at all, and our new products and product enhancements may not 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 we are 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,
our business would be seriously harmed. 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, Sun
Microsystems, database vendors and development tool vendors. If the products of such vendors have design defects or flaws, are unexpectedly delayed in their introduction, or are unavailable on acceptable terms, our business could be seriously
harmed. Our software products are complex and may contain undetected defects or errors when first introduced or as new versions are released. Although we have not experienced adverse effects resulting from any software errors, we cannot be sure
that, despite testing by us and our 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 seriously harm our business.



We Must Retain Key Employees and Recruit Qualified Technical and Sales Personnel.



We believe that our success will depend on the continued
employment of our senior management and other key personnel. Additionally, our continued success depends, in part, on our ability to identify, attract, motivate and retain qualified technical, sales and other personnel. Because our future success is
dependent on our ability to continue to enhance and introduce new products, we are particularly dependent on our ability to identify, attract, motivate and retain qualified engineers with the requisite education, backgrounds and industry experience.
The loss of the services of a significant number of our engineers or sales people could be disruptive to our development efforts or business relationships and could seriously harm our business. We may also be required to create additional
performance and retention incentives in order to retain our employees, including the granting of additional stock options to employees at current prices or issuing incentive cash bonuses. Such incentives may either dilute our existing stockholder
base or result in unforeseen operating expenses, which may cause our stock price to fall.



Difficulties in Integrating Our Acquisitions Have Impacted and Could Continue to Adversely Impact Our Business and We Face Risks Associated With Potential Acquisitions, Investments or Divestitures.



In May of 2004, we purchased our distributors in the United Kingdom and
Switzerland. In May of 2003 we purchased our Dutch distributor, Advent Netherlands BV. From 2001 through the middle of 2003, our strategy focused on growth through the acquisition of additional complementary businesses. During those years, we made
five major acquisitions and also acquired all of the common stock of five of our European distributors subsidiaries.



The complex process of integrating our acquisitions has required and will continue to require significant resources, particularly in light of our relative
inexperience in integrating acquisitions. Integrating these acquisitions has been and will continue to be time-consuming, expensive and disruptive to our business. This integration process has in the past, and could continue to strain our managerial
resources and result in the diversion of these resources from our core business objectives. Failure to achieve the anticipated benefits of these acquisitions or to successfully integrate the



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operations of these entities has harmed and could continue to harm our business, results of operations and cash flows. For example, in the first quarter of
2003, we closed our Australian subsidiary because it failed to perform at a satisfactory profit level. We may not realize the benefits we anticipate from these acquisitions because of the following significant challenges:



| |  | expected synergy benefits from these acquisitions, such as lower costs or increased revenues, may not be realized or may be realized more slowly than anticipated, particularly with
regard to costs associated with reductions in headcount and facilities;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | potentially incompatible cultural differences between the companies;
| | - | --------------------------------------------------------------------



| |  | incorporating these companies technologies and products into our current and future product lines;
| | - | ---------------------------------------------------------------------------------------------------



| |  | geographic dispersion of operations and the complexities of international operations;
| | - | -------------------------------------------------------------------------------------



| |  | integrating the technical teams of these companies with our engineering organizations;
| | - | --------------------------------------------------------------------------------------



| |  | generating market demand for an expanded product line;
| | - | ------------------------------------------------------



| |  | integrating the products of these companies with our business, because we do not have distribution, manufacturing, marketing or support experience for these products;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the difficulty of leveraging our combined technologies and capabilities across all product lines and customer bases; and
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | our inability to retain significant customers or key employees of these entities.
| | - | ---------------------------------------------------------------------------------



We have incurred and expect to continue to incur significant costs and commit significant management time in integrating the
operations, technology, development programs, products, administrative and information systems, customers and personnel of these acquisitions. These costs have been and will likely continue to be substantial and include costs for:



| |  | integrating and reorganizing operations, including combining teams, facilities and processes in various functional areas;
| | - | -------------------------------------------------------------------------------------------------------------------------



| |  | identifying duplicative or redundant resources and facilities, developing plans for resource consolidation and implementing those plans;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | fees and expenses of professionals and consultants involved in completing the integration process;
| | - | --------------------------------------------------------------------------------------------------



| |  | settling existing liabilities of these companies;
| | - | -------------------------------------------------



| |  | uncovering through our audit process new issues reflected on the companies financial statements;
| | - | -------------------------------------------------------------------------------------------------



| |  | vacating, subleasing and closing facilities;
| | - | --------------------------------------------



| |  | employee relocation, redeployment or severance costs;
| | - | -----------------------------------------------------



| |  | discontinuing certain products and services;
| | - | --------------------------------------------



| |  | integrating technology and products; and
| | - | ----------------------------------------



| |  | other transaction costs associated with the acquisition, including financial advisor, attorney, accountant and exchange agent fees.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



We may make additional acquisitions of complementary companies, products or
technologies in the future. In addition, we continually evaluate the performance of all our products and product lines and may sell or discontinue current products or product lines. Failure to achieve the anticipated benefits of any future
acquisition or divestiture could also harm our business, results of operations and cash flows. Furthermore, we may have to incur debt, write-off investments, infrastructure costs or other assets, incur severance liabilities, write-off impaired
goodwill or other intangible assets or issue equity securities to pay for any future acquisitions. The issuance of equity securities could dilute our existing stockholders ownership. Finally, we may not identify suitable businesses to acquire
or negotiate acceptable terms for acquisitions.



Difficulties We May
Encounter Managing Changes in the Size of Our Business Could Adversely Affect Our Operating Results.



Our business has experienced years of rapid growth through both internal expansion and acquisitions, followed by reduced revenues in 2002 and 2003, and
significant downsizing during 2003. These changes have caused and may continue to cause a significant strain on our infrastructure, internal systems and managerial resources. Beginning in 2003, we took steps to better align our resources with our
operating requirements in order to increase our efficiency. Through these steps, we reduced our headcount, closed selected offices and incurred charges for employee severance and excess facilities capacity. While we believe that these steps help us
achieve greater operating efficiency,



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we have limited history with such measures and the results of these measures are less than predictable. Additional restructuring efforts may be required. To
manage our business effectively, we must continue to improve our infrastructure, including operating and administrative systems and controls, and continue managing headcount, capital and processes in an efficient manner. Our productivity and the
quality of our products may be adversely affected if we do not integrate and train our employees quickly and effectively and coordinate among our executive, engineering, finance, marketing, sales, operations and customer support organizations, all
of which add to the complexity of our organization. We believe workforce reductions, management changes and facility consolidation create anxiety and uncertainty and may adversely affect employee morale. These measures could adversely affect our
employees that we wish to retain and may also adversely affect our ability to hire new personnel. They may also affect customers. In addition, our revenues may not grow in alignment with our headcount.



We Face Risks Related to Our New Business Areas.



During 2001 and 2002 we expanded into a number of new business areas, for
example international operations, strategic alliances, acquisitions such as Advent Wealth Service, Techfi and Advent BackOffice and offerings such as Wealthline. These areas are still relatively new to our product development and sales personnel.
Some of these new business areas have required significant management time and resources without generating significant revenues, and have diverted and may continue to divert management from our core business. While our traditional offerings are
marketed to investment managers and advisors, Advent Wealth Service and Wealthline are also targeted for use by our clients customers. We have had difficulty and may continue to have difficulty creating demand from our clients customers
as we market to them indirectly, through our clients. Revenue growth has suffered and may continue to suffer if we cannot create demand among our clients customers.



We Face Challenges in Expanding Our International Operations.



We market and sell our products in the United States and, to a lesser extent, internationally. In 1999, we entered into a
distributor relationship with Advent Europe, an independent distributor of our products in selected European markets. In November 2001, we acquired the Norwegian, Swedish, and Danish companies of this independent distributor. In September 2002, we
purchased their Greek subsidiary, in May 2003, we purchased their Dutch subsidiary, and in May 2004, we purchased their remaining subsidiaries in the United Kingdom and Switzerland. If we further expand our international operations, we would need to
establish additional locations, acquire other businesses or enter into additional distribution relationships in other parts of the world. Any further expansion of our existing international operations and entry into new international markets could
require significant management attention and financial resources. We cannot be certain that establishing businesses in other countries will produce the desired levels of revenues. We currently have limited experience in developing localized versions
of our products and marketing and distributing our products internationally. In addition, international operations are subject to other inherent risks, including:



| |  | the impact of recessions in economies outside the United States;
| | - | ----------------------------------------------------------------



| |  | greater difficulty in accounts receivable collection and longer collection periods;
| | - | -----------------------------------------------------------------------------------



| |  | unexpected changes in regulatory requirements;
| | - | ----------------------------------------------



| |  | difficulties in successfully adapting our products to the language, regulatory and technology standards of other countries;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| |  | difficulties and costs of staffing and managing foreign operations;
| | - | -------------------------------------------------------------------



| |  | reduced protection for intellectual property rights in some countries;
| | - | ----------------------------------------------------------------------



| |  | potentially adverse tax consequences; and
| | - | -----------------------------------------



| |  | political and economic instability.
| | - | -----------------------------------



The revenues, expenses, assets and liabilities of our international subsidiaries are primarily denominated in local currencies. We have not historically
undertaken foreign exchange hedging transactions to cover potential foreign currency exposure. Future fluctuations in currency exchange rates may adversely affect revenues and accounts receivable from international sales and the U.S. dollar value of
our foreign subsidiaries revenues, expenses, assets and liabilities. Our international revenues from our distributors are generally denominated in local foreign currencies with the exception of our Geneva license transactions.



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Writing Off Investments Could Harm Our Results of Operations.



We have made investments in privately held companies, which we classify as
other assets on our balance sheet. The value of these investments is influenced by many factors, including the operating effectiveness of these companies, the overall health of these companies industries, the strength of the private equity
markets and general market conditions. Due to these and other factors, we have previously determined, and may in the future determine, that the value of these investments is impaired, which has caused and would cause us to write down the carrying
value of these investments, such as the write downs of our investments of $2.0 million, $13.5 million and $2.0 million in 2003, 2002 and 2001, respectively. Furthermore, we cannot be sure that future investment, license, fixed asset or other asset
write-downs will not happen, particularly if the downturn in the financial services industry and the decline in information technology spending continues. If future write-downs do occur, they could harm our business and results of operations.



Information We Provide to Investors is Accurate Only as of the Date We
Disseminate it.



From time to time, we may publicly
disseminate forward-looking information or guidance in compliance with Regulation FD. This information or guidance represents our outlook only as of the date we disseminate it, and we do not undertake to update such information or guidance.



Our Stock Price has Fluctuated Significantly.



Like many companies in the technology and emerging growth sector, our stock
price may be subject to wide fluctuations, particularly during times of high market volatility. If net revenues or earnings in any quarter fail to meet the investment communitys expectations, our stock price is likely to decline. In addition,
our stock price is affected by trends in the financial services sector and by broader market trends unrelated to our performance. For instance, in the event of increased hostilities in the Middle East or additional terrorist attacks, there could be
increased market volatility, which could negatively impact our stock price.



If Our Relationship with Interactive Data Corporation Is Terminated, Our Business May Be Harmed.



Many of our clients use our proprietary interface to electronically retrieve pricing and other data from Interactive Data Corporation (IDC). IDC pays us a
commission based on their revenues from providing this data to our clients. Our software products have been customized to be compatible with their system and this software would need to be redesigned if their services were unavailable for any
reason. Termination of our agreement with IDC would require at least two years notice by either us or them, or 90 days in the case of material breach. Our revenue could be adversely impacted if our relationship with IDC were terminated or their
services were unavailable to our clients for any reason.



If We Are Unable
to Protect Our Intellectual Property We May Be Subject to Increased Competition That Could Seriously Harm Our Business.



Our success depends significantly upon our proprietary technology. We currently rely on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our proprietary rights. We have registered trademarks for many of our products and services and will continue to evaluate the registration of additional trademarks as appropriate. We
generally enter into confidentiality agreements with our employees and with our resellers and customers. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited
protection. Despite these efforts, it may be possible for unauthorized third parties to copy certain portions of our products or to reverse engineer or otherwise obtain and use our proprietary information. We do not have any patents, and existing
copyright laws afford only limited protection. In addition, we 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 our
products, thereby substantially reducing the value of our proprietary rights. We cannot be sure that we will develop proprietary products or technologies that are patentable, that any patent, if issued, would provide us with any competitive
advantages or would not be challenged by third parties, or that the patents of others will not adversely affect our ability to do business. Litigation may be necessary to protect our proprietary technology. This litigation may be time-consuming and
expensive. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our



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products or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights to
as great an extent as do the laws of the United States. We cannot be sure that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products or
design around any patent that may be issued to us or other intellectual property rights of ours.



If We Infringe the Intellectual Property Rights of Others, We May Incur Additional Costs or Be Prevented from Selling our Products and Services.



We cannot be certain that our products or services do not infringe the intellectual property rights of others. As a result,
we may be subject to litigation and claims, including claims of infringement of patents, copyrights and other intellectual property rights of third parties that would be time-consuming and costly to resolve. If we discovered that our products or
services violated the intellectual property rights of third parties, we would have to make substantial changes to our products or services or obtain licenses from such third parties. We might not be able to obtain such licenses on favorable terms or
at all, and we may be unable to change our products successfully or in a timely manner. Failure to resolve an infringement matter successfully or in a timely manner, would force us to incur significant costs, including damages, redevelopment costs,
diversion of managements attention and satisfaction of indemnification obligations that we have with our clients, as well as prevent us from selling certain products or services.



Business Interruptions Could Adversely Affect Our Business.



Our operations are exposed to interruption by fire, earthquake, power loss, telecommunications failure, and other events
beyond our control. Additionally, we are vulnerable to interruption caused by political and terrorist incidents. For example, our facilities in New York were temporarily closed due to the September 11, 2001 terrorist attacks. Immediately after the
terrorist attacks, our clients who were located in the World Trade Center area were concentrating on disaster recovery rather than licensing additional software components, while the grounding of transportation impeded our ability to deliver
professional services at client sites. Additionally, during the temporary closure of the U.S. stock markets, our clients did not use our market data services. Such interruptions could affect our ability to sell and deliver products and services and
other critical functions of our business and could seriously harm us. Further, such attacks could cause instability in the financial markets upon which we depend.



Undetected Software Errors or Failures Found in New Products May Result in Loss of or Delay in Market Acceptance of Our Products That
Could Seriously Harm Our Business.



Our products may
contain undetected software errors or failures or scalability limitations at any point in the life of the product, but particularly when first introduced or as new versions are released. Despite testing by us and by current and potential customers,
errors may not be found in new products until after commencement of commercial shipments, resulting in loss of or a delay in market acceptance, damage to our reputation, customer dissatisfaction and reductions in revenues and margins, any of which
could seriously harm our business. Additionally, our agreements with customers that attempt to limit our exposure to liability claims may not be enforceable in jurisdictions where we operate.



Recently Enacted and Proposed Changes in Securities Laws and Regulations Will Increase Our
Costs.



The Sarbanes-Oxley Act (the Act) of
2002, which became law in July 2002, requires changes in some of our corporate governance and securities disclosure and/or compliance practices. As part of the Acts requirements, the Securities and Exchange Commission has been promulgating new
rules on a variety of subjects, in addition to other rule proposals, and the NASDAQ Stock Market has enacted new corporate governance listing requirements. These developments have and will continue to increase our accounting and legal compliance
costs, particularly in 2004, and could also expose us to additional liability. In addition, such developments may make retention and recruitment of qualified persons to serve on our board of directors or executive management more difficult. We
continue to evaluate and monitor regulatory and legislative developments and cannot reliably estimate the timing or magnitude of all costs we may incur as a result of the Act or other related legislation or regulation.



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Our Financial Results Could be Affected by Potential Changes in the Accounting Rules Governing the Recognition of
Stock-based Compensation Expense



We measure compensation
expense for our employee stock compensation plans under the intrinsic value method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. On March 31, 2004, the FASB issued an Exposure Draft of a
proposed new Statement of Financial Accounting Standard (Statement) entitled Share-Based Payments, which proposes a requirement to use a fair-value based method similar to the fair-value method prescribed in FASB
Statement No. 123, Accounting for Stock-Based Compensation. The FASB is currently receiving comments on this proposed Statement and has proposed the adoption of a final Statement effective for fiscal years beginning after December
15, 2004. There is ongoing debate as to whether stock option and employee stock purchase plan shares should be treated as compensation, and if so, how to value such compensation charges. The ultimate requirements of any new accounting standard are
uncertain. However, if we are required to record an expense for our stock-based compensation plans using a fair-value method, we could have significant accounting charges. For example, for the three months ended March 31, 2004, had we accounted for
stock-based compensation plans using the fair-value method prescribed in FASB Statement No. 123, our net loss would have increased by $2.5 million.



Security Risks and Concerns May Deter the Use of the Internet for Conducting Business.



A significant barrier to commerce and communications over public networks is the secure transmission of confidential
information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security systems or those of other web sites to protect proprietary
information. If any well-publicized compromises of security were to occur, it could have the effect of substantially reducing the use of the internet for commerce and communications. Anyone who circumvents our security measures could misappropriate
proprietary information or cause interruptions in our services or operations. The internet is a public network, and data is sent over this network from many sources. In the past, computer viruses and software programs that disable or impair
computers have been distributed and have rapidly spread over the internet. Computer viruses could be introduced into our systems or those of our customers or other third parties, which could disrupt or make our systems inaccessible to customers. We
may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. To the extent that our activities may involve the storage and transmission of
proprietary information, security breaches could expose us to a risk of loss, litigation and other possible liabilities. Our security measures may be inadequate to prevent security breaches, and our business would be harmed if our security were
breached.



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Item 3. Quantitative and Qualitative Disclosures About Market Risk



We are exposed to financial market risks, including changes in foreign currency exchange rates and interest rates. Historically, much of our revenues and
capital spending was transacted in U.S. dollars. However, since the acquisitions of Advent Denmark, Advent Norway, Advent Sweden, Advent Hellas, Advent Netherlands, and the recent acquisitions of Advent Europes remaining distributors in the
United Kingdom and Switzerland, whose revenues, with the exception of Geneva transactions and capital spending, are transacted in local country currencies, we have greater exposure to foreign currency fluctuations. The results of operations from
these territories are not material to our operating results; therefore, we believe that foreign currency exchange rates should not materially adversely affect our overall financial position, results of operations or cash flows.



Our interest rate risk relates primarily to our investment portfolio, which
consisted of $73.4 million in cash equivalents and $79.8 million in marketable securities as of March 31, 2004. An immediate sharp increase in interest rates could have a material adverse affect on the fair value of our investment portfolio.
Conversely, immediate sharp declines in interest rates could seriously harm interest earnings of our investment portfolio. We do not currently use derivative financial instruments in our investment portfolio, nor hedge for these interest rate
exposures.



By policy, we limit our exposure to
longer-term investments, and a majority of our investment portfolio at March 31, 2004 and December 31, 2003 had maturities of less than one year. As a result of the relatively short duration of our portfolio, an immediate hypothetical parallel shift
to the yield curve of plus 25 basis points (BPS), 50 BPS and 100 BPS would result in a reduction of 0.19%, 0.38% and 0.77%, respectively, in the market value of our investment portfolio as of March 31, 2004.



We have also invested in several privately-held companies, most of which can
still be considered in the start-up or development stages. These non-marketable investments are classified as other assets on our balance sheet. Our investments in privately-held companies could be affected by an adverse movement in the financial
markets for publicly-traded equity securities, although the impact cannot be directly quantified. These investments are inherently risky as the market for the technologies or products these privately-held companies have under development are
typically in the early stages and may never materialize. The value of these investments is also influenced by factors including the operating effectiveness of these companies, the overall health of the companies industries and the strength of
the private equity markets. We could lose our entire investment in these companies. At March 31, 2004 our net investments in privately-held companies totaled $8.6 million.



Item 4. Controls and Procedures



Evaluation of
disclosure controls and procedures.



An evaluation was
carried out under the supervision and with the participation of Advents management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Advents disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that Advents disclosure controls and procedures are effective to ensure that information required to be disclosed by Advent in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms.



Changes in internal control over financial reporting.



There was no change in Advents internal controls over financial reporting which was identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the first
quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, Advents internal controls over financial reporting.



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings



From
time to time we are involved in litigation incidental to the conduct of our business. We are not party to any lawsuit or proceeding that, in our opinion, is likely to seriously harm our business.



Item 2. Changes in Securities and Use of Proceeds



None.



Item 3. Defaults Upon Senior Securities



None.



Item 4. Submission of Matters to a Vote of Security Holders



None.



Item 5. Other Information



None.



Item 6. Exhibits and Reports On Form 8-K



(a) Exhibits:



|     |  |                                                                                             
|---- |  | --------------------------------------------------------------------------------------------
|     | 
|31.1 |  | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|31.2 |  | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|32.1 |  | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002



(b) Reports on Form
8-K:



The Company filed the following reports on Form 8-K:



On January 6, 2004, we furnished a Current Report on Form 8-K
to the SEC including the Companys press release announcing our anticipated fourth quarter results for the three months ended December 31, 2003.



On January 29, 2004, we furnished a Current Report on Form 8-K to the SEC including the Companys press release announcing our results for the three
and twelve months ended December 31, 2003.



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |  |  |                       |  |                     |  |                                                                                                                             
|------------------- |  |  |  | --------------------- |  | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------
|                    |  |  |  | ADVENT SOFTWARE, INC.
|                    |  |  | 
|Dated: May 10, 2004 |  |  |  | By:                   |  | /s/ Graham V. Smith
|                    |  |  |  |                       |  |                     | 
|                    |  |  |  |                       |  |                     |  | Graham V. Smith Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)



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