Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND 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 September 30, 2009** |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |
| **or**     |
| ** ** | ** ** | ** **                                                                                                                                                     |
| **o**      | ** ** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**                                                       |

 

**Commission file number:  0-26994**

 

**ADVENTSOFTWARE, 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) |

 

**600Townsend Street, San Francisco, California 94103**

(Address of principalexecutive offices and zip code)

 

**(415) 543-7696**

(Registrant’s telephonenumber, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer  ̈                |   | Accelerated filer x              |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer  ̈                  |   | Smaller reporting company  ̈ |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes   ̈ No x

 

Thenumber of shares of the registrant’s Common Stock outstanding as of October 31,2009 was 25,673,736.

 

 

 

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**INDEX**

 
| **PART I. FINANCIAL INFORMATION** |
|----------------------------------------|
| Item  1.                               | Financial  Statements |   |   |
|                                   | Condensed Consolidated Balance Sheets |   |   |
|                                   | Condensed Consolidated Statements of Operations |   |   |
|                                   | Condensed Consolidated Statements of Cash Flows |   |   |
|                                   | Notes to Condensed Consolidated Financial Statements |   |   |
| Item 2.                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |   |
| Item 3.                                | Quantitative  and Qualitative Disclosures About Market Risk |   |   |
| Item 4.                                | Controls and  Procedures |   |   |
| **PART II.  OTHER INFORMATION**   |
| Item 1.                                | Legal Proceedings |   |   |
| Item  1A.                              | Risk  Factors |   |   |
| Item 2.                                | Unregistered  Sales of Equity Securities and Use of Proceeds |   |   |
| Item 3.                                | Defaults Upon  Senior Securities |   |   |
| Item 4.                                | Submission of  Matters to a Vote of Security Holders |   |   |
| Item 5.                                | Other Information |   |   |
| Item 6.                                | Exhibits |   |   |
| **Signatures**                         | ** ** | ** ** | ** ** |

 

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**PART I.FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**ADVENT SOFTWARE, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                        | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **2009**              | ** ** | **2008**             | ** ** |
| **ASSETS**                                        |       |                  |       |                 |       |
| Current  assets:                                  |       |                  |       |                 |       |
| Cash  and cash equivalents                        |       | $                     | 69,164     |                 | $          | 45,098 |   |
| Accounts  receivable, net                         |       | 38,570                |       | 46,564               |       |
| Deferred  taxes, current                          |       | 12,466                |       | 12,458               |       |
| Prepaid  expenses and other                       |       | 15,593                |       | 19,732               |       |
| Current  assets of discontinued operation         |       | 5,414                 |       | 9,443                |       |
| Total  current assets                             |       | 141,207               |       | 133,295              |       |
| Property  and equipment, net                      |       | 34,738                |       | 39,150               |       |
| Goodwill                                          |       | 145,144               |       | 143,044              |       |
| Other  intangibles, net                           |       | 23,856                |       | 27,217               |       |
| Deferred  taxes, long-term                        |       | 54,159                |       | 54,166               |       |
| Other  assets                                     |       | 8,261                 |       | 11,419               |       |
| Noncurrent  assets of discontinued operation      |       | 12,143                |       | 11,303               |       |
|                                              |       |                  |       |                 |       |
| Total  assets                                     |       | $                     | 419,508    |                 | $          | 419,594 |   |
|                                              |       |                  |       |                 |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**     |       |                  |       |                 |       |
| Current  liabilities:                             |       |                  |       |                 |       |
| Accounts  payable                                 |       | $                     | 5,452      |                 | $          | 5,312 |   |
| Accrued  liabilities                              |       | 26,840                |       | 25,781               |       |
| Deferred  revenues                                |       | 126,336               |       | 135,217              |       |
| Income  taxes payable                             |       | 6,228                 |       | 978                  |       |
| Current  liabilities of discontinued operation    |       | 13,002                |       | 13,953               |       |
| Total  current liabilities                        |       | 177,858               |       | 181,241              |       |
| Long-term  debt                                   |       | —                |       | 25,000               |       |
| Deferred  revenue, long-term                      |       | 6,329                 |       | 6,083                |       |
| Other  long-term liabilities                      |       | 8,848                 |       | 10,072               |       |
| Noncurrent  liabilities of discontinued operation |       | 1,527                 |       | 1,375                |       |
|                                              |       |                  |       |                 |       |
| Total  liabilities                                |       | 194,562               |       | 223,771              |       |
|                                              |       |                  |       |                 |       |
| Commitments  and contingencies (See Note 11)      |       |                  |       |                 |       |
|                                              |       |                  |       |                 |       |
| Stockholders’  equity:                       |       |                  |       |                 |       |
| Common  stock                                     |       | 256                   |       | 257                  |       |
| Additional  paid-in capital                       |       | 378,407               |       | 365,351              |       |
| Accumulated  deficit                              |       | (163,543              | )          | (176,484             | )          |
| Accumulated  other comprehensive income           |       | 9,826                 |       | 6,699                |       |
| Total  stockholders’ equity                  |       | 224,946               |       | 195,823              |       |
|                                              |       |                  |       |                 |       |
| Total  liabilities and stockholders’ equity  |       | $                     | 419,508    |                 | $          | 419,594 |   |

 

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

 

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**ADVENT SOFTWARE, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per share data)**

**(Unaudited)**

 
| ** **                                                                                                       | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                       | ** ** | **2009**                                 | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                                                       | ** ** | ** **                               | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net revenues:**                                                                                                |       |                                     |       |                                    |       |   |   |   |   |
| Term  license, maintenance and other recurring                                                                   |       | $                                        | 55,346     |                                    | $          | 46,931 |   | $ | 166,416 |   | $ | 138,333 |   |
| Perpetual  license fees                                                                                          |       | 2,370                                    |       | 3,168                                   |       | 7,633 |   | 11,485 |   |
| Professional  services and other                                                                                 |       | 6,066                                    |       | 8,053                                   |       | 19,126 |   | 21,577 |   |
| Total  net revenues                                                                                              |       | 63,782                                   |       | 58,152                                  |       | 193,175 |   | 171,395 |   |
| **Cost of revenues:**                                                                                            |       |                                     |       |                                    |       |   |   |   |   |
| Term  license, maintenance and other recurring                                                                   |       | 11,920                                   |       | 11,095                                  |       | 34,729 |   | 31,581 |   |
| Perpetual  license fees                                                                                          |       | 65                                       |       | 142                                     |       | 255 |   | 368 |   |
| Professional  services and other                                                                                 |       | 7,628                                    |       | 10,453                                  |       | 23,190 |   | 25,339 |   |
| Amortization  of developed technology                                                                            |       | 1,416                                    |       | 575                                     |       | 4,145 |   | 1,681 |   |
| Total  cost of revenues                                                                                          |       | 21,029                                   |       | 22,265                                  |       | 62,319 |   | 58,969 |   |
| Gross  margin                                                                                                    |       | 42,753                                   |       | 35,887                                  |       | 130,856 |   | 112,426 |   |
| **Operating expenses:**                                                                                          |       |                                     |       |                                    |       |   |   |   |   |
| Sales  and marketing                                                                                             |       | 15,627                                   |       | 14,142                                  |       | 46,538 |   | 42,291 |   |
| Product  development                                                                                             |       | 12,179                                   |       | 9,357                                   |       | 35,528 |   | 31,317 |   |
| General  and administrative                                                                                      |       | 8,636                                    |       | 9,029                                   |       | 25,932 |   | 26,216 |   |
| Amortization  of other intangibles                                                                               |       | 438                                      |       | 134                                     |       | 1,315 |   | 721 |   |
| Restructuring  charges                                                                                           |       | 36                                       |       | 41                                      |       | 92 |   | 96 |   |
| Total  operating expenses                                                                                        |       | 36,916                                   |       | 32,703                                  |       | 109,405 |   | 100,641 |   |
| Income  from continuing operations                                                                               |       | 5,837                                    |       | 3,184                                   |       | 21,451 |   | 11,785 |   |
| Interest  and other income (expense), net                                                                        |       | (194                                     | )          | (154                                    | )          | 1,585 |   | 3,633 |   |
| Income  from continuing operations before income taxes                                                           |       | 5,643                                    |       | 3,030                                   |       | 23,036 |   | 15,418 |   |
| Provision  for income taxes                                                                                      |       | 1,741                                    |       | 1,207                                   |       | 6,612 |   | 3,738 |   |
| Net  income from continuing operations                                                                           |       | $                                        | 3,902      |                                    | $          | 1,823 |   | $ | 16,424 |   | $ | 11,680 |   |
| **Discontinued operation:**                                                                                      |       |                                     |       |                                    |       |   |   |   |   |
| Net  income from discontinued operation (net of applicable taxes of $223, $640,  $1,409, and $695, respectively) |       | 770                                      |       | 889                                     |       | 2,499 |   | 1,022 |   |
| Net  income                                                                                                      |       | $                                        | 4,672      |                                    | $          | 2,712 |   | $ | 18,923 |   | $ | 12,702 |   |
|                                                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| Basic  net income per share:                                                                                     |       |                                     |       |                                    |       |   |   |   |   |
| Continuing  operations                                                                                           |       | $                                        | 0.15       |                                    | $          | 0.07 |   | $ | 0.65 |   | $ | 0.44 |   |
| Discontinued  operation                                                                                          |       | 0.03                                     |       | 0.03                                    |       | 0.10 |   | 0.04 |   |
| Total  operations                                                                                                |       | $                                        | 0.18       |                                    | $          | 0.10 |   | $ | 0.75 |   | $ | 0.48 |   |
|                                                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| Diluted  net income per share:                                                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Continuing  operations                                                                                           |       | $                                        | 0.15       |                                    | $          | 0.06 |   | $ | 0.63 |   | $ | 0.41 |   |
| Discontinued  operation                                                                                          |       | 0.03                                     |       | 0.03                                    |       | 0.10 |   | 0.04 |   |
| Total  operations                                                                                                |       | $                                        | 0.18       |                                    | $          | 0.10 |   | $ | 0.72 |   | $ | 0.45 |   |
| Weighted  average shares used to compute net income per share:                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Basic                                                                                                            |       | 25,527                                   |       | 26,788                                  |       | 25,352 |   | 26,690 |   |
| Diluted                                                                                                          |       | 26,630                                   |       | 28,198                                  |       | 26,244 |   | 28,199 |   |

 

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

 

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**ADVENTSOFTWARE, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                                     | ** ** | **Nine Months Ended September 30** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2009**                                | ** ** | **2008** | ** ** |
| **Cash flows from operating activities:**                                                                      |       |                                    |       |   |   |
| Net  income                                                                                                    |       | $                                       | 18,923     |   | $ | 12,702 |   |
| Adjustment  to net income for discontinued operation                                                           |       | (2,499                                  | )          | (1,022 | ) |
| Net  income from continuing operations                                                                         |       | 16,424                                  |       | 11,680 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities from  continuing operations: |       |                                    |       |   |   |
| Stock-based  compensation                                                                                      |       | 13,975                                  |       | 11,783 |   |
| Depreciation  and amortization                                                                                 |       | 12,432                                  |       | 8,119 |   |
| Loss  on dispositions of fixed assets                                                                          |       | 9                                       |       | 4 |   |
| Provision  for doubtful accounts                                                                               |       | 268                                     |       | 529 |   |
| Provision  for sales returns                                                                                   |       | 454                                     |       | 61 |   |
| Gain  on investments                                                                                           |       | (2,056                                  | )          | (3,393 | ) |
| Deferred  income taxes                                                                                         |       | (1                                      | )          | 124 |   |
| Other                                                                                                          |       | 116                                     |       | 7 |   |
| Effect  of statement of operations adjustments                                                                 |       | 25,197                                  |       | 17,234 |   |
| Changes  in operating assets and liabilities:                                                                  |       |                                    |       |   |   |
| Accounts  receivable                                                                                           |       | 7,717                                   |       | (661 | ) |
| Prepaid  and other assets                                                                                      |       | 5,688                                   |       | 835 |   |
| Accounts  payable                                                                                              |       | 483                                     |       | 6,037 |   |
| Accrued  liabilities                                                                                           |       | (93                                     | )          | (4,536 | ) |
| Deferred  revenues                                                                                             |       | (9,089                                  | )          | 16,524 |   |
| Income  taxes payable                                                                                          |       | 5,250                                   |       | 2,984 |   |
| Effect  of changes in operating assets and liabilities                                                         |       | 9,956                                   |       | 21,183 |   |
| Net  cash provided by operating activities from continuing operations                                          | ** ** | **51,577**                              | ** ** | **50,097** | ** ** |
| **Cash flows from investing activities:**                                                                      |       |                                    |       |   |   |
| Net  cash used in acquisitions                                                                                 |       | —                                  |       | (1,000 | ) |
| Purchases  of property and equipment                                                                           |       | (2,860                                  | )          | (17,396 | ) |
| Capitalized  software development costs                                                                        |       | (2,000                                  | )          | (1,641 | ) |
| Proceeds  from sale of private equity investments                                                              |       | 2,056                                   |       | 3,393 |   |
| Proceeds  from disposition of fixed assets                                                                     |       | 37                                      |       | — |   |
| Change  in restricted cash                                                                                     |       | 1,534                                   |       | (248 | ) |
| Net  cash used in investing activities from continuing operations                                              | ** ** | **(1,233**                              | **)**      | **(16,892** | **)** |
| **Cash flows from financing activities:**                                                                      |       |                                    |       |   |   |
| Proceeds  from common stock issued from exercises of stock options                                             |       | 6,318                                   |       | 4,892 |   |
| Withholding  taxes related to equity award net share settlement                                                |       | (2,026                                  | )          | (2,000 | ) |
| Proceeds  from common stock issued under the employee stock purchase plan                                      |       | 2,946                                   |       | 2,576 |   |
| Repurchase  of common stock                                                                                    |       | (14,578                                 | )          | (15,032 | ) |
| Repayment  of long-term borrowing                                                                              |       | (25,000                                 | )          | — |   |
| Net  cash used in financing activities from continuing operations                                              | ** ** | **(32,340**                             | **)**      | **(9,564** | **)** |
| Net  cash transferred from discontinued operation                                                              | ** ** | **5,662**                               | ** ** | **1,623** | ** ** |
| Effect  of exchange rate changes on cash and cash equivalents                                                  | ** ** | **400**                                 | ** ** | **(127** | **)** |
| **Net change in cash and cash equivalents from continuing  operations**                                        | ** ** | **24,066**                              | ** ** | **25,137** | ** ** |
| **Cash and cash equivalents of continuing operations at  beginning of period**                                 | ** ** | **45,098**                              | ** ** | **48,809** | ** ** |
| **Cash and cash equivalents of continuing operations at end  of period**                                       | ** ** | **$**                                   | **69,164** | ** ** | **$** | **73,946** | ** ** |

 

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| ** **                                                                  | ** ** | **Nine Months Ended September 30** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                  | ** ** | **2009**                                | ** ** | **2008** | ** ** |
| **Supplemental disclosure of cash flow information**                        |       |                                    |       |   |   |
| Cash  flow from discontiued operation:                                      |       |                                    |       |   |   |
| Net  cash provided by operating activities                                  |       | $                                       | 4,283      |   | $ | 4,069 |   |
| Net  cash used in investing activities                                      |       | (715                                    | )          | (1,048 | ) |
| Net  cash transferred to continuing operations                              |       | (5,662                                  | )          | (1,623 | ) |
| Effect  of exchange rates on cash and cash equivalents                      |       | (8                                      | )          | (2 | ) |
| Net  change in cash and cash equivalents from discontinued operations       |       | (2,102                                  | )          | 1,396 |   |
| Cash  and cash equivalents of discontinued operation at beginning of period |       | 3,253                                   |       | 780 |   |
| Cash  and cash equivalents of discontinued operation at end of period       |       | $                                       | 1,151      |   | $ | 2,176 |   |

 

Thecash flows from the discontinued operation, as presented in the condensedconsolidated statement of cash flows, relate to the operations of MicroEdge.

 

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

 

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**ADVENT SOFTWARE, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1—Basis of Presentation**

 

Thecondensed consolidated financial statements include the accounts of AdventSoftware, Inc. (“Advent” or the “Company”) and its wholly ownedsubsidiaries. All inter-company balances and transactions have been eliminated.

 

Adventhas prepared these condensed consolidated financial statements in accordancewith the rules and regulations of the Securities and Exchange Commission (“SEC”)applicable to interim financial information. Certain information and footnotedisclosures included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen omitted in these interim statements pursuant to such SEC rules andregulations. These interim financial statements should be read in conjunctionwith the audited financial statements and related notes included in Advent’sAnnual Report on Form 10-K for the year ended December 31, 2008.Interim results are not necessarily indicative of the results to be expectedfor the full year, and no representation is made thereto.

 

Thesecondensed consolidated financial statements include, in the opinion ofmanagement, all adjustments necessary to state fairly the financial positionand results of continuing operations for each interim period shown. All suchadjustments occur in the ordinary course of business and are of a normal,recurring nature.

 

***Divestitureof the MicroEdge Segment and Discontinued Operation Reclassification***

 

On October 1, 2009,Advent completed the sale of MicroEdge, Inc. (“*MicroEdge*”)a wholly-owned subsidiary of the Company pursuant to an Agreement and Plan ofMerger (the “*Agreement*”) entered into on July 27,2009, by and among the Company, Microedge Holdings, LLC (“*Purchaser*”),a Delaware limited liability company and an affiliate of Vista Equity PartnersIII, LLC, Microedge Merger Sub, LLC, a New York limited liability company and awholly-owned subsidiary of Purchaser (“*MergerSub*”), MicroEdge, and, with respect to Article VII, Article VIIIand Article IX thereof only, U.S. Bank National Association as escrowagent. Pursuant to the Agreement, MicroEdge merged with and into Merger Sub.

 

In accordance with FASBAccounting Standards Codification (“ASC”) ASC 360, “Property, Plant, andEquipment” and ASC 205-20, “Discontinued Operations”, the assets, liabilitiesand results of MicroEdge have been reclassified as a discontinued operation inthe condensed consolidated financial statements for all periods presented. SeeNote 3, “Divestiture”, for further discussion.

 

Unless noted otherwise,discussions in the notes to the condensed consolidatedfinancial statementspertain to continuing operations.

 

**Note 2—Recent AccountingPronouncements**

 

Withthe exception of those discussed below, there have been no recent accountingpronouncements or changes in accounting pronouncements during the nine monthsended September 30, 2009, as compared to the recent accountingpronouncements described in Advent’s Annual Report on Form 10-K for thefiscal year ended December 31, 2008, that are of significance, orpotential significance, to the Company.

 

InApril 2009, the Financial Accounting Standards Board (“FASB”) issued FASBAccounting Standards Codification (“ASC”) 820-10-65 (Prior authoritativeliterature: FASB Staff Position (“FSP”) FAS 157-4, “Determining Fair Value Whenthe Volume or Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly”).ASC 820-10-65 provides additional guidance for estimating fair value inaccordance with ASC 820-10-65 when the volume and level of activity for the assetor liability have significantly decreased and requires that companies provideinterim and annual disclosures of the inputs and valuation technique(s) usedto measure fair value. ASC 820-10-65 is effective for interim and annualreporting periods ending after June 15, 2009 and is to be appliedprospectively. The Company’s adoption of ASC 820-10-65 did not have a materialimpact to the Company’s condensed consolidated financial statements.

 

InApril 2009, the FASB issued ASC 320-10-65 (Prior authoritative literature:FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation ofOther-Than-Temporary Impairments”). ASC 320-10-65 amends theother-than-temporary impairment guidance to improve the presentation anddisclosure of other-than-temporary impairments on debt and equity securities inthe financial statements. ASC 320-10-65 is effective for interim and annualreporting periods ending after June 15, 2009. The Company’s adoption ofASC 320-10-65 did not have a material impact to the Company’s condensed consolidatedfinancial statements.

 

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InApril 2009, the FASB issued ASC 825-10-65 (Prior authoritative literature:FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of FinancialInstruments”). ASC 825-10-65 requires disclosures about fair value of financialinstruments for interim reporting periods of publicly traded companies as wellas in annual financial statements. ASC 825-10-65 is effective for interim andannual reporting periods ending after June 15, 2009. The Company’sadoption of ASC 825-10-65 did not have a material impact to the Company’scondensed consolidated financial statements.

 

InMay 2009, the FASB issued ASC 855 (Prior authoritative literature: SFAS No. 165,“Subsequent Events”), which establishes general standards of accounting for anddisclosure of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued. The provisionsof ASC 855 are effective for interim and annual reporting periods ending after June 15,2009 and were effective for the Company in the second quarter of fiscal 2009.Since ASC 855 only required additional disclosures, adoption of ASC 855 did nothave an impact to the Company’s condensed consolidated financial position,results of operations or cash flows. See Note 17, “Subsequent Events” to thecondensed consolidated financial statements for discussion of the subsequentevents that has occurred since the balance sheet date of September 30,2009.

 

InJuly 2009, the FASB issued ASC 105 (Prior authoritative literature: SFAS No. 168,“The FASB Accounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles”). ASC 105 establishes the exclusive authoritativereference for U.S. GAAP for use in financial statements, except for SEC rules andinterpretive releases, which are also authoritative GAAP for SEC registrants.The Codification will supersede all existing non-SEC accounting and reportingstandards. The Company has included the references to the Codification, asappropriate, in these condensed consolidated financial statements.

 

InOctober 2009, the FASB issued ASU 2009-13, Multiple-Deliverable RevenueArrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) (“ASU2009-13”) and ASU 2009-14,  Certain Arrangements That Include SoftwareElements , (amendments to FASB ASC Topic 985,  Software ) (“ASU 2009-14”). ASU2009-13 requires entities to allocate revenue in an arrangement using estimatedselling prices of the delivered goods and services based on a selling pricehierarchy. The amendments eliminate the residual method of revenue allocationand require revenue to be allocated using the relative selling pricemethod. ASU 2009-14 removes tangible products from the scope of softwarerevenue guidance and provides guidance on determining whether softwaredeliverables in an arrangement that includes a tangible product are covered bythe scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14should be applied on a prospective basis for revenue arrangements entered intoor materially modified in fiscal years beginning on or after June 15,2010, with early adoption permitted. The Company does not expect adoption ofASU 2009-13 or ASU 2009-14 to have a material impact on the Company’s condensedconsolidated financial statements.

 

**Note3—Divestiture**

 

As noted in Note 1, “Basisof Presentation”, above, on October 1, 2009, Advent completed the sale ofits MicroEdge subsidiary to an affiliate of Vista Equity Partners III, LLC.

 

The total considerationreceived by the Company in connection with the divestiture was approximately$30 million in cash, of which $27 million in cash was paid on the closing date.The Company will record the associated gain resulting from the sale ofMicroEdge in “net income from discontinued operation, net of applicable taxes”in its fourth quarter of 2009 results. As the Company has not yet completed thefinal analyses of the asset, liability and other comprehensive loss amounts aswell as the effective tax rate, an estimate of the gain amount is not availableas of the date of this filing. The remaining $3 million of the Purchase Pricehas been placed in escrow for eighteen (18) months following the close to beheld as security for losses incurred by the Purchaser in the event of certainbreaches of the representations and warranties contained in the Agreement orcertain other events. Any gain on sale associated with the $3 million held inescrow will be recorded when realized.

 

The Company evaluated thetransaction under ASC 360, “Property, Plant, and Equipment” and ASC 205-20, “DiscontinuedOperations”, and accordingly, the results of MicroEdge have been reclassifiedas a discontinued operation in the condensed consolidated statements ofoperations for all periods presented. The results of operations and the relatedcharges for the discontinued operation are classified as “Net income fromdiscontinued operation, net of applicable taxes” in the accompanying condensedconsolidated statements of operations. For comparative purposes, the Companyrestated all prior periods presented to reflect the reclassifications on aconsistent basis. In addition, the assets and liabilities of MicroEdge havebeen reclassified as assets and liabilities of the discontinued operation inthe Company’s condensed consolidated balance sheets for all periods presented.

 

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Netrevenues and income from the Company’s discontinued operation are as followsfor the following periods (in thousands):

 
| ** **                                                                                                       | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                       | ** ** | **2009**                                 | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| Net  revenues                                                                                                    |       | $                                        | 5,934      |                                    | $          | 6,768 |   | $ | 18,859 |   | $ | 19,025 |   |
|                                                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| Net  income from discontinued operation (net of applicable taxes of $223, $640,  $1,409, and $695, respectively) |       | $                                        | 770        |                                    | $          | 889 |   | $ | 2,499 |   | $ | 1,022 |   |

 

Thefollowing table sets forth the assets and liabilities of the MicroEdgediscontinued operation included in the condensed consolidated balance sheets ofthe Company (in thousands):

 
| ** **                                              | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|---------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **2009**              | ** ** | **2008**             | ** ** |
| ** **                                              | ** ** | ** **            | ** ** | ** **           | ** ** |
| Assets:                                                 | ** ** | ** **            | ** ** | ** **           | ** ** |
| Cash  and cash equivalents                              |       | $                     | 1,152      |                 | $          | 3,253 |   |
| Accounts  receivable, net                               |       | 3,294                 |       | 5,106                |       |
| Deferred  taxes, current                                |       | 663                   |       | 663                  |       |
| Prepaid  expenses and other                             |       | 305                   |       | 421                  |       |
| Total  current assets of discontinued operation         |       | $                     | 5,414      |                 | $          | 9,443 |   |
|                                                    |       |                  |       |                 |       |
| Property  and equipment, net                            |       | $                     | 2,511      |                 | $          | 2,090 |   |
| Goodwill                                                |       | 6,972                 |       | 6,565                |       |
| Other  intangibles, net                                 |       | 1,873                 |       | 1,893                |       |
| Deferred  taxes, long-term                              |       | 620                   |       | 620                  |       |
| Other  assets                                           |       | 167                   |       | 135                  |       |
| Total  noncurrent assets of discontinued operation      |       | $                     | 12,143     |                 | $          | 11,303 |   |
|                                                    |       |                  |       |                 |       |
| Liabilities:                                            |       |                  |       |                 |       |
| Accounts  payable                                       |       | $                     | 80         |                 | $          | 313 |   |
| Accrued  liabilities                                    |       | 1,711                 |       | 2,143                |       |
| Deferred  revenues                                      |       | 10,114                |       | 11,497               |       |
| Income  taxes payable                                   |       | 1,097                 |       | —               |       |
| Total  current liabilities of discontinued operation    |       | $                     | 13,002     |                 | $          | 13,953 |   |
|                                                    |       |                  |       |                 |       |
| Deferred  income taxes                                  |       | $                     | 257        |                 | $          | 280 |   |
| Deferred  revenues, long-term                           |       | 461                   |       | 367                  |       |
| Other  long-term liabilities                            |       | 809                   |       | 728                  |       |
| Total  noncurrent liabilities of discontinued operation |       | $                     | 1,527      |                 | $          | 1,375 |   |

 

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**Note4—Stock-Based**Compensation**

 

**Equity Award Activity**

 

A summary of the statusof the Company’s stock option and stock appreciation right (“SAR”) activity forthe period presented follows:

 
| ** **                              | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**         | ** ** | ** **         | ** ** |
|-----------------------------------------|------------|--------------------|------------|--------------|------------|----------------------|------------|--------------------|------------|
| ** **                              | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**          | ** ** | **Aggregate**      | ** ** |
| ** **                              | ** ** | **Number of**      | ** ** | **Average**  | ** ** | **Remaining**        | ** ** | **Intrinsic**      | ** ** |
| ** **                              | ** ** | **Shares**         | ** ** | **Exercise** | ** ** | **Contractual Life** | ** ** | **Value**          | ** ** |
| ** **                              | ** ** | **(in thousands)** | ** ** | **Price**    | ** ** | **(in years)**       | ** ** | **(in thousands)** | ** ** |
| ** **                              | ** ** | ** **         | ** ** | ** **   | ** ** | ** **           | ** ** | ** **         | ** ** |
| Outstanding  at December 31, 2008  |       | 4,005              |       | $            | 28.24      |                 |       |               |       |   |
| Options &  SARs granted        |       | 586                |       | $            | 31.63      |                 |       |               |       |   |
| Options &  SARs exercised      |       | (385               | )          | $            | 20.91      |                 |       |               |       |   |
| Options &  SARs canceled       |       | (147               | )          | $            | 40.12      |                 |       |               |       |   |
| Outstanding  at September 30, 2009 |       | 4,059              |       | $            | 29.00      |                 | 6.37       |               | $          | 48,188 |   |
| Exercisable  at September 30, 2009 |       | 2,420              |       | $            | 25.46      |                 | 5.12       |               | $          | 36,868 |   |

 

The above table excludesapproximately 33,000 of options and SARs outstanding held by employees ofMicroEdge that will expire in 90 days after the completion of the divestitureon October 1, 2009. See Note 3, “Divestiture”, for further discussion.

 

The aggregate intrinsicvalue is calculated as the difference between the exercise price of theunderlying awards and the Company’s closing stock price of $40.25 as of September 30,2009 for options that were in-the-money as of that date.

 

The weighted averagegrant date fair value of options and SARs granted (as determined under ASC718), total intrinsic value of options and SARs exercised and cash receivedfrom option exercises during the nine months ended September 30, 2009 and2008 were as follows (in thousands, except weighted average grant date fairvalue):

 
| ** **                                 | ** ** | **Nine Months Ended September 30** | ** ** |
|--------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                 | ** ** | **2009**                                | ** ** | **2008** | ** ** |
| *Options and SARs*                         |       |                                    |       |   |   |
| Weighted  average grant date fair value    |       | $                                       | 14.68      |   | $ | 18.35 |   |
| Total  intrinsic value of awards exercised |       | $                                       | 5,261      |   | $ | 7,002 |   |
|                                       |       |                                    |       |   |   |
| *Options*                                  |       |                                    |       |   |   |
| Cash  received from exercises              |       | $                                       | 6,318      |   | $ | 4,892 |   |

 

 

The Company settlesexercised stock options and SARs with newly issued common shares.

 

A summary of the statusof the Company’s restricted stock unit (“RSU”) activity for the nine monthsended September 30, 2009 is as follows:

 
| ** **                                           | ** ** | ** **         | ** ** | **Weighted**   | ** ** |
|------------------------------------------------------|------------|--------------------|------------|----------------|------------|
| ** **                                           | ** ** | **Number of**      | ** ** | **Average**    | ** ** |
| ** **                                           | ** ** | **Shares**         | ** ** | **Grant Date** | ** ** |
| ** **                                           | ** ** | **(in thousands)** | ** ** | **Fair Value** | ** ** |
| ** **                                           | ** ** | ** **         | ** ** | ** **     | ** ** |
| Outstanding  and unvested at December 31, 2008  |       | 668                |       | $              | 37.88      |   |
| RSUs  granted                                        |       | 201                |       | $              | 32.62      |   |
| RSUs  vested                                         |       | (145               | )          | $              | 36.63      |   |
| RSUs  canceled                                       |       | (23                | )          | $              | 39.41      |   |
| Outstanding  and unvested at September 30, 2009 |       | 701                |       | $              | 36.57      |   |

 

The weighted averagegrant date fair value was determined based on the closing market price of theCompany’s common stock on the date of the award. The aggregate intrinsic valueof RSUs outstanding at September 30, 2009 was $28.2 million, using theclosing price of $40.25 per share as of September 30, 2009.

 

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**Stock-Based Compensation Expense**

 

Stock-based employeecompensation expense recognized on Advent’s condensed consolidated statement ofoperations for the three and nine months ended September 30, 2009 and 2008was as follows (in thousands):

 
| ** **                                                      | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                      | ** ** | **2009**                                 | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Statement of operations classification**                      | ** ** | ** **                               | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost  of term license, maintenance and other recurring revenues |       | $                                        | 498        |                                    | $          | 340 |   | $ | 1,333 |   | $ | 906 |   |
| Cost  of professional services and other revenues               |       | 336                                      |       | 266                                     |       | 967 |   | 739 |   |
| Total  cost of revenues                                         |       | 834                                      |       | 606                                     |       | 2,300 |   | 1,645 |   |
|                                                            |       |                                     |       |                                    |       |   |   |   |   |
| Sales  and marketing                                            |       | 1,650                                    |       | 1,278                                   |       | 4,265 |   | 3,316 |   |
| Product  development                                            |       | 1,326                                    |       | 1,028                                   |       | 3,641 |   | 2,784 |   |
| General  and administrative                                     |       | 1,388                                    |       | 1,939                                   |       | 3,769 |   | 4,038 |   |
| Total  operating expenses                                       |       | 4,364                                    |       | 4,245                                   |       | 11,675 |   | 10,138 |   |
|                                                            |       |                                     |       |                                    |       |   |   |   |   |
| Total  stock-based compensation expense                         |       | 5,198                                    |       | 4,851                                   |       | 13,975 |   | 11,783 |   |
|                                                            |       |                                     |       |                                    |       |   |   |   |   |
| Tax  effect on stock-based employee compensation                |       | (2,212                                   | )          | (1,873                                  | )          | $ | (5,721 | ) | $ | (4,524 | ) |
|                                                            |       |                                     |       |                                    |       |   |   |   |   |
| Effect  on net income from continuing operations, net of tax    |       | 2,986                                    |       | 2,978                                   |       | 8,254 |   | 7,259 |   |
|                                                            |       |                                     |       |                                    |       |   |   |   |   |
| Effect  on net income from discontinued operation, net of tax   |       | (35                                      | )          | 203                                     |       | 340 |   | 523 |   |
|                                                            |       |                                     |       |                                    |       |   |   |   |   |
| Effect  on net income, net of tax                               |       | $                                        | 2,951      |                                    | $          | 3,181 |   | $ | 8,594 |   | $ | 7,782 |   |

 

Advent capitalizedstock-based employee compensation expense of $174,000 and $246,000 during thenine months ended September 30, 2009 and 2008, respectively, associatedwith the Company’s software development, internal-use software and professionalservices implementation projects.

 

As of September 30,2009, total unrecognized compensation cost related to unvested awards not yetrecognized under all equity compensation plans, adjusted for estimated forfeitures,was $30.2 million and is expected to be recognized through the remainingvesting period of each grant, with a weighted average remaining period of2.6 years.

 

**ValuationAssumptions**

 

The fair value of eachoption grant is estimated on the date of grant using the Black-Scholes optionvaluation model and the straight-line attribution approach with the followingassumptions:

 
| ** **                        | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|-----------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | **2009**                                 | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Stock Options & SARs** |       |                                     |       |                                    |       |   |   |   |   |
| Expected  volatility              |       | 43.1% - 48.3%                            |       | 42.0% - 43.7%                           |       | 43.1% - 57.7% |   | 41.8% - 43.7% |   |
| Expected  life (in years)         |       | 5.10                                     |       | 5.27                                    |       | 4.17 - 5.47 |   | 3.82 - 5.27 |   |
| Risk-free  interest rate          |       | 2.6% - 2.7%                              |       | 2.7% - 3.4%                             |       | 1.8% - 3.0% |   | 2.6% - 3.9% |   |
| Expected  dividends               |       | None                                     |       | None                                    |       | None |   | None |   |
|                              |       |                                     |       |                                    |       |   |   |   |   |
| **Employee Stock Purchase Plan**  |       |                                     |       |                                    |       |   |   |   |   |
| Expected  volatility              |       | 58.3%                                    |       | 46.0%                                   |       | 58.3% - 72.8% |   | 43.8% - 46.0% |   |
| Expected  life (in months)        |       | 6                                        |       | 6                                       |       | 6 |   | 6 |   |
| Risk-free  interest rate          |       | 0.3%                                     |       | 2.0%                                    |       | 0.3% - 0.4% |   | 2.0% - 3.4% |   |
| Expected  dividends               |       | None                                     |       | None                                    |       | None |   | None |   |

 

The expected stock pricevolatility was determined based on an equally weighted average of historicaland implied volatility of the Company’s common stock. Adventdetermined that a blend of implied volatility and historical volatility is morereflective of the market conditions and a better indicator of expectedvolatility than using purely historical volatility. The expected life was determined based on historicalexperience of similar awards, giving consideration to the contractual terms ofthe stock-based awards, vesting schedules and expectations of future employeebehavior. The risk-free interest rate is based on the U.S. Treasury yieldcurve in effect at the time of grant for periods corresponding with theexpected life of the option. The dividend yield assumption is based on theCompany’s history of not paying dividends and the resultant future expectationof dividend payouts.

 

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**Note 5—Net Income Per Share**

 

Basic net income pershare is computed by dividing net income by the weighted average number ofcommon shares outstanding during the period. Diluted net income per share iscomputed by dividing net income by the sum of weighted average number of commonshares outstanding and the potential number of dilutive common sharesoutstanding during the period, excluding the effect of any anti-dilutivesecurities. Potential common shares consist of the shares issuable upon theexercise of stock options and SARs, the vesting of restricted stock awards andfrom withholdings associated with the Company’s employee stock purchase plan. Potential common shares are reflected indiluted earnings per share by application of the treasury stock method, whichin the current period includes consideration of unamortized stock-basedcompensation and windfall tax benefits.

 

Thefollowing table sets forth the computation of basic and diluted net income pershare for continuing operations and the Company’s discontinued operation (inthousands, except per-share data):

 
| ** **                                                                                                                                | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                                | ** ** | **2009**                                 | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Numerator:**                                                                                                                            | ** ** | ** **                               | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income:                                                                                                                              |       |                                     |       |                                    |       |   |   |   |   |
| Continuing  operations                                                                                                                    |       | $                                        | 3,902      |                                    | $          | 1,823 |   | $ | 16,424 |   | $ | 11,680 |   |
| Discontinued  operation                                                                                                                   |       | 770                                      |       | 889                                     |       | 2,499 |   | 1,022 |   |
| Total  operations                                                                                                                         |       | $                                        | 4,672      |                                    | $          | 2,712 |   | $ | 18,923 |   | $ | 12,702 |   |
|                                                                                                                                      |       |                                     |       |                                    |       |   |   |   |   |
| **Denominator:**                                                                                                                          |       |                                     |       |                                    |       |   |   |   |   |
| Denominator  for basic net income per share-weighted average shares outstanding                                                           |       | 25,527                                   |       | 26,788                                  |       | 25,352 |   | 26,690 |   |
|                                                                                                                                      |       |                                     |       |                                    |       |   |   |   |   |
| Dilutive  common equivalent shares: Employee stock options and other                                                                      |       | 1,103                                    |       | 1,410                                   |       | 892 |   | 1,509 |   |
|                                                                                                                                      |       |                                     |       |                                    |       |   |   |   |   |
| Denominator  for diluted net income per share-weighted average shares outstanding,  assuming exercise of potential dilutive common shares |       | 26,630                                   |       | 28,198                                  |       | 26,244 |   | 28,199 |   |
|                                                                                                                                      |       |                                     |       |                                    |       |   |   |   |   |
| **Net income per share:**                                                                                                                 |       |                                     |       |                                    |       |   |   |   |   |
| Basic:                                                                                                                                    |       |                                     |       |                                    |       |   |   |   |   |
| Continuing  operations                                                                                                                    |       | $                                        | 0.15       |                                    | $          | 0.07 |   | $ | 0.65 |   | $ | 0.44 |   |
| Discontinued  operation                                                                                                                   |       | 0.03                                     |       | 0.03                                    |       | 0.10 |   | 0.04 |   |
| Total  operations                                                                                                                         |       | $                                        | 0.18       |                                    | $          | 0.10 |   | $ | 0.75 |   | $ | 0.48 |   |
|                                                                                                                                      |       |                                     |       |                                    |       |   |   |   |   |
| Diluted:                                                                                                                                  |       |                                     |       |                                    |       |   |   |   |   |
| Continuing  operations                                                                                                                    |       | $                                        | 0.15       |                                    | $          | 0.06 |   | $ | 0.63 |   | $ | 0.41 |   |
| Discontinued  operation                                                                                                                   |       | 0.03                                     |       | 0.03                                    |       | 0.10 |   | 0.04 |   |
| Total  operations                                                                                                                         |       | $                                        | 0.18       |                                    | $          | 0.10 |   | $ | 0.72 |   | $ | 0.45 |   |

 

Weighted average stockoptions, SARs and RSUs of approximately 1.9 million and 2.3 million for thethree and nine months ended September 30, 2009, respectively, wereexcluded from the calculation of diluted net income per share because theirinclusion would have been anti-dilutive. Similarly, weighted average stockoptions, SARs and RSUs of approximately 1.4 million and 1.2 million for thethree and nine months ended September 30, 2008, respectively, wereexcluded from the calculation of diluted net income per share.

 

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**Note6—Goodwill**

 

Thechanges in the carrying value of goodwill for the nine months ended September 30,2009 were as follows (in thousands):

 
| ** **                          | ** ** | **Goodwill** | ** ** |
|-------------------------------------|------------|--------------|------------|
| ** **                          | ** ** | ** **   | ** ** |
| Balance  at December 31, 2008  |       | $            | 143,044    |   |
| Translation  adjustments            |       | 2,154        |       |
| Purchase  price adjustment          |       | (54          | )          |
| Balance  at September 30, 2009 |       | $            | 145,144    |   |

 

 

Foreigncurrency translation adjustments totaling $2.2 million reflect the generalweakening of the U.S. dollar versus European currencies during the nine monthsended September 30, 2009.

 

**Note 7—Other Intangibles**

 

Thefollowing is a summary of other intangibles as of September 30, 2009 (inthousands):

 
| ** **                          | ** ** | **Average**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Amortization** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
| ** **                          | ** ** | **Period**       | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                          | ** ** | **(Years)**      | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
| ** **                          | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Purchased  technologies             |       | 4.9              |       | $                | 26,556     |             | $          | (14,634          | )          | $ | 11,922 |   |
| Product  development costs          |       | 2.4              |       | 10,535           |       | (5,736           | )          | 4,799            |       |
| Developed  technology sub-total     |       |             |       | 37,091           |       | (20,370          | )          | 16,721           |       |
|                                |       |             |       |             |       |             |       |             |       |
| Customer  relationships             |       | 6.0              |       | 27,038           |       | (20,773          | )          | 6,265            |       |
| Other  intangibles                  |       | 3.9              |       | 1,507            |       | (637             | )          | 870              |       |
| Other  intangibles sub-total        |       |             |       | 28,545           |       | (21,410          | )          | 7,135            |       |
| Balance  at September 30, 2009 |       |             |       | $                | 65,636     |             | $          | (41,780          | )          | $ | 23,856 |   |

 

Thefollowing is a summary of other intangibles as of December 31, 2008 (inthousands):

 
| ** **                         | ** ** | **Average**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                         | ** ** | **Amortization** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
| ** **                         | ** ** | **Period**       | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                         | ** ** | **(Years)**      | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                               |       |             |       |             |       |             |       |             |       |
| Purchased  technologies            |       | 4.9              |       | $                | 26,556     |             | $          | (12,289          | )          | $ | 14,267 |   |
| Product  development costs         |       | 3.0              |       | 8,436            |       | (3,937           | )          | 4,499            |       |
| Developed  technology sub-total    |       |             |       | 34,992           |       | (16,226          | )          | 18,766           |       |
|                               |       |             |       |             |       |             |       |             |       |
| Customer  relationships            |       | 6.0              |       | 27,038           |       | (19,705          | )          | 7,333            |       |
| Other  intangibles                 |       | 3.9              |       | 1,507            |       | (389             | )          | 1,118            |       |
| Other  intangibles sub-total       |       |             |       | 28,545           |       | (20,094          | )          | 8,451            |       |
| Balance  at December 31, 2008 |       |             |       | $                | 63,537     |             | $          | (36,320          | )          | $ | 27,217 |   |

 

 

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Thechanges in the carrying value of other intangibles during the nine months endedSeptember 30, 2009 were as follows (in thousands):

 
| ** **                          | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
|-------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                          | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                                |       |             |       |             |       |             |       |
| Balance  at December 31, 2008  |       | $                | 63,537     |             | $          | (36,320          | )          | $ | 27,217 |   |
| Additions                           |       | 1,999            |       | —           |       | 1,999            |       |
| Stock-based  compensation additions |       | 100              |       | —           |       | 100              |       |
| Amortization                        |       | —           |       | (5,460           | )          | (5,460           | )          |
| Balance  at September 30, 2009 |       | $                | 65,636     |             | $          | (41,780          | )          | $ | 23,856 |   |

 

Basedon the carrying amount of intangible assets as of September 30, 2009, theestimated future amortization is as follows (in thousands):

 
| ** **                         | ** ** | **Three**            | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|------------------------------------|------------|----------------------|------------|----------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                         | ** ** | **Months Ended**     | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **December 31** | ** ** | **Years Ended December 31** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **2009**             | ** ** | **2010**                         | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Estimated  future amortization of: | ** ** | ** **           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Developed  technology              |       | $                    | 1,480      |                             | $          | 5,500      |       | $          | 4,223      |       | $          | 3,328          |       | $          | 2,190      |   | $ | — |   | $ | 16,721 |   |
| Other  intangibles                 |       | 350                  |       | 1,187                            |       | 1,067      |       | 1,067      |       | 1,023      |       | 2,441          |       | 7,135      |       |
|                               |       |                 |       |                             |       |       |       |       |       |       |       |           |       |       |       |
| Total                              |       | $                    | 1,830      |                             | $          | 6,687      |       | $          | 5,290      |       | $          | 4,395          |       | $          | 3,213      |   | $ | 2,441 |   | $ | 23,856 |   |

 

**Note 8—Balance Sheet Detail**

 

Thefollowing is a summary of prepaid expenses and other (in thousands):

 
| ** **                        | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-----------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                        | ** ** | **2009**              | ** ** | **2008**             | ** ** |
| ** **                        | ** ** | ** **            | ** ** | ** **           | ** ** |
| Prepaid  commission               |       | $                     | 5,178      |                 | $          | 5,953 |   |
| Prepaid  contract expense         |       | 5,311                 |       | 7,473                |       |
| Prepaid  royalty                  |       | 1,017                 |       | 1,728                |       |
| Other                             |       | 4,087                 |       | 4,578                |       |
| Total  prepaid expenses and other |       | $                     | 15,593     |                 | $          | 19,732 |   |

 

Thefollowing is a summary of other assets, net (in thousands):

 
| ** **                           | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|--------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2009**              | ** ** | **2008**             | ** ** |
|                                 |       |                  |       |                 |       |
| Long-term  investments               |       | $                     | 500        |                 | $          | 500 |   |
| Long-term  prepaid commissions       |       | 3,220                 |       | 4,915                |       |
| Deposits                             |       | 1,342                 |       | 3,145                |       |
| Prepaid  contract expense, long-term |       | 3,199                 |       | 2,843                |       |
| Other                                |       | —                |       | 16                   |       |
| Total  other assets                  |       | $                     | 8,261      |                 | $          | 11,419 |   |

 

Long-term investmentsinclude an equity investment in a privately held company. This equityinvestment is carried at the lower of cost or fair value at September 30,2009 and December 31, 2008.  Deposits include restricted cash balanceof $0.4 million and $1.9 million at September 30, 2009 and December 31,2008, respectively. During the third quarter of 2009, restricted cash wasreduced by $1.5 million per the terms of the Company’s lease agreement for itsSan Francisco headquarters facility.

 

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The following is asummary of accrued liabilities (in thousands):

 
| ** **                              | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                              | ** ** | **2009**              | ** ** | **2008**             | ** ** |
|                                    |       |                  |       |                 |       |
| Salaries  and benefits payable          |       | $                     | 15,796     |                 | $          | 17,191 |   |
| Accrued  restructuring, current portion |       | 541                   |       | 682                  |       |
| Other                                   |       | 10,503                |       | 7,908                |       |
| Total  accrued liabilities              |       | $                     | 26,840     |                 | $          | 25,781 |   |

 

Accrued restructuring chargesare discussed further in Note 10, “Restructuring Charges.” Other accruedliabilities include accruals for royalties, sales and business taxes,acquisition related costs, and other miscellaneous items.

 

The following is asummary of other long-term liabilities (in thousands):

 
| ** **                                | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                | ** ** | **2009**              | ** ** | **2008**             | ** ** |
|                                      |       |                  |       |                 |       |
| Deferred  rent                            |       | $                     | 7,079      |                 | $          | 7,746 |   |
| Accrued  restructuring, long-term portion |       | 831                   |       | 1,194                |       |
| Other                                     |       | 938                   |       | 1,132                |       |
| Total  other long-term liabilities        |       | $                     | 8,848      |                 | $          | 10,072 |   |

 

**Note 9—Comprehensive Income**

 

The components ofcomprehensive income were as follows for the periods presented (in thousands):

 
| ** **                                              | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                              | ** ** | **2009**                                 | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                    |       |                                     |       |                                    |       |   |   |   |   |
| Net  income from continuing operations                  |       | $                                        | 3,902      |                                    | $          | 1,823 |   | $ | 16,424 |   | $ | 11,680 |   |
| Foreign  currency translation adjustment                |       | 1,141                                    |       | (3,938                                  | )          | 2,693 |   | (1,514 | ) |
| Comprehensive  income (loss) from continuing operations |       | 5,043                                    |       | (2,115                                  | )          | 19,117 |   | 10,166 |   |
| Comprehensive  income from discontinued operation       |       | 726                                      |       | 477                                     |       | 2,933 |   | 608 |   |
| Total  comprehensive income (loss)                      |       | $                                        | 5,769      |                                    | $          | (1,638 | ) | $ | 22,050 |   | $ | 10,774 |   |

 

**Note10—Restructuring Charges**

##### *** ***

Minor restructuringinitiatives were implemented in the Company’s Advent Investment Managementsegment in 2006 to reduce costs and improve operating efficiencies. Theseinitiatives have resulted in restructuring charges comprised primarily of costsrelated to properties abandoned in connection with facilities consolidation,associated write-down of leasehold improvements and severance and associatedemployee termination costs related to headcount reductions. Advent’srestructuring charges included accruals for estimated losses on facility costsbased on the Company’s contractual obligations net of estimated subleaseincome. Advent reassesses this liability periodically based on marketconditions.

 

##### ***During the ninemonths ended September 30, 2009 Advent recorded a restructuring charge of$92,000 which related to the present value amortization of facility exitobligations partially offset by adjustments to facility exit assumptions.During the nine months ended September 30, 2008, Advent recorded arestructuring charge of $96,000 which primarily related to a partial leasesurrender fee of $200,000 to exit the data center portion of the facility spacelocated 303 2***nd  Street in San Francisco, California and thepresent value amortization of facility exit obligations. These charges werepartially offset by adjustments to facility exit assumptions.

 

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Thefollowing table sets forth an analysis of the components of the payments andrestructuring charges (benefits) made against the accrual during the ninemonths ended September 30, 2009 (in thousands):

 
| ** **                                                   | ** ** | **Facility Exit** | ** ** | **Severance &** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|-------------------|------------|--------------------------|------------|------------|------------|
| ** **                                                   | ** ** | **Costs**         | ** ** | **Benefits**             | ** ** | **Total**  | ** ** |
|                                                         |       |              |       |                     |       |       |       |
| Balance  of restructuring accrual at December 31, 2008  |       | $                 | 1,735      |                     | $          | 141        |       | $ | 1,876 |   |
| Restructuring  charges (benefits)                            |       | 38                |       | (4                       | )          | 34         |       |
| Cash  payments                                               |       | (459              | )          | (137                     | )          | (596       | )          |
| Adjustment  of prior restructuring costs                     |       | 58                |       | —                   |       | 58         |       |
| Balance  of restructuring accrual at September 30, 2009 |       | $                 | 1,372      |                     | $          | —     |       | $ | 1,372 |   |

 

Ofthe remaining restructuring accrual of $1.4 million at September 30, 2009,$0.5 million and $0.8 million are included in accrued liabilities and otherlong-term liabilities, respectively, on the accompanying condensed consolidatedbalance sheet. The remaining excess facility costs of $1.4 million are statedat estimated fair value, net of estimated sublease income of approximately $2.6million. Advent expects to pay the remaining obligations associated with thevacated facilities no later than over the remaining lease terms, which expireon various dates through 2012.

 

#### **Note 11—Commitments andContingencies**

 

*LeaseObligations*

 

Adventleases office space and equipment under non-cancelable operating leaseagreements, which expire at various dates through June 2025. Someoperating leases contain escalation provisions for adjustments in the consumerprice index. Advent is responsible for maintenance, insurance, and propertytaxes. Excluding leases for MicroEdge locations, as of September 30, 2009,Advent’s remaining operating lease commitments through 2025 were approximately$63.3 million, net of future minimum rental receipts of $2.8 million to bereceived under non-cancelable sub-leases.

 

The MicroEdge segment hasoperating lease commitments totaling $10.5 million, less sublease income of$0.2 million, under various lease agreements through 2018. On October 1,2009, Advent completed the sale of the Company’s MicroEdge subsidiary. See Note3 “Divestiture” and Note 17 “Subsequent Events” to the condensed consolidatedfinancial statements for a description of the principal terms of thedivestiture. With the exception of the MicroEdge facilities in New York City,the leases related to MicroEdge have been transferred to the Purchaser.

 

OnSeptember 30, 2009, the Company entered into a definitive lease agreementwith 1114 6th Avenue Co., LLC (the “Landlord”) whereby the Company will leaseapproximately 31,000 square feet of office space at 1114 Avenue of the Americasin New York, New York (the “Grace Building”). The Company’s contractualoperating lease obligation under this agreement is approximately $30 million,payable over the fifteen-year term of the lease. Additionally, the Companyanticipates approximately $8 million of leasehold improvements, of which $2million will be funded by the Landlord and approximately $6 million will bepaid directly by Advent. After completion of the improvements, currentlyestimated to be in the second fiscal quarter of 2010, the Company will relocateits New York operations to the Grace Building facility.

 

*Indemnifications*

 

As permitted or requiredunder Delaware law and to the maximum extent allowable under that law, Adventhas certain obligations to indemnify its current and former officers anddirectors for certain events or occurrences while the officer or director is,or was serving, at Advent’s request in such capacity. These indemnificationobligations are valid as long as the director or officer acted in good faithand in a manner the person reasonably believed to be in or not opposed to thebest interests of the corporation, and, with respect to any criminal action orproceeding, had no reasonable cause to believe his or her conduct was unlawful.The maximum potential amount of future payments Advent could be required tomake under these indemnification obligations is unlimited; however, Advent hasa director and officer insurance policy that mitigates Advent’s exposure andenables Advent to recover a portion of any future amounts paid. The Companybelieves the estimated fair value of these indemnification obligations isminimal.

 

*Legal Contingencies*

 

OnMarch 8, 2005, certain of the former shareholders of Kinexus and theshareholders’ representative filed suit against Advent in the Delaware ChanceryCourt. The complaint alleges that Advent breached the Agreement and Plan ofMerger dated as of December 31, 2001 pursuant to which Advent acquired allof the outstanding shares of Kinexus due principally to the fact that no amountwas paid by Advent on an earn-out of up to $115 million. The earn-out, whichwas payable in cash or stock at the election of Advent, was based upon Kinexusmeeting certain revenue targets in both 2002 and 2003. The complaint seeksunspecified compensatory damages, an accounting and restitution for unjustenrichment. Advent advised the shareholders’ representative in January 2003that the earn-out terms had not been met in 2002 and accordingly no earn-outwas payable for 2002 and would not be

 

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payablefor 2003. There has been no further activity in this case since additionaldocument discovery and interrogatory answers were provided by the parties in December 2008. Advent disputes theplaintiff’s claim and believes that it has meritorious defenses and intends tovigorously defend this action. Management has not determined that any potentialloss associated with this litigation is either probable or reasonably estimableat this time and accordingly has not accrued any amounts for any potentialloss.

 

From time to time, Adventis involved in claims and legal proceedings that arise in the ordinary courseof business. Based on currently available information, management does notbelieve that the ultimate outcome of these unresolved matters, individually andin the aggregate, is likely to have a material adverse effect on the Company’sfinancial position or results of operations. However, litigation is subject toinherent uncertainties and the Company’s view of these matters may change inthe future. Were an unfavorable outcome to occur, there exists the possibilityof a material adverse impact on the Company’s financial position and results ofoperations for the period in which the unfavorable outcome occurs, andpotentially in future periods.

 

**Note 12—Segment Information**

 

*Descriptionof Segments*

 

ASC 280, “*Segment Reporting”* establishes standardsfor reporting information about operating segments in a company’s financialstatements. Advent’s organizational structure is based on anumber of factors that the chief operating decision maker (“CODM”) uses toevaluate, view and run its business operations which include, but are notlimited to, customer base, homogeneity of products and technology. Advent’soperating segments are based on this organizational structure and informationreviewed by Advent’s CODM to evaluate the operating segment results.

 

*Divestitureof the MicroEdge Segment*

 

Historically, the Companydetermined that its operations were organized into two reportable segments: 1)Advent Investment Management, and 2) MicroEdge. On October 1, 2009, Adventcompleted the sale its MicroEdge subsidiary pursuant to an Agreement enteredinto on July 27, 2009. Accordingly, the results of MicroEdge havebeen classified as a discontinued operation in the condensed consolidatedstatements of operations for all periods presented. The Company now operatesunder a single reportable segment, Advent Investment Management. See Note 3, “Divestiture”,for further information regarding the divestiture of MicroEdge.

 

*MajorCustomers*

 

Nosingle customer represented 10% or more of Advent’s total net revenues in anyperiod presented.

 

**Note13—Debt**

 

On February 14,2007, Advent and certain of its subsidiaries entered into a senior securedcredit facility agreement (the “Credit Facility”) with Wells Fargo Foothill, Inc.(the “Lender”) for a term of three years. Under the Credit Facility, the Lenderwill provide the Company with a revolving line of credit up to an aggregateamount of $75.0 million to fund the repurchase of outstanding common stock,capital expenditures and general corporate requirements. The Company has theoption of selecting an interest rate for any drawdown under the Facility equalto either: (a) the Base Rate (Wells Fargo prime rate); or (b) thethen applicable LIBOR Rate plus 1.50% per annum. The loan is secured by theCompany’s property and assets and is subject to a financial covenant. Thefinancial covenant in the Facility is limited to a maximum ratio of senior debtto earnings before interest, taxes, depreciation, and amortization (EBITDA),adjusted for cost capitalizations, extraordinary gains (losses) and non-cashstock-based employee compensation. Covenant testing will commence upon eitherthe occurrence of an event of default or when excess availability, defined asthe Credit Facility line of $75.0 million less amounts drawn, plus qualifiedcash and cash equivalents is less than $50.0 million.

 

In November 2008,the Company drew down $25.0 million against its Credit Facility which boreinterest at the Wells Fargo prime rate of 4.0%.  In January 2009, theCompany repaid $10.0 million of the debt under its Credit Facility. DuringFebruary 2009, Advent elected to move from the Wells Fargo prime rate intoa monthly LIBOR rate contract on the remaining $15.0 million which bears arate of 0.45% plus an applicable margin of 1.50% for an all-in rate of 1.95%.During the second quarter of 2009, the Company repaid the remaining outstandingbalance of $15.0 million. As of September 30, 2009, there were nooutstanding borrowings under the Credit Facility and the Company was incompliance with all associated covenants.

 

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**Note14—Income Taxes**

 

The following tablesummarizes the activity relating to the Company’s unrecognized tax benefitsduring the nine months ended September 30, 2009 (in thousands):

 
| ** **                                               | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|-----------|------------|
| Balance  at December 31, 2008                       |       | $         | 6,904      |   |
| Gross  increases related to current period tax positions |       | 717       |       |
| Balance  at September 30, 2009                      |       | $         | 7,621      |   |

 

At September 30,2009 and December 31, 2008, Advent had $7.6 million and $6.9 millionof gross unrecognized tax benefits, respectively. During the first nine monthsof 2009, Advent increased the amount of unrecognized tax benefits by $0.7million relating to federal and California research credits. If recognized, thetotal unrecognized tax benefits would decrease Advent’s tax provision andincrease net income $6.4 million. The impact on net income reflects theliabilities for unrecognized tax benefits net of the federal tax benefit ofstate income tax items. The Company’s liabilities for unrecognized tax benefitsrelate to federal research credits, California research and enterprise zone taxcredits and various state net operating losses.

 

Advent is subjectto taxation in the US and various state and foreign jurisdictions. The materialjurisdictions that are subject to examination by tax authorities includeCalifornia for tax years after fiscal 2004, Federal for tax years after 2005,and New York for 2008. During the third quarter of 2009, Advent closed thestate of New York audit for Advent and MicroEdge for 2005 through 2007 taxyears with no material impact on income tax expense.

 

**Note 15—Fair Value Measurements**

 

The Company measurescertain financial assets and liabilities at fair value on a recurring basis,including available-for-sale securities. The fair value of these certainfinancial assets was determined using the following inputs as of September 30,2009 (in thousands):

 
| ** **              | ** ** | **Fair Value Measurements at Reporting Date Using** | ** ** |
|-------------------------|------------|-----------------------------------------------------|------------|
| ** **              | ** ** | ** **                                          | ** ** | ** ** | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **              | ** ** | ** **                                          | ** ** | **Quoted Prices in** | ** ** | **Other** | ** ** | **Significant** | ** ** |
| ** **              | ** ** | ** **                                          | ** ** | **Active Markets for** | ** ** | **Observable** | ** ** | **Unobservable** | ** ** |
| ** **              | ** ** | ** **                                          | ** ** | **Identical Assets** | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| ** **              | ** ** | **Total**                                           | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| **Assets**              | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Money  Market Funds (1) |       | $                                                   | 50,009     |   | $ | 50,009 |   | $ | — |   | $ | — |   |
|                         |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)       Included in cash and cash equivalents onthe Company’s condensed consolidated balance sheet

 

Money market fundsconsist of cash equivalents with remaining maturities of three months or lessat the date of purchase and are composed primarily of US government andtreasury obligation money market mutual funds. The fair value of thesesecurities is determined through market, observable and corroborated sources.

 

The carrying amounts ofcash and cash equivalents, accounts receivable, accounts payable and accruedliabilities approximate fair value based on their short-term nature.

 

The Company also has adirect investment in a privately-held company accounted for under the costmethod which is not reported in the table of assets measured at fair valueabove. This investment, which totaled $0.5 million at September 30, 2009,is periodically assessed for other-than-temporary impairment. If Adventdetermines that an other-than-temporary impairment has occurred, the Companywrites down the investment to its fair value. Advent estimates fair value usinga variety of valuation methodologies. Such methodologies include comparing theprivate company with publicly traded companies in similar lines of business,applying revenue and price/earnings multiples to estimated future operatingresults for the private company and estimating discounted cash flows for thatcompany.

 

**Note16**—Common Stock RepurchaseProgram

 

Advent’s Board has approved common stock repurchase programsauthorizing management to repurchase shares of the Company’s common stock. Thetiming and actual number of shares subject to repurchase are at the discretionof Advent’s management and are contingent on a number of factors, including theprice of Advent’s stock, Advent’s cash balances and working capital needs,general business and market conditions, regulatory requirements, andalternative investment opportunities. Repurchased shares are returned to thestatus of authorized and unissued shares of common stock.

 

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On October 30, 2008, Advent’s Board authorized the repurchase ofup to 3.0 million shares of the Company’s common stock. Consistent with priorrepurchase programs, there was no expiration date and repurchases could belimited or terminated at any time at the discretion of management.

 

The following table provides a summary of the quarterly repurchaseactivity during the nine months ended September 30, 2009 under the stockrepurchase program approved by the Board in October 2008 (in thousands,except per share data):

 
| ** ** | ** ** | **Total**     | ** ** | ** ** | ** ** | **Average**   | ** ** |
|------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** ** | ** ** | **Number**    | ** ** | ** ** | ** ** | **Price**     | ** ** |
| ** ** | ** ** | **of Shares** | ** ** | ** ** | ** ** | **Paid**      | ** ** |
| ** ** | ** ** | **Purchased** | ** ** | **Cost**   | ** ** | **Per Share** | ** ** |
|       |       |          |       |       |       |          |       |
| Q1  2009   |       | 690           |       | $          | 14,578     |          | $          | 21.13 |   |
| Q2  2009   |       | —        |       | —     |       | —        |       |
| Q3  2009   |       | —        |       | —     |       | —        |       |
| Total      |       | 690           |       | $          | 14,578     |          | $          | 21.13 |   |

 

 

At September 30, 2009, there remained approximately 1.0 millionshares authorized by the Board for repurchase.

 

**Note17—Subsequent Events**

 

In accordance with ASC855, the Company evaluated subsequent events after the balance sheet date of September 30,2009 through November 9, 2009, which is the date the financial statementswere issued.

 

On October 1, 2009,Advent completed the sale of its MicroEdge subsidiary to an affiliate of VistaEquity Partners III, LLC. The total consideration received by the Company inconnection with the disposition was approximately $30 million in cash, of which$27 million in cash was paid on the closing date. The Company will record theassociated gain resulting from the sale of MicroEdge in “net income fromdiscontinued operation, net of applicable taxes” in its fourth quarter of 2009results. As the Company has not yet completed the final analyses of the asset,liability and other comprehensive loss amounts as well as the effective taxrate, an estimate of the gain amount is not available as of the date of thisfiling. The remaining $3 million of the Purchase Price has been placed inescrow for eighteen (18) months following the close to be held as security forlosses incurred by the Purchaser in the event of certain breaches of therepresentations and warranties contained in the Agreement or certain otherevents. Any gain on sale associated with the $3 million held in escrow will berecorded by the Company when realized.

 

In connection with thesale of MicroEdge, the Company entered into a sublease agreement with MicroedgeLLC, whereby Microedge LLC will sub-lease approximately 24,000 square feet ofoffice space located at 619 West 54th Street in New York, New York from theCompany. The sublease agreement became effective upon the close of sale ofMicroEdge on October 1, 2009. The Company currently estimates that therestructuring costs, consisting primarily of facility exit costs, will beapproximately $4 million and will be recorded in “net income from discontinuedoperation, net of applicable taxes” in the consolidated statement of operationsfor the fourth quarter of 2009.

 

In October 2009 theCompany established a subsidiary of Advent Software (Asia), Ltd. in Beijing,China. Prior to the establishment of the Beijing office, certain engineeringactivities had been outsourced to a business partner located in China. Adventis currently transitioning approximately 50 contract developers into employeesof Advent in Beijing during the fourth quarter of 2009.

 

**Item 2.****Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

Youshould read the following discussion in conjunction with our consolidatedfinancial statements and related notes. The following discussion containsforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 as amended and Section 21E of the SecuritiesExchange Act of 1934 as amended, including, but not limited to statementsreferencing our expectations relating to future revenues, expenses andoperating margins. Forward-looking statements can be identified by the use ofterminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,”“estimate,” “predict,” “potential,” “continue” or other similar terms and thenegative of such terms regarding beliefs, plans, expectations or intentionsregarding the future. Forward-looking statements include, among others,statements regarding the future of the investment management market andopportunities for us related thereto, future expansion, acquisition, divestmentof or investment in other businesses and the impact of

 

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ourdivestment of MicroEdge, projections of revenues, future cost and expenselevels, expected timing and amount of amortization expenses related to pastacquisitions, the adequacy of resources to meet future cash requirements,estimates or predictions of actions by customers, suppliers, competitors orregulatory authorities, future client wins, future hiring and future productintroductions. Such forward-looking statements are based on our current plansand expectations and involve known and unknown risks and uncertainties whichmay cause our actual results or performance to be materially different from anyresults or performance expressed or implied by such forward-looking statements.Such factors include, but are not limited to the “Risk Factors” set forth in “Item1A. Risk Factors” in this Form 10-Q, as well as other risks identifiedfrom time to time in other Securities and Exchange Commission (“SEC”) reports.You should not place undue reliance on our forward-looking statements, as theyare not guarantees of future results, levels of activity or performance andrepresent our expectations only as of the date they are made.

 

Unlessexpressly stated or the context otherwise requires, the terms “we”, “our”, “us”,the “Company” and “Advent” refer to Advent Software, Inc. and itssubsidiaries.

 

**Overview**

 

We offerintegrated software products and services for automating and integrating dataand work flows across the investment management organization, as well asbetween the investment management organization and external parties. Ourproducts are intended to increase operational efficiency, improve the accuracyof client information and enable better decision-making. Each solution focuseson specific mission-critical functions of the front, middle and back offices ofinvestment management organizations and is designed to meet the needs of theparticular client, as determined by size, assets under management andcomplexity of the investment environment. On October 1, 2009, we completedthe sale of MicroEdge, Inc., our wholly-owned subsidiary, as furtherdescribed below. References in this document to our continuing operations referto our remaining business.

 

*Current Economic Environment*

 

During the first ninemonths of 2009, our business continued to be impacted by the generally weakmacro-economic environment. The current environment has created pressure on ourclients to decrease their information technology budgets, which negativelyimpacted our customer renewal rates and annual term license contract value (“ACV”)in the first nine months of 2009. For example, initially disclosed renewalrates, which we report one quarter in arrears, decreased to 87% for the secondquarter of 2009, compared to 103% for the second quarter of 2008. Additionally,the ACV added during the first nine months of 2009 decreased to $12.9 millionfrom $18.6 million during the comparable period of 2008. Despite the negativeimpact on our renewal rates and overall bookings, we continued to proactively controlour costs and achieved growth in our continuing operations’ operating profitmargin and earnings per share during the first nine months of 2009.

 

We believe that thefourth quarter of 2009 will continue to be a difficult period for theinvestment management industry in the United States and worldwide. During thefirst nine months of 2009, investment managers have seen their revenuesdecrease as a result of decreases in their assets under management. Some hedgefunds and other types of clients have gone out of business and we believe morefirms may go out of business. While we are not immune to downturns intechnology spending, should our customers continue to reduce or limit theirspending, we believe we are well positioned to maintain our competitiveposition in the longer term for the following reasons:

 

·      Our solutions are missioncritical to our customers;

·      Our technology can beutilized to increase operational efficiency and manage costs;

·      As a market leader ininvestment management technology, we expect the customers who spend money willattempt to minimize risk and, therefore, look to our stability, reliability andscalability;

·      We expect an increased needfor systems in the face of a more regulated, compliance-oriented industry; and

·      Our recurring revenue modeland large customer base will continue to provide longer term stability.

 

We also believe thatinvestment managers will be increasingly focused on providing increased anddifferentiated levels of service to their customers.  These factors have traditionally been demanddrivers for our products.

 

We believe our recentfinancial results validate the strength and stability of our business and theattractiveness of our product portfolio to our customers. For example, ourcontinuing operations have grown revenue, operating income and margin, and operatingcash flows during the three and nine months ended September 30, 2009compared to the comparable periods of 2008. In addition to our strong financialresults, we believe we saw an improved demand environment and interest duringthe third quarter of 2009 from prospects and customers across all the marketswe serve. While we see the potential for improvement for the remainder of 2009and in 2010, the timing of any recovery is uncertain. As the current economicsituation evolves, we will continue to evaluate the impact of this environmenton our business and we will remain focused on delivering solutions for ourcustomers. We remain positive about our relative market position and ourproduct delivery plans and we intend to remain focused on executing in theareas we can control by continuing to provide high value products whilemanaging our expenses and headcount growth.

 

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*Operating Overview*

 

Operating highlights ofour third quarter of 2009 include:

 

·                  *Expanded customer relationshipsand acceptance of our product offerings*. We experienced continued demand for both our newestand largest portfolio management and accounting platforms: Advent PortfolioExchange (“APX”) and Geneva. We signed 19 APX contracts, bringing the totalnumber of licenses sold globally to 318, and we added 10 new Geneva clientswhich brings the total number of Geneva licenses sold to 231 as of September 30,2009.

 

·                  *New and incremental bookings*. The term license contracts signed inthe third quarter of 2009 will contribute approximately $6.0 million in annualrevenue (“annual term license contract value” or “ACV”) once they are fullyimplemented.

 

·                  *Launch of Advent Revenue Center3.0*. Weunveiled significant new features to Advent Revenue Center 3.0 which includesrevenue forecasting and revenue sharing functionality.

 

*Divestiture of MicroEdge*

 

On October 1, 2009,we completed the sale of our MicroEdge subsidiary. See Notes 3 and 17 tocondensed consolidated financial statements for a description of the principalterms of the divestiture.

 

In accordance with FASBASC 205-20, “Discontinued Operations”, MicroEdge’s results have beenreclassified as a discontinued operation in the condensed consolidatedstatements of operations for all periods presented. The results of operationsand the related charges for our discontinued operation are classified as “netincome from discontinued operation, net of applicable taxes” in theaccompanying condensed consolidated statements of operations for all periodspresented. In addition, the assets and liabilities of MicroEdge have beenreclassified as assets and liabilities of discontinued operation in the Company’scondensed consolidated balance sheet for all periods presented.

 

Unless noted otherwise,discussions in the notes to the condensed consolidatedfinancial statementspertain to continuing operations.

 

*Financial Overview*

 

The components of revenuefrom continuing operations during the third quarters of 2009 and 2008, andassociated dollar and percentage fluctuations were as follows (in thousands,except % change):

 
| ** **                                                        | ** ** | **Three Months Ended September 30** | ** ** | **$**      | ** ** | **%**      | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                        | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                                                        | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Term  license revenues                                            |       | $                                        | 24,282     |       | $          | 15,359     |       | $ | 8,923 |   | 58 | % |
| Maintenance  revenues                                             |       | 18,703                                   |       | 19,552     |       | (849       | )          | -4 | % |
| Other  recurring revenues                                         |       | 12,361                                   |       | 12,020     |       | 341        |       | 3 | % |
| **Total term license, maintenance and other recurring  revenues** | ** ** | **55,346**                               | ** ** | **46,931** | ** ** | **8,415**  | ** ** | **18** | **%** |
| *Recurring revenue as % of total revenue*                         | * *   | *87*                                     | *%*        | *81*       | *%*        | * *   | * *   | * * | * * |
|                                                              |       |                                     |       |       |       |       |       |   |   |
| Asset  under administration (AUA) fees                            |       | 1,199                                    |       | 1,510      |       | (311       | )          | -21 | % |
| Other  perpetual license fees                                     |       | 1,171                                    |       | 1,658      |       | (487       | )          | -29 | % |
| **Total perpetual license fees**                                  | ** ** | **2,370**                                | ** ** | **3,168**  | ** ** | **(798**   | **)**      | **-25** | **%** |
|                                                              |       |                                     |       |       |       |       |       |   |   |
| **Professional services and other**                               | ** ** | **6,066**                                | ** ** | **8,053**  | ** ** | **(1,987** | **)**      | **-25** | **%** |
|                                                              |       |                                     |       |       |       |       |       |   |   |
| **Total net revenues**                                            | ** ** | **$**                                    | **63,782** | ** ** | **$**      | **58,152** | ** ** | **$** | **5,630** | ** ** | **10** | **%** |

 

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We recognized revenue of$63.8 million from continuing operations during the third quarter of 2009,which represented an increase of 10% over the same quarter of last year. Thisincrease was driven by significant growth in term license revenue as wecontinued to layer in incremental ACV sold in previous periods, and to a lesserextent, revenues from our new research management solution, Tamale RMS, whichwe introduced in the fourth quarter of 2008. Perpetual license fees in thethird quarter of 2009 were down compared to the third quarter of 2008 as we licensedfewer perpetual seats and modules to our existing perpetual client base. We have grown net revenue year-over-yearfor several reasons, including the following:

 

·                  Our existing term licenses andmaintenance revenues provide a consistent, recurring revenue stream.

 

·                  Our product innovation helped driveacquisition of new customers, resulting in incremental term license contractvalue and professional services billings.

 

·                  Our completion of term licenseimplementations resulted in incremental term license revenues.

 

Total recurring revenues,which we define as term license, perpetual maintenance, and other recurringrevenues, increased to 87% of total net revenues during the third quarter of2009, as compared to 81% during the same period of 2008. Term license revenuesincreased 58% in the third quarter of 2009 from the prior year period andrepresented 38% of total net revenues in the third quarter of 2009, as comparedto 26% in the same period in 2008.

 

Totalexpenses from continuing operations, including cost of revenues, were $57.9million in the third quarter of 2009, compared with $55.0 million in the thirdquarter of 2008. Our expenses increased in 2009 from 2008 largely as a resultof increased payroll, variable compensation and benefit expenses resulting fromincreases in headcount primarily from our acquisition of Tamale Software, Inc.on October 1, 2008.

 

Our operating income fromcontinuing operations in the third quarter of 2009 increased to $5.8 million or9% of revenue from $3.2 million or 5% of revenue in the third quarter of 2008which is reflective of revenue growth and our cost reduction initiatives.

 

Our continuing operations’income tax expense was $1.7 million resulting in a 31% effective tax rateduring the third quarter of 2009, compared to $1.2 million or 40%,respectively, in the third quarter of 2008.

 

Net income fromcontinuing operations was $3.9 million, resulting in diluted earnings per shareof $0.15 for the third quarter of 2009, compared to $1.8 million or $0.06 inthe third quarter of 2008.

 

Our continuing operationsgenerated operating cash flow of $51.6 million in the first nine months of2009, which compares to $50.1 million in the first nine months of 2008.

 

*Term License and Term LicenseDeferral*

 

We are substantiallythrough the process of converting the Company’s license revenues from aperpetual model to a predominantly term model. Under a perpetual pricing model, customers purchase a license to useour software indefinitely and generally we recognize all license revenue at thetime of sale; maintenance is purchased under an annual renewable contract, andrecognized ratably over the contract period. Under a term pricing model, customerspurchase a license to use our software and receive maintenance for a limitedperiod of time and we recognize all of the revenue ratably over the length ofthe contract. This had the effect of lowering revenues in the Advent InvestmentManagement (“AIM”) segment in the early stages of the transition, butincreasing the total potential value of the customer relationship. Because ourproducts are used by customers for an average of approximately ten years, webelieve this change to our business model is significant for the long-termgrowth and value of the business as we expect total revenues from a customer toincrease over time. For example, over a ten-year period, a customer may enterinto two or more contracts for the same software product and services under aterm license model.

 

Whena customer purchases a term license together with implementation services, wedo not recognize any revenue under the contract until the implementationservices are complete and the remaining services are substantially complete. Ifthe implementation services are still in progress as of quarter-end, we willdefer all of the contract revenues to a subsequent quarter. At the point professional services aresubstantially completed, we recognize a pro-rata amount of the term licenserevenue, professional services fees earned and related expenses, based on theelapsed time from the start of the term license to the substantial completionof professional services. Term license revenue for the remaining contract yearsand the remaining deferred professional services revenue and related expensesare recognized ratably over the remaining contract length.

 

Nowthat we are substantially complete in our transition, the term licensecomponent of the deferred revenue balance related to implementations in processwill increase or decrease in the future depending on the amount of new termlicense bookings relative to the number of implementations that reachsubstantial completion in a particular quarter. During the first nine months of2009, the revenue recognized from completed implementations exceeded therevenue deferred from projects being implemented by $6.6 million composed of$3.8 million of term license revenue and $2.8 million of professional servicesrevenue. We do not expect this trend of revenue recognition exceeding revenuedeferral to continue. For example, during the first nine months of 2008, therevenue deferred from projects being implemented exceeded the revenuerecognized from completed implementations by $9.0 million composed of $2.7million of term license revenue and $6.3 million of professional servicesrevenue.

 

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Amountsof revenues and directly-related expenses deferred as of September 30,2009 and December 31, 2008 associated with our term licensing deferral wasas follows (in millions):

 
| ** **                 | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|----------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                 | ** ** | **2009**              | ** ** | **2008**             | ** ** |
| Deferred  revenues         | ** ** | ** **            | ** ** | ** **           | ** ** |
| Short-term                 |       | $                     | 18.9       |                 | $          | 26.0 |   |
| Long-term                  |       | 5.3                   |       | 4.8                  |       |
| Total                      |       | $                     | 24.2       |                 | $          | 30.8 |   |
|                       |       |                  |       |                 |       |
| Directly-related  expenses |       |                  |       |                 |       |
| Short-term                 |       | $                     | 5.6        |                 | $          | 8.1 |   |
| Long-term                  |       | 2.7                   |       | 2.1                  |       |
| Total                      |       | $                     | 8.3        |                 | $          | 10.2 |   |

 

Deferrednet revenue and directly-related expenses are classified as “Deferred revenues”(short-term and long-term), and “Prepaid expenses and other,” and “Other assets”respectively, on the condensed consolidated balance sheets.

 

**CriticalAccounting Policies and Estimates**

 

Management’s discussionand analysis of our financial condition and results of operations are based onour condensed consolidated financial statements and related notes, which havebeen prepared in accordance with accounting principles generally accepted inthe United States of America. We review the accounting policies used inreporting our financial results on a regular basis. The preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amounts of assets, liabilities, revenues and expenses, and relateddisclosure of contingent liabilities.

 

On an ongoing basis, weevaluate the process we use to develop estimates. We base our estimates onhistorical experience and on other information that we believe are reasonablefor making judgments at the time they are made. Actual results may differ fromthese estimates due to actual outcomes being different from those on which webased our assumptions.

 

We believe the following accountingpolicies contain the more significant judgments and estimates used in thepreparation of our condensed consolidated financial statements.

 

·                  Revenue recognition and deferredrevenues;

 

·                  Income taxes;

 

·                  Stock-based compensation;

 

·                  Restructuring charges and relatedaccruals;

 

·                  Business combinations;

 

·                  Goodwill;

 

·                  Impairment of long-lived assets;

 

·                  Legal contingencies; and

 

·                  Sales returns and accounts receivableallowances

 

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There have been nosignificant changes in our critical accounting policies and estimates duringthe first nine months of 2009 as compared to the critical accounting policiesand estimates disclosed in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” included in our Annual Report on Form 10-Kfor the year ended December 31, 2008, except for the following:

 

·                  Historically, the Company determined that itsoperations were organized into two reportable segments: 1) Advent InvestmentManagement, and 2) MicroEdge. For the purposes of goodwill impairment testing,we had determined our MicroEdge subsidiary to be one of our three reportingunits as of November 1, 2008.

 

Withthe divestiture of MicroEdge, we now report a single operating segment, AdventInvestment Management, as defined in ASC 280, “*SegmentReporting”*. Additionally, we have determined that the Company will have tworeporting units, US Core Business and International, which comprise our AdventInvestment Management segment, for our upcoming test for goodwill impairmentduring the fourth quarter of 2009. Thus effective November 1, 2009,goodwill impairment testing will be performed on two reporting units inaccordance with ASC 350, “*Goodwill and Other”.*

 

**RecentAccounting Pronouncements**

 

Withthe exception of those discussed below, there have been no recent accountingpronouncements or changes in accounting pronouncements during the nine monthsended September 30, 2009, as compared to the recent accountingpronouncements described in our Annual Report on Form 10-K for the fiscalyear ended December 31, 2008, that are of significance, or potentialsignificance, to the Company.

 

InApril 2009, the Financial Accounting Standards Board (“FASB”) issued FASBAccounting Standards Codification (“ASC”) 820-10-65 (Prior authoritativeliterature: FASB Staff Position (“FSP”) FAS 157-4, “Determining Fair Value Whenthe Volume or Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly”).ASC 820-10-65 provides additional guidance for estimating fair value inaccordance with ASC 820-10-65 when the volume and level of activity for theasset or liability have significantly decreased and requires that companiesprovide interim and annual disclosures of the inputs and valuation technique(s) usedto measure fair value. ASC 820-10-65 is effective for interim and annualreporting periods ending after June 15, 2009 and is to be appliedprospectively. The Company’s adoption of ASC 820-10-65 did not have a materialimpact to the Company’s condensed consolidated financial statements.

 

InApril 2009, the FASB issued ASC 320-10-65 (Prior authoritative literature:FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation ofOther-Than-Temporary Impairments”). ASC 320-10-65 amends the other-than-temporaryimpairment guidance to improve the presentation and disclosure ofother-than-temporary impairments on debt and equity securities in the financialstatements. ASC 320-10-65 is effective for interim and annual reporting periodsending after June 15, 2009. The Company’s adoption of ASC 320-10-65 didnot have a material impact to the Company’s condensed consolidated financialstatements.

 

InApril 2009, the FASB issued ASC 825-10-65 (Prior authoritative literature:FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of FinancialInstruments”). ASC 825-10-65 requires disclosures about fair value of financialinstruments for interim reporting periods of publicly traded companies as wellas in annual financial statements. ASC 825-10-65 is effective for interim andannual reporting periods ending after June 15, 2009. The Company’sadoption of ASC 825-10-65 did not have a material impact to the Company’scondensed consolidated financial statements.

 

InMay 2009, the FASB issued ASC 855 (Prior authoritative literature: SFAS No. 165,“Subsequent Events”), which establishes general standards of accounting for anddisclosure of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued. The provisionsof ASC 855 are effective for interim and annual reporting periods ending after June 15,2009 and are effective for the Company in the second quarter of fiscal 2009.Since ASC 855 only required additional disclosures, adoption of ASC 855 did nothave an impact to the Company’s condensed consolidated financial position,results of operations or cash flows. See Note 17, “Subsequent Events” to ourcondensed consolidated financial statements for our discussion of thesubsequent event that has occurred since the balance sheet date of September 30,2009.

 

InJuly 2009, the FASB issued ASC 105 (Prior authoritative literature: SFAS No. 168,“The FASB Accounting Standards Codification and the Hierarchy of GenerallyAccepted Accounting Principles”). ASC 105 establishes the exclusiveauthoritative reference for U.S. GAAP for use in financial statements, exceptfor SEC rules and interpretive releases, which are also authoritative GAAPfor SEC registrants. The Codification will supersede all existing non-SECaccounting and reporting standards. We have included the references to theCodification, as appropriate, in these condensed consolidated financialstatements.

 

InOctober 2009, the FASB issued ASU 2009-13, Multiple-Deliverable RevenueArrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) (“ASU2009-13”) and ASU 2009-14,  Certain Arrangements That Include SoftwareElements , (amendments to FASB ASC Topic 985,  Software ) (“ASU 2009-14”). ASU2009-13 requires entities to allocate revenue in an arrangement using estimatedselling prices of the delivered goods and services based on a selling pricehierarchy. The amendments eliminate the residual method of revenue allocationand require revenue to be allocated using the relative selling price method. ASU2009-14 removes tangible products from the scope of software revenue guidanceand provides guidance on determining whether software deliverables in anarrangement that includes a tangible product are covered by the scope of thesoftware revenue guidance. ASU 2009-13 and ASU 2009-14 should be appliedon a prospective basis for revenue arrangements entered into or materially modifiedin fiscal years beginning on or after June 15, 2010, with early adoptionpermitted. The Company does not expect adoption of ASU 2009-13 or ASU 2009-14to have a material impact on the Company’s condensed consolidated financialstatements.

 

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**RESULTSOF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008**

# ** **

The following tablesets forth, for the periods indicated, certain financial information as apercentage of total net revenues. The financial information and the ensuingdiscussion should be read in conjunction with the accompanying condensedconsolidated financial statements and notes thereto:

 
| ** **                                             | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                             | ** ** | **2009**                                 | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| **Net revenues:**                                      |       |                                     |       |                                    |       |   |   |   |   |
| Term  license, maintenance and other recurring         |       | 87                                       | %          | 81                                      | %          | 86 | % | 81 | % |
| Perpetual  license fees                                |       | 4                                        |       | 5                                       |       | 4 |   | 7 |   |
| Professional  services and other                       |       | 10                                       |       | 14                                      |       | 10 |   | 13 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Total  net revenues                                    |       | 100                                      |       | 100                                     |       | 100 |   | 100 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| **Cost of revenues:**                                  |       |                                     |       |                                    |       |   |   |   |   |
| Term  license, maintenance and other recurring         |       | 19                                       |       | 19                                      |       | 18 |   | 18 |   |
| Perpetual  license fees                                |       | *                                        |       | *                                       |       | * |   | * |   |
| Professional  services and other                       |       | 12                                       |       | 18                                      |       | 12 |   | 15 |   |
| Amortization  of developed technology                  |       | 2                                        |       | 1                                       |       | 2 |   | 1 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Total  cost of revenues                                |       | 33                                       |       | 38                                      |       | 32 |   | 34 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Gross  margin                                          |       | 67                                       |       | 62                                      |       | 68 |   | 66 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| **Operating expenses:**                                |       |                                     |       |                                    |       |   |   |   |   |
| Sales  and marketing                                   |       | 25                                       |       | 24                                      |       | 24 |   | 25 |   |
| Product  development                                   |       | 19                                       |       | 16                                      |       | 18 |   | 18 |   |
| General  and administrative                            |       | 14                                       |       | 16                                      |       | 13 |   | 15 |   |
| Amortization  of other intangibles                     |       | 1                                        |       | *                                       |       | 1 |   | * |   |
| Restructuring  charges                                 |       | *                                        |       | *                                       |       | * |   | * |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Total  operating expenses                              |       | 58                                       |       | 56                                      |       | 57 |   | 59 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Income  from continuing operations                     |       | 9                                        |       | 5                                       |       | 11 |   | 7 |   |
| Interest  and other income (expense), net              |       | *                                        |       | *                                       |       | 1 |   | 2 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Income  from continuing operations before income taxes |       | 9                                        |       | 5                                       |       | 12 |   | 9 |   |
| Provision  for income taxes                            |       | 3                                        |       | 2                                       |       | 3 |   | 2 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Net  income from continuing operations                 |       | 6                                        |       | 3                                       |       | 9 |   | 7 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| **Discontinued operation:**                            |       |                                     |       |                                    |       |   |   |   |   |
| Net  income from discontinued operation                |       | 1                                        |       | 2                                       |       | 1 |   | 1 |   |
|                                                   |       |                                     |       |                                    |       |   |   |   |   |
| Net  income                                            |       | 7                                        | %          | 5                                       | %          | 10 | % | 7 | % |

 

----

*Lessthan 1%

 

# **NETREVENUES**

 
| ** **                         | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                         | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                         | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  net revenues (in thousands) |       | $                                        | 63,782     |       | $          | 58,152                                  |       | $          | 5,630      |   | $ | 193,175 |   | $ | 171,395 |   | $ | 21,780 |   |
|                                    |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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Our net revenues are made up of threecomponents: term license, maintenance and other recurring revenue; perpetuallicense fees; and professional services and other revenue. Therevenues from a term license, which includes both software license andmaintenance services, are recorded under a time based contract. Maintenance revenues are derived frommaintenance fees charged for perpetual license arrangements and recurringrevenues are derived from our subscription-based or transaction-based services.Perpetual licenserevenues are derived from the licensing of software products under a perpetualarrangement and include Assets Under Administration (“AUA”) fees for certainperpetual arrangements. Professional servicesand other revenues include fees for consulting, fees from training, and projectmanagement services and our client conferences. Sales returns, which we generally do notprovide to customers, are accounted for as deductions to these three revenuecategories based on our historical experience.

 

Priorto fiscal 2006, each of the major revenue categories varied as a percentage ofnet revenues. However, since fiscal 2006, revenues from recurring sources havegrown and conversely revenues from perpetual licenses have decreased asfollows:

 
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **YTD**       | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **September** | ** ** |
| **As a percentage of net revenues**   | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**      | ** ** |
|                                  |       |       |       |       |       |       |       |          |       |
| Revenues  from recurring sources      |       | 77         | %          | 79         | %          | 80         | %          | 86            | %          |
|                                  |       |       |       |       |       |       |       |          |       |
| Revenues  from perpetual license fees |       | 13         | %          | 12         | %          | 7          | %          | 4             | %          |

 

Aswe continue to sign term license agreements for new customers, we expect ourrevenue from recurring sources to continue to represent over 80% of our totalnet revenues.

 

Revenue derived fromsales to the Europe, Middle East and Africa (“EMEA”) region was $7.6 millionand $24.4 million for the three and nine months ended September 30, 2009,respectively, which reflected a decrease of $0.8 million and $1.4 million whencompared to comparable periods in 2008. These decreases are primarily due todeclines in the market values of AUA balances for our EMEA customers and theimpact of changes in foreign exchange rates. We plan to continue expanding ourinternational sales efforts, both in our current markets and elsewhere. Therevenues from customers in any single international country did not exceed 10%of total net revenues.

 

Weexpect that total net revenues from continuing operations, which exclude theresults of MicroEdge, to be between $64 million and $66 million in the fourthquarter of 2009.

 

***Term License, Maintenance and Other Recurring Revenues***

 
| **(in thousands, except percent  of**                         | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| **total net revenues)**                                       | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                                          |       |                                     |       |       |       |                                    |       |       |       |   |   |   |   |
| Term  license revenues                                        |       | $                                        | 24,282     |       | $          | 15,359                                  |       | $          | 8,923      |   | $ | 74,855 |   | $ | 44,809 |   | $ | 30,046 |   |
| Maintenance  revenues                                         |       | 18,703                                   |       | 19,552     |       | (849                                    | )          | 56,196     |       | 58,139 |   | (1,943 | ) |
| Other  recurring revenues                                     |       | 12,361                                   |       | 12,020     |       | 341                                     |       | 35,365     |       | 35,385 |   | (20 | ) |
| Total  term license, maintenance and other recurring revenues |       | $                                        | 55,346     |       | $          | 46,931                                  |       | $          | 8,415      |   | $ | 166,416 |   | $ | 138,333 |   | $ | 28,083 |   |
| Percent  of total net revenues                                |       | 87                                       | %          | 81         | %          |                                    |       | 86         | %          | 81 | % |   |   |

 

Total recurring revenues,which we define as term license, perpetual maintenance, and other recurringrevenues, increased to 87% and 86% of total net revenues during the three andnine months ended September 30, 2009, respectively, as compared to 81%during the same periods of 2008.

 

Theincrease in term license revenues reflected the continued market acceptance ofour Geneva, APX, Partner, Moxy and Tamale products. Revenues from term licenses, which include both thesoftware license and maintenance services for term licenses, grew 58% and67% during the three and nine months ended September 30, 2009,respectively, when compared to the same periods in 2008. Term license revenuesrepresented 44% and 45% of total term license, maintenance and other recurringrevenues during the three and nine months ended September 30, 2009,respectively, compared to 33% and 32% in the comparable periods of 2008. Thegrowth of term license revenues during the three and nine months ended September 30,2009 reflects the continued layering of incremental ACV sold in previousquarters into our term revenue. In addition, in the first nine months of 2009,the revenue recognized from completed implementations exceeded the revenuedeferred from projects being implemented by $3.8 million. The amount of netrevenue recognized from completed implementations was $0.7 million and $3.8million for the three and nine months ended September 30, 2009,respectively. This is in contrast to our historical trend of net revenuedeferral. In the first nine months of 2008, term license revenue deferred fromprojects being implemented exceeded the revenue recognized from completed implementationsby $2.7 million. Revenues from our new research management solution, TamaleRMS, which we introduced in October 2008, also contributed to the growthof our term license revenues for the three and nine months ended September 30,2009.

 

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Theslight fluctuations in other recurring revenues reflected fluctuations intransaction charges and subscription, data management and outsourced services.

 

Maintenancerevenues decreased $0.8 million and $1.9 million during the three and ninemonths ended September 30, 2009, respectively, when compared to the sameperiods in 2008. The decrease in maintenance revenues was attributable toperpetual license customers migrating to term licenses, maintenancede-activations due to customer attrition, and customers downgrading maintenancelevels, partially offset by the impact of price increases. Our renewal rates are based on cashcollections and are disclosed one quarter in arrears. We disclose our renewalrates one quarter in arrears in order to include substantially all paymentsreceived against the invoices for that quarter. We also update our renewalrates from the initially disclosed rates to include all cash collectionssubsequent to the initial disclosure. The following summarizes our initial andupdated renewal rates for the previous five quarters:

 
| **Renewal Rates**                                               | ** ** | **Q309** | ** ** | **Q209** | ** ** | **Q109** | ** ** | **Q408** | ** ** | **Q308** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| *Based on cash collections relative to prior year  collections* | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   |
| * *                                                        | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   |
| Initially  Disclosed Rate (1)                                   |       | 87       | %          | 85       | %          | 93       | %          | 98       | %          | 103      | %          |
| Updated  Disclosed Rate (2)                                     |       | n/a      |       | 87       | %          | 98       | %          | 101      | %          | 109      | %          |

 

----

(1)  “Initially Disclosed Rate” is based on cash collections andreported one quarter in arrears

 

(2)  “Updated Disclosed Rate” reflects initially disclosed rateupdated for subsequent cash collections

 

Weexpect term license, maintenance and other recurring revenues will berelatively flat in the fourth quarter of 2009 compared to the third quarter. Weanticipate additional term license revenue in the fourth quarter of 2009 aspreviously sold term contracts become fully implemented and we expect increasedrecurring revenue from a full quarter’s value of the TIAA-CREF and Fidelitycontracts which both were fully implemented in August 2009. However, wealso anticipate lower perpetual maintenance revenue resulting from clientattrition and migrations to term Geneva or term APX contracts.

 

***PerpetualLicense Fees***

 
| **(in thousands, except percent  of** | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| **total net revenues)**               | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Other  perpetual license fees         |       | $                                        | 1,171      |       | $          | 1,658                                   |       | $          | (487       | ) | $ | 3,581 |   | $ | 6,580 |   | $ | (2,999 | ) |
| AUA  fees                             |       | 1,199                                    |       | 1,510      |       | (311                                    | )          | 4,052      |       | 4,905 |   | (853 | ) |
| ** **                            | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  perpetual license fees         |       | $                                        | 2,370      |       | $          | 3,168                                   |       | $          | (798       | ) | $ | 7,633 |   | $ | 11,485 |   | $ | (3,852 | ) |
| Percent  of total net revenues        |       | 4                                        | %          | 5          | %          |                                    |       | 4          | %          | 7 | % |   |   |

 

Totalperpetual license fees decreased 25% and 34% during the three and nine monthsended September 30, 2009, respectively. As a percentage of total netrevenues, perpetual license fees decreased to 4% in the third quarter of 2009down slightly from 5% in the same period of 2008. Consistent with ourtransition to term licensing, perpetual license fees continue to account for asmaller percentage of total net revenues. Additionally, we licensed fewerperpetual seats and modules to our existing perpetual client base. Incrementalassets under administration fees from perpetual licenses decreased by $0.3million and $0.9 million during the three and nine months ended September 30,2009, respectively, when compared to the same periods in 2008 as clientsexperienced declines in the market value of AUA balances during 2009 due tomarket conditions.

 

Weexpect total perpetual license fee revenues will increase in the fourth quarterof 2009 compared to the third quarter of 2009. We anticipate additional assetsunder administration fee revenue as a result of annual AUA reporting in thefourth quarter.

 

***Professional Services and Other Revenues***

 
| ** **                                               | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Professional  services and other revenues (in thousands) |       | $                                        | 6,066      |       | $          | 8,053                                   |       | $          | (1,987     | ) | $ | 19,126 |   | $ | 21,577 |   | $ | (2,451 | ) |
| Percent  of total net revenues                           |       | 10                                       | %          | 14         | %          |                                    |       | 10         | %          | 13 | % |   |   |
|                                                          |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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Professionalservices and other revenues primarily include consulting, project management,custom integration, and training. Professional services projects related toAxys, Moxy and Partner products generally can be completed in a two- tosix-month time period, while services related to Geneva and APX products mayrequire a four- to nine-month implementation period.

 

Wedefer professional services revenue for services performed on term licenseimplementations that are not considered substantially complete. Service revenueis deferred until the implementation is complete and remaining services aresubstantially completed. Upon substantial completion, we recognize a pro-rataamount of professional servicesfees earned based on the elapsed time from the start of the term license to thesubstantial completion of professional services. The remaining deferredprofessional services revenue is recognized ratably over the remaining contractlength.

 

Professionalservices and other revenues fluctuated due to the following (in thousands):

 
| ** **                                          | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|-----------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                          | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                                          | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                                |       |             |       |             |       |
| Decreased  consulting services                      |       | $                | (2,667     | )                | $          | (6,350 | ) |
| Decreased  conference                               |       | (1,614           | )          | (1,785           | )          |
| Decreased  reimbursable travel revenue              |       | (544             | )          | (1,268           | )          |
| Decreased  project management                       |       | (488             | )          | (903             | )          |
| Decreased  custom reports                           |       | (347             | )          | (834             | )          |
| Decreased  net term license implementation deferral |       | 3,670            |       | 9,093            |       |
| Various  other items                                |       | 3                |       | (404             | )          |
|                                                |       |             |       |             |       |
| Total  change                                       |       | $                | (1,987     | )                | $          | (2,451 | ) |

 

Total professionalservices and other revenues decreased 25% and 11% during the three and ninemonths ended September 30, 2009, respectively. Revenues from consultingservices decreased during the three and nine months ended September 30,2009 due to lower utilization of our consultants resulting from a decrease indemand for consulting services. Conference revenues also declined as we did nothold our annual client conference in 2009. This decrease was partially offsetby the recognition of net professional services revenue related to thecompletion of term license implementations during the three and nine monthsended September 30, 2009. During the first nine months of 2009, moreprofessional service implementation projects reached substantial completionthan the comparable period of 2008. As a result, we deferred less professionalservices revenues for services performed on term license implementations whichresulted in the increase in revenues during the 2009 periods.

 

***Revenues by Segment***

 

On October 1, 2009,Advent completed the sale of its MicroEdge subsidiary. Accordingly,the results of MicroEdge have been classified as a discontinued operation inthe condensed consolidated statements of operations for all periods presented.Following the divestiture, the Company operates under one reportable segment.See Note 3, “Divestiture”, and Note 17, “Subsequent Events”, to the condensedconsolidated financial statements for further discussion.

 

### **COST OF REVENUES**

 
| ** **                             | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                             | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                             | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  cost of revenues (in thousands) |       | $                                        | 21,029     |       | $          | 22,265                                  |       | $          | (1,236     | ) | $ | 62,319 |   | $ | 58,969 |   | $ | 3,350 |   |
| Percent  of total net revenues         |       | 33                                       | %          | 38         | %          |                                    |       | 32         | %          | 34 | % |   |   |
|                                        |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Ourcost of revenues is made up of four components: cost of term license,maintenance and other recurring; cost of perpetual license fees; cost ofprofessional services and other; and amortization of developed technology. Thechange in total cost of revenues in absolute dollars for the three and ninemonths ended September 30, 2009 was due principally to the cancelation ofour 2009 annual client conference which is typically held in the third quarter,partially offset by an increase in costs related to headcount additionsassociated with our acquisition of Tamale in October 2008. Cost of revenues as a percent of totalnet revenues decreased for the three and nine months ending September 30,2009 resulting principally from the recognition of term license andprofessional services revenue from several projects that reached substantialcompletion during the first nine months of 2009. We defer revenues and directcosts associated with services performed on term license implementations.Indirect costs such as management and other overhead expenses are recognized inthe period in which they are incurred.

 

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***Cost of Term License, Maintenance and Other Recurring***

 
| ** **                                                              | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                                              | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Cost  of term license, maintenance and other recurring (in thousands)   |       | $                                        | 11,920     |       | $          | 11,095                                  |       | $          | 825        |   | $ | 34,729 |   | $ | 31,581 |   | $ | 3,148 |   |
| Percent  of total term license, maintenance and other recurring revenue |       | 22                                       | %          | 24         | %          |                                    |       | 21         | %          | 23 | % |   |   |
|                                                                         |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Costof term license fees consists primarily of royalties and other fees paid tothird parties, the fixed direct labor involved in producing and distributingour software, and cost of product media including duplication, manuals andpackaging materials. Cost of maintenance and other recurring revenues isprimarily comprised of the direct costs of providing technical support undermaintenance agreements and other services for recurring revenues and royaltiespaid to third party subscription-based and transaction-based vendors.

 

Costof term license, maintenance and other recurring fluctuated due to thefollowing (in thousands):

 
| ** **                           | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|--------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                           | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                           | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                 |       |             |       |             |       |
| Increased  payroll and related costs |       | $                | 1,484      |             | $          | 3,910 |   |
| Increased  computers and telecom     |       | 180              |       | 392              |       |
| Decreased  royalty                   |       | (472             | )          | (687             | )          |
| Decreased  outside services          |       | (90              | )          | (237             | )          |
| Various  other items                 |       | (277             | )          | (230             | )          |
| Total  change                        |       | $                | 825        |             | $          | 3,148 |   |

 

Theincreases in absolute dollars for the three and nine months ended September 30,2009 were due primarily to an increase in compensation and related costsresulting from increases in salary costs as we added headcount of 21 from theacquisition of Tamale in October 2008. This increase was partially offsetby decreases to royalty expenses resulting from the cessation of royaltycontracts with certain software vendors.

 

Weexpect cost of term license, maintenance and other recurring revenue in thefourth quarter of 2009 to be relatively flat when compared to the third quarterof 2009.

 

***Cost of Perpetual License Fees***

*** ***
| ** **                                     | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                     | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                           |       |                                     |       |       |       |                                    |       |       |       |   |   |   |   |
| Cost  of perpetual license fees (in thousands) |       | $                                        | 65         |       | $          | 142                                     |       | $          | (77        | ) | $ | 255 |   | $ | 368 |   | $ | (113 | ) |
| Percent  of total perpetual license revenues   |       | 3                                        | %          | 4          | %          |                                    |       | 3          | %          | 3 | % |   |   |
|                                                |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

*** ***

Costof perpetual license fees consists primarily of royalties and other fees paidto third parties, the fixed direct labor involved in producing and distributingour software, and cost of product media including duplication, manuals andpackaging materials. The cost of perpetual license fees for the three and ninemonths ended September 30, 2009 decreased by $0.1 million and $0.1million, respectively, compared with the same period in 2008 as a result of areduction in payroll and related expenses due to a decline in headcount andproduct media costs as we continue to transition away from perpetual licensing.

 

***Cost of Professional Services and Other***

 
| ** **                                                 | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Cost  of professional services and other (in thousands)    |       | $                                        | 7,628      |       | $          | 10,453                                  |       | $          | (2,825     | ) | $ | 23,190 |   | $ | 25,339 |   | $ | (2,149 | ) |
| Percent  of total professional services and other revenues |       | 126                                      | %          | 130        | %          |                                    |       | 121        | %          | 117 | % |   |   |
|                                                            |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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Costof professional services and other revenue consists primarily of personnelrelated costs associated with the client services organization in providingconsulting, custom report writing and conversions of data from clients’previous systems. Also included are direct costs associated with third-partyconsultants and travel expenses. Also, we defer direct professional servicescosts until we have completed the term license implementation services.

 

Costof professional services and other fluctuated due to the following (inthousands):

 
| ** **                                                           | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|----------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                           | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                                                           | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                                                 |       |             |       |             |       |
| Decreased  outside services                                          |       | $                | (2,531     | )                | $          | (3,123 | ) |
| Decreased  travel and entertainment                                  |       | (837             | )          | (1,719           | )          |
| Decreased  payroll and related costs                                 |       | (1,035           | )          | (598             | )          |
| Decreased  recruiting                                                |       | (66              | )          | (246             | )          |
| Decreased  net service cost deferral related to term implementations |       | 1,620            |       | 4,020            |       |
| Various  other items                                                 |       | 24               |       | (483             | )          |
| Total  change                                                        |       | $                | (2,825     | )                | $          | (2,149 | ) |

 

Thedecrease in total dollars of professional services and other expense during thethree and nine months ended September 30, 2009 reflects cost decreases intravel and entertainment, outside services, and recruiting resulting from lessprofessional service activity and lower utilization of consulting employees. Inaddition, the decrease of professional services and other expense reflects decreasesin payroll and related costs associated with the redeployment of consultingemployees to other areas of our business during the three, and to a lesserextent, nine months ended September 30, 2009.

 

Thesedecreases in costs were partially offset by increased costs related to lesscost deferral associated with our term implementations. We defer direct costs associated withservices performed on term license implementations until a project reachessubstantial completion. During the first nine months of 2009, severalprofessional service implementation projects reached substantial completionresulting in the recognition of revenue and costs. We recognized netprofessional service costs of $0.8 million and $1.4 million during the threeand nine months ended September 30, 2009, compared to a deferral of netprofessional service costs of $0.8 million and $2.6 million for the sameperiods in 2008. As a result, less cost deferral from our term implementationsresulted in cost increases of $1.6 million and $4.0 million in costs for thethree and nine months ended September 30, 2009.

 

***Amortization of Developed Technology***

 
| ** **                                          | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                          | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Amortization  of developed techology (in thousands) |       | $                                        | 1,416      |       | $          | 575                                     |       | $          | 841        |   | $ | 4,145 |   | $ | 1,681 |   | $ | 2,464 |   |
| Percent  of total net revenues                      |       | 2                                        | %          | 1          | %          |                                    |       | 2          | %          | 1 | % |   |   |
|                                                     |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

 

Amortizationof developed technology represents amortization of acquisition-relatedintangible assets and of capitalized software development costs previouslycapitalized under ASC 985. The increase during the three and nine months ended September 30,2009 reflects increased amortization from technology-related intangible assetsassociated with Tamale which we acquired in October 2008, and additionalamortization from software development costs capitalized during 2009.

### ** **

### **OPERATING EXPENSES**

 

***Sales and Marketing***

 
| ** **                          | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                          | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales  and marketing (in thousands) |       | $                                        | 15,627     |       | $          | 14,142                                  |       | $          | 1,485      |   | $ | 46,538 |   | $ | 42,291 |   | $ | 4,247 |   |
| Percent  of total net revenues      |       | 25                                       | %          | 24         | %          |                                    |       | 24         | %          | 25 | % |   |   |
|                                     |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Salesand marketing expenses consist primarily of the costs of personnel involved inthe sales and marketing process, sales commissions, advertising and promotionalmaterials, sales facilities expense, trade shows, and seminars.

 

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Salesand marketing expenses increased in dollar amount due to the following (inthousands):

 
| ** **                           | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|--------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                           | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                           | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                 |       |             |       |             |       |
| Increased  payroll and related costs |       | $                | 2,209      |             | $          | 6,128 |   |
| Decreased  travel and entertainment  |       | (562             | )          | (1,429           | )          |
| Decreased  advertising               |       | (62              | )          | (291             | )          |
| Various  other items                 |       | (100             | )          | (161             | )          |
| Total  change                        |       | $                | 1,485      |             | $          | 4,247 |   |

 

Theincrease in expense in absolute dollars for the three and nine months ended September 30,2009 reflected the growth of payroll related costs, while the decrease ofexpense as a percentage of revenue during the nine months ended September 30,2009 reflected revenue growing at a higher rate as we implemented programs to control operating costs in2009. The increase in payroll related costs was due principally to an increasein salary costs as headcount grew to 180 at September 30, 2009 from 165 atSeptember 30, 2008 primarily resulting from the acquisition of Tamale in October 2008.The decreases in travel and entertainment costs and advertising costs were due to the impact of cost controlmeasures implemented in 2009.

 

Weexpect sales and marketing expenses to increase in the fourth quarter of 2009relative to the third quarter of 2009 due to increased marketing spending andvariable compensation.

 

***Product Development***

 
| ** **                          | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                |       |                                     |       |       |       |                                    |       |       |       |   |   |   |   |
| Product  development (in thousands) |       | $                                        | 12,179     |       | $          | 9,357                                   |       | $          | 2,822      |   | $ | 35,528 |   | $ | 31,317 |   | $ | 4,211 |   |
| Percent  of total net revenues      |       | 19                                       | %          | 16         | %          |                                    |       | 18         | %          | 18 | % |   |   |
|                                     |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Productdevelopment expenses consist primarily of salary and benefits for ourdevelopment staff as well as contractors’ fees and other costs associated withthe enhancements of existing products and services and development of newproducts and services.

 

Productdevelopment expenses fluctuated due to the following (in thousands):

 
| ** **                                                   | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                   | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                                                   | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                                         |       |             |       |             |       |
| Increased  payroll and related costs                         |       | $                | 2,230      |             | $          | 5,608 |   |
| Decreased  (increased) capitalization of product development |       | 520              |       | (359             | )          |
| Increased  (decreased) outside services                      |       | 52               |       | (801             | )          |
| Various  other items                                         |       | 20               |       | (237             | )          |
| Total  change                                                |       | $                | 2,822      |             | $          | 4,211 |   |

 

The increase in totalproduct development expenses for the three and nine months ended September 30,2009 reflects increases in payroll related costs during the three and ninemonths ended September 30, 2009 that are a result of an increase inheadcount attributable to our acquisition of Tamale Software, as well asincreases in headcount to help continue the enhancement of our existing productsuite including new versions of Geneva, APX, Moxy, Advent Rules Manager,Advent Revenue Center and Tamale RMS. The fluctuations in the capitalization ofour product development costs is attributable to the timing of product releasesduring the three and nine months ended September 30, 2009 as wecapitalized $0.8 million and $2.1 million, respectively, associated with Geneva7.7, Revenue Center 3.0, Rules Manager 1.6, Partner 7.2 and APX 3.0 during2009 as compared with $1.4 million and $1.8 million of costs in comparableperiods of 2008 associated with Partner 7.0 and Geneva 7.5. During the firstnine months of  2008, we utilized an outsideservice provider to assist in the development of our Geneva product which wedid not utilize during 2009, thus resulting in the outside service costdecrease of $0.8 million during the nine months ended September 30, 2009.

 

***General and Administrative***

 
| ** **                                 | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                 | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                                 | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| General  and administrative (in thousands) |       | $                                        | 8,636      |       | $          | 9,029                                   |       | $          | (393       | ) | $ | 25,932 |   | $ | 26,216 |   | $ | (284 | ) |
| Percent  of total net revenues             |       | 14                                       | %          | 16         | %          |                                    |       | 13         | %          | 15 | % |   |   |
|                                            |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Generaland administrative expenses consist primarily of personnel costs forinformation technology, finance, administration, human resources, operationsand general management, as well as legal and accounting expenses.

 

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Generaland administrative expenses fluctuated due to the following (in thousands):

 
| ** **                           | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|--------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                           | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                           | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                 |       |             |       |             |       |
| Decreased  severance costs           |       | $                | (1,086     | )                | $          | (1,401 | ) |
| Decreased  legal and professional    |       | (253             | )          | (968             | )          |
| Increased  payroll and related costs |       | 984              |       | 1,851            |       |
| Various  other items                 |       | (38              | )          | 234              |       |
| Total  change                        |       | $                | (393       | )                | $          | (284 | ) |

 

Thedecrease in total general and administrative expenses during the three and ninemonths ended September 30, 2009 primarily reflects lower severance costsas we incurred severance costs associated with our former Chief FinancialOfficer during the third quarter of 2008. Additionally, we incurred lower legaland professional fees as a result of the reduction in external accounting fees.These decreases were partially offset by higher payroll and related costsduring the three and nine months ended September 30, 2009 due to headcountadditions as a result of our Tamale acquisition in October 2008.

 

Weexpect general and administrative expenses to be up slightly in the fourthquarter of 2009 relative to the third quarter due to increased facilities costsin New York City. As we signed a new lease agreement on September 30, 2009to consolidate our facilities in New York City, we expect to incur rent expensecosts at both the current and new facilities in New York City through thesecond quarter of 2010.

 

***Amortization of Other Intangibles***

 
| ** **                                        | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                        | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Amortization  of other intangibles (in thousands) |       | $                                        | 438        |       | $          | 134                                     |       | $          | 304        |   | $ | 1,315 |   | $ | 721 |   | $ | 594 |   |
| Percent  of total net revenues                    |       | 1                                        | %          | 0          | %          |                                    |       | 1          | %          | 0 | % |   |   |
|                                                   |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Amortizationof other intangibles represents amortization of non-technology relatedintangible assets. Theincrease during 2009 reflected increased amortization from intangible assetsassociated with Tamale Software which we acquired in October 2008,partially offset by less amortization from assets from prior acquisitionsbecoming fully amortized during 2008.

 

***Restructuring Charges***

 
| ** **                            | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                  |       |                                     |       |       |       |                                    |       |       |       |   |   |   |   |
| Restructuring  charges (in thousands) |       | $                                        | 36         |       | $          | 41                                      |       | $          | (5         | ) | $ | 92 |   | $ | 96 |   | $ | (4 | ) |
| Percent  of total net revenues        |       | 0                                        | %          | 0          | %          |                                    |       | 0          | %          | 0 | % |   |   |
|                                       |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

##### ***During the ninemonths ended September 30, 2009 and 2008, we recorded restructuringcharges of $92,000 and $96,000, respectively, which related to the presentvalue amortization of facility exit obligations partially offset by adjustmentsto facility exit assumptions.***

 

Foradditional analysis of the components of the payments and charges made againstthe restructuring accrual during the first nine months of 2009, see Note 10, “RestructuringCharges” to our condensed consolidated financial statements.

 

### ***Interest and Other Income(Expense), Net***

 
| ** **                                               | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Interest  and other income (expense), net (in thousands) |       | $                                        | (194       | )          | $          | (154                                    | )          | $          | (40        | ) | $ | 1,585 |   | $ | 3,633 |   | $ | (2,048 | ) |
| Percent  of total net revenues                           |       | 0                                        | %          | 0          | %          |                                    |       | 1          | %          | 2 | % |   |   |
|                                                          |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Interestand other income (expense), net consists of interest expense and income,realized gains and losses on investments and foreign currency gains and losses.

 

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Interestand other income (expense), net fluctuated due to the following (in thousands):

 
| ** **                                            | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|-------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                            | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                                            | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                                  |       |             |       |             |       |
| Decreased  gain on sale of private equity investments |       | $                | —     |             | $          | (1,335 | ) |
| Decreased  interest income                            |       | (239             | )          | (786             | )          |
| (Increased)  decreased interest expense               |       | 38               |       | (40              | )          |
| Various  other items                                  |       | 161              |       | 113              |       |
| Total  change                                         |       | $                | (40        | )                | $          | (2,048 | ) |

 

In April 2008, wereceived the initial deferred contingent payment of $3.4 million as a result ofthe Company’s sale of its ownership in LatentZero Limited (“LatentZero”) toroyalblue group plc. in April 2007. In April 2009, the Companyreceived the second and final deferred contingent payment of $2.1 millionrelated to the sale of its ownership in LatentZero resulting in the $1.3million decrease in gain on sale of private equity investments during the ninemonths ended September 30, 2009.

 

Thedecreases in interest income for the three and nine months ended September 30,2009 were attributable to lower interest rates during 2009.

 

### ***Provisionfor Income Taxes***

 
| ** **                                 | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                 | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Provision  for income taxes (in thousands) |       | $                                        | 1,741      |       | $          | 1,207                                   |       | $          | 534        |   | $ | 6,612 |   | $ | 3,738 |   | $ | 2,874 |   |
| Effective  tax rate                        |       | 31                                       | %          | 40         | %          |                                    |       | 29         | %          | 24 | % |   |   |
|                                            |            |                                          |            |            |            |                                         |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Thedecrease in the effective tax rate during the third quarter of 2009 compared tothe third quarter of 2008 primarily reflects the impact of the suspension ofthe Federal research credit during 2008. The increase in the effective tax ratefor the nine months ended September 30, 2009 over the same period of 2008primarily is due to the recognition of fewer discrete tax benefits as apercentage of book income in 2009 compared to 2008.  We recognized a significant amount ofenterprise zone credits during the nine months ended September 30, 2008.

 

We currently expect anannual effective tax rate for 2009 between 30% and 35%. Our expectation isbased on a projected fiscal 2009 effective tax rate of 36%, adjusted fordiscrete tax benefits for tax deductions due to disqualifying dispositions ofincentive stock options and employee stock purchase plan shares, and therelease of the valuation allowance against certain capital loss carryoversrecognized in the second quarter.

 

***Discontinued Operation***

 
| ** **                                                                                                       | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                                                                                       | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **Change**                              | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                                                                                             |       |                                     |       |       |       |                                    |       |       |       |   |   |   |   |
| Net  revenues                                                                                                    |       | $                                        | 5,934      |       | $          | 6,768                                   |       | $          | (834       | ) | $ | 18,859 |   | $ | 19,025 |   | $ | (166 | ) |
|                                                                                                             |       |                                     |       |       |       |                                    |       |       |       |   |   |   |   |
| Net  income from discontinued operation (net of applicable taxes of $223, $640, $1,409,  and $695, respectively) |       | $                                        | 770        |       | $          | 889                                     |       | $          | (119       | ) | $ | 2,499 |   | $ | 1,022 |   | $ | 1,477 |   |

 

 

Revenues from ourdiscontinued operation, MicroEdge, decreased by $0.8 million and $0.2 millionduring the three and nine months ended September 30, 2009, respectively.These decreases primarily reflected a decrease in perpetual license sales inMicroEdge’s core product, GIFTS, partially offset by an increase in maintenancerevenues due to price increases and continued strong customer retention.

 

The increase in netincome of $1.5 million for the nine months ended September 30, 2009reflected a decrease in total operating expenses of $1.6 million resulting fromour restructuring initiatives we implemented in the fourth quarter of 2008. Thedecrease in net income for the three months ended September 30, 2009reflected revenue decreasing at a greater rate than operating expenses duringthe period.

 

In connection with thesale of MicroEdge which closed on October 1, 2009, a gain on sale ofdiscontinued operation will be recorded during the fourth quarter of 2009. Aswe have not yet completed the final analyses of the asset, liability and othercomprehensive loss amounts as well as the effective tax rate, we are unable toestimate the gain amount as of the date of this filing. Additionally, wecurrently estimate that restructuring costs, consisting primarily of facilityexit costs related to leased property located at 619 West 54th Street in NewYork City, will be approximately $4 million and will be recorded in “net incomefrom discontinued operation, net of applicable taxes” in our consolidatedstatement of operations for the fourth quarter of 2009 .

 

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### **LIQUIDITYAND CAPITAL RESOURCES**

 

Ouraggregate cash and cash equivalents from continuing operations were $69.2million at September 30, 2009, compared with $45.1 million at December 31,2008. Cash equivalents are comprised of highly liquid investments purchasedwith an original or remaining maturity of 90 days or less at the date ofpurchase.

 

Thetable below, for the periods indicated, provides selected cash flow information(in thousands):

 
| ** **                                                             | ** ** | **Nine Months Ended September 30** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                             | ** ** | **2009**                           | ** ** | **2008** | ** ** |
|                                                                   |       |                               |       |   |   |
| Net  cash provided by operating activities from continuing operations  |       | $                                  | 51,577     |   | $ | 50,097 |   |
| Net  cash used in investing activities from continuing operations      |       | $                                  | (1,233     | ) | $ | (16,892 | ) |
| Net  cash used in financing activities from continuing operations      |       | $                                  | (32,340    | ) | $ | (9,564 | ) |
| Net  cash provided by operating activities from discontinued operation |       | $                                  | 4,283      |   | $ | 4,069 |   |
| Net  cash used in investing activities from discontinued operation     |       | $                                  | (715       | ) | $ | (1,048 | ) |

 

***Cash Flows from Operating Activities for Continuing Operations***

 

Ourcash flows from operating activities represent the most significant source offunding for our operations. The major uses of our operating cash includefunding payroll (salaries, commissions, bonuses and benefits), generaloperating expenses (marketing, travel, computer and telecommunications, legaland professional expenses, and office rent) and cost of revenues. Our cashprovided by operating activities generally follows the trend in our netrevenues and operating results.

 

Ourcash provided by operating activities from continuing operations of $51.6million during the nine months ended September 30, 2009 was primarily theresult of our net income and non-cash charges including stock-basedcompensation and depreciation and amortization, partially offset by a gain fromour equity investment activity. Cash flows resulting from changes in assets andliabilities included decreases in accounts receivable, prepaid and other assetsand deferred revenues. The decrease in accounts receivable primarily reflectedan improvement in collections during the first nine months of 2009 of invoicesbilled in our previous fourth quarter. Days’ sales outstanding were 62, 60 and55 days during the first, second and third quarters of 2009, respectively,compared to 67, 60 and 70 days during the first, second and third quarters of2008. The decrease in deferred revenue reflected the recognition of revenue asseveral term license implementation projects reached substantial completionduring the first nine months of 2009 and lower level of bookings.

 

Our cash provided by operating activities from continuing operationsof $50.1 millionduring the nine months ended September 30, 2008 was primarily the resultof our net income and non-cash charges including stock-based compensation anddepreciation and amortization, partially offset by a gain from our equityinvestment activity. Cash flows resulting from changes in assets andliabilities included increases in deferred revenue and accounts payable. Theincrease in deferred revenue primarily reflected our continued transition tothe term license model. Under the term model, we generally bill and collect fora term agreement in equal installments in advance of each annual period. Theseamounts are deferred at billing and recognized over the annual term period.This has the effect of increasing deferred revenue when compared to a perpetuallicense model where no license revenue is deferred. Other changes in assets andliabilities included a decrease in accrued liabilities. The decrease in accruedliabilities reflected cash payments of fiscal 2007 liabilities includingyear-end payables and bonuses, commissions and payroll taxes.

 

Weexpect that cash provided by operating activities may fluctuate in futureperiods as a result of a number of factors including fluctuations in our netrevenues and operating results, new term license bookings that increasedeferred revenues, collection of accounts receivable, and timing of payments.

 

***Cash Flows from Investing Activities for Continuing Operations***

 

Net cash used ininvesting activities from continuing operations of $1.2 million for the nine months endedSeptember 30, 2009 reflects capital expenditures of $2.9 million primarilyrelated to the purchase of external software and capitalization of costsassociated with internal use software, and capitalized software developmentcosts of $2.0 million. These expenditures were partially offset by the receiptof $2.1 million for the final deferred contingent consideration from the saleof our ownership interest in LatentZero and a decrease in our restricted cashbalance of $1.5 million due to the reduction in the letter of credit associatedwith the lease of our San Francisco headquarters.

 

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Net cash used in investing activities fromcontinuing operations of $16.9 million for the nine months ended September 30,2008 reflects capital expenditures of $17.4 million primarily related to thebuild-out of additional space at our San Francisco headquarters facility,capitalized software development costs of $1.6 million, an initial payment of$1.0 million to acquire Tamale Software, Inc. and change in restrictedcash of $0.2 million, partially offset by the receipt of $3.4 million for theinitial deferred contingent consideration from the sale of our ownershipinterest in LatentZero.

 

***Cash Flows from Financing Activities for Continuing Operations***

 

Net cash used infinancing activities from continuing operations of $32.3 million for the nine monthsended September 30, 2009 reflected the repurchase of 690,000 shares of ourcommon stock for $14.6 million, repayment of $25.0 million on our creditfacility, and payments totaling $2.0 million to satisfy withholding taxes onequity awards that are net share settled. This was partially offset bycash received from the exercise of employee stock options of $6.3 million andproceeds of $2.9 million from the issuance of common stock under the Company’semployee stock purchase plan.

 

Net cash used infinancing activities from continuing operations of $9.6 million for the nine months endedSeptember 30, 2008 reflected the repurchase of 360,000 shares of ourcommon stock for $15.0 million, proceeds of $2.6 million from the issuance ofcommon stock under the employee stock purchase plan and $4.9 million receivedfrom the exercise of employee stock options, partially offset by paymentstotaling $2.0 million to satisfy withholding taxes on net share settled equityawards.

 

***Cash Flows from Operating Activities for Discontinued Operation***

 

Our cash provided by operating activitiesfrom discontinued operation of $4.3 million during the nine months ended September 30,2009 was primarily the result of our net income and non-cash charges includingstock-based compensation and depreciation and amortization. Cash flowsresulting from changes in assets and liabilities included decreases in accountsreceivable, prepaid and other assets, accounts payable, accrued liabilities anddeferred revenues. The decrease in accounts receivable primarily reflected animprovement in collections during the first nine months of 2009 of invoicesbilled in our previous fourth quarter. Days’ sales outstanding were 51, 55 and51 days during the first, second and third quarters of 2009, respectively,compared to 52, 52 and 52 days during the first, second and third quarters of2008. The decrease inaccounts payable and accrued liabilities reflected cash payments of fiscal 2008liabilities including year-end payables and bonuses, commissions and payrolltaxes. The decrease in deferred revenue reflected the recognition of revenueand lower level of bookings during the nine months ended September 30,2009.

 

Our cash provided by operating activitiesfrom discontinued operation of $4.1 million during the nine months ended September 30,2008 was primarily the result of our net income and non-cash charges includingstock-based compensation and depreciation and amortization. Cash flowsresulting from changes in assets and liabilities included a decrease inaccounts payable and an increase in deferred revenue. The decrease in accounts payablereflected cash payments of fiscal 2007 liabilities including year-end payablesand bonuses, commissions and payroll taxes. The increase in deferredrevenue reflected increased level of bookings during the nine months ended September 30,2008.

 

***Cash Flows from Investing Activities for Discontinued Operation***

 

Net cash used in investing activities fromdiscontinued operation of $0.7 million for the nine months ended September 30,2009 reflects capital expenditures of $0.6 million primarily related to thepurchase of computer equipment and capitalization of costs associated with internaluse software, and capitalized software development costs of $0.1million.

 

Net cash used in investing activities fromdiscontinued operation of $1.0 million for the nine months ended September 30,2008 reflects capital expenditures of $1.0 million primarily related to thepurchase of computer equipment and software, and capitalized softwaredevelopment costs of $0.1 million.

 

Ourliquidity and capital resources in any period could be affected by the exerciseof outstanding employee stock options and SARs, and issuance of common stockunder our employee stock purchase plan. The resulting increase in the number of outstandingshares from this and from the issuance of common stock from our RSUs could alsoaffect our per share results of operations. However, we cannot predict thetiming or amount of proceeds from the exercise of these securities, or whetherthey will be exercised at all.

 

AtSeptember 30, 2009, we had negative working capital of $(29.1) million,compared to negative working capital of $(43.4) million at December 31,2008. Our negative working capital is due to our common stock repurchases,totaling $14.6 million and $61.6 million during the nine months ended September 30,2009 and fiscal 2008, respectively, and our deferred revenue balance, primarilyresulting from our transition to a predominantly term pricing model. We repaid$25.0 million on our credit facility in the first nine months of 2009 and paid$27.8 million in cash to acquire Tamale Software, Inc. in 2008.  Excluding deferred revenues and deferredtaxes, we had working capital of $84.8 million at September 30, 2009,compared to $79.3 million at December 31, 2008.

 

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On October 1, 2009,we completed the sale of our MicroEdge subsidiary. See Note 3, “Divestiture”,and Note 17, “Subsequent Events”, to the condensed consolidated financial statements.The total consideration received by the Company in connection with thedivestiture was approximately $30 million in cash, of which $27 million in cashwas paid on the closing date. The remaining $3 million of the Purchase Pricehas been placed in escrow for eighteen (18) months following the close to beheld as security for losses incurred by the Purchaser in the event of certainbreaches of the representations and warranties contained in the Agreement orcertain other events.

 

***Credit Facility***

 

In February 2007,Advent Software, Inc. and certain of our domestic subsidiaries enteredinto a senior secured credit facility agreement (the “Credit Facility”) withWells Fargo Foothill, Inc. (the “Lender”). Under the Credit Facility, theLender will provide the Company with a revolving line of credit up to anaggregate amount of $75 million, subject to a borrowing base formula, toprovide backup liquidity for general corporate purposes, including stockrepurchases, or investment opportunities for a period of three years. Thecredit facility will expire in February 2010. As of September 30,2009, there was nooutstanding balance under the Credit Facility and the Company was in compliancewith all associated covenants.

 

***Common Stock Repurchases***

 

On October 30, 2008,our Board authorized the repurchase of up to 3.0 million shares of the Company’scommon stock. During the nine months ended September 30, 2009, the Companyrepurchased 690,000 shares of its common stock at a cost of $14.6 million. At September 30,2009, there remained approximately 1.0 million shares authorized by the Boardfor repurchase.

 

We expect that for thenext year, our operating expenses will continue to constitute a significant useof cash flow. In addition, we may use cash to fund acquisitions, repurchaseadditional common stock, or invest in other businesses, when opportunitiesarise. We believe that our cash and cash equivalents, and cash generated fromcontinuing operations will be sufficient to satisfy our working capital needs,capital expenditures, investment requirements, stock repurchases and financingactivities for the next year. However, if we identify opportunities that exceedour current expectation, we may choose to seek additional capital resourcesthrough equity or debt financing. Such financing may not be available at all,or if available may not be obtainable on terms favorable to us and could bedilutive to stockholders.

 

**Off-BalanceSheet Arrangements and Contractual Obligations**

 

Thefollowing table summarizes our contractual cash obligations, excluding cashobligations for MicroEdge, as of September 30, 2009 (in thousands):

 
| ** **                                                | ** ** | **Three**            | ** **  | ** **                       | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** **     | ** ** | ** ** | ** **  |
|-----------------------------------------------------------|------------|----------------------|-------------|----------------------------------|------------|-------------|------------|------------|-------------|------------|------------|----------------|------------|------------|-------------|
| ** **                                                | ** ** | **Months Ended**     | ** **  | ** **                       | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** **     | ** ** | ** ** | ** **  |
| ** **                                                | ** ** | **December 31** | ** **  | **Years Ended December 31** | ** ** | ** **  | ** ** | ** ** | ** **  |
| ** **                                                | ** ** | **2009**             | ** **  | **2010**                         | ** ** | **2011**    | ** ** | **2012**   | ** **  | **2013**   | ** ** | **Thereafter** | ** ** | **Total**  | ** **  |
| Operating  lease obligations,****net of  sub-lease income | ** ** | $                    |  1,749 | ** **                       | $          |  7,276 | ** ** | $          |  7,091 | ** ** | $          |  6,252    | ** ** | $          |  5,617 | ** ** | $ |  35,290 | ** ** | $ |  63,275 | ** ** |
|                                                           |            |                      |             |                                  |            |             |            |            |             |            |            |                |            |            |             |  |  |  |  |  |  |  |

 

As of September 30,2009, our discontinued operation, MicroEdge, had operating lease commitmentstotaling $10.5 million, less sublease income of $0.2 million, under variouslease agreements through 2018 which are not reflected in the above table. On October 1,2009, we completed the sale of our MicroEdge subsidiary. See Notes 3 and 17 tothe condensed consolidated financial statements for a description of theprincipal terms of the divestiture. With the exception of the MicroEdgefacilities in New York City, the leases related to MicroEdge have beentransferred to the Purchaser.

 

In connection with thesale of MicroEdge, the Company entered into a sublease agreement with MicroedgeLLC, whereby Microedge LLC will sub-lease approximately 24,000 square feet ofoffice space located at 619 West 54th Street in New York, New York from theCompany. The sublease agreement became effective upon the close of sale ofMicroEdge on October 1, 2009. The Company currently estimates that therestructuring costs, consisting primarily of facility exit costs, will beapproximately $4 million and will be recorded in “net income from discontinuedoperation, net of applicable taxes” in our consolidated statement of operationsfor the fourth quarter of 2009.

 

At September 30,2009 and December 31, 2008, we had a gross liability of $7.6 million and$6.9 million for uncertain tax positions. Since almost all of this liabilityrelates to reserves against deferred tax assets that we do not expect toutilize in the short term, we cannot estimate the timing of potential futurecash settlements and have not included any estimates in the table of contractualcash obligations above. Additionally, our cash payments for income taxes willcontinue to be nominal over the next few years as we have significant netoperating losses, capital losses and tax credit carryforwards to utilize.

 

At September 30,2009 and December 31, 2008, we did not have any relationships withunconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would havebeen established for the purpose of facilitating off-balance sheet arrangementsor other contractually narrow or limited purposes. As such, we are notmaterially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

 

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**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

 

We are exposed tofinancial market risks, including changes in foreign currency exchange ratesand interest rates. Historically, much of our revenues and capital spending wastransacted in US dollars. However, since the acquisitions of Advent Denmark,Advent Norway, Advent Sweden, Advent Netherlands, and Advent Europe’s remainingdistributors in the United Kingdom and Switzerland, whose service and certainlicense revenues and capital spending are transacted in local countrycurrencies, we have greater exposure to foreign currency fluctuations. As of September 30,2009, $39.4 million of goodwill from the acquisition of these entities aredenominated in foreign currency. Therefore a hypothetical change of 10% couldincrease or decrease our assets and equity by approximately $2.7 million andcould increase or decrease our condensed consolidated results of operations orcash flows by approximately $0.3 million.

 

Our interest rate riskrelated primarily to our investment portfolio which consisted of $45.1 millionin cash and cash equivalents as of December 31, 2008 and $69.2 million incash and cash equivalents as of September 30, 2009. Cash equivalentsecurities were comprised of overnight money market mutual funds which wouldnot be materially affected by an immediate sharp increase or decrease ininterest rates. If we decide to invest in longer term investments, such asmarketable securities, an immediate sharp increase in interest rates could havea material adverse effect on the fair value of our investment portfolio.Conversely, immediate sharp declines in interest rates could seriously harminterest earnings of our investment portfolio.

 

If we draw from our lineof credit, we have interest rate risk relating to debt under our line of creditfacility which is indexed to the LIBOR rate or Wells Fargo prime rate. From timeto time we have drawn on that line of credit. As of September 30, 2009, wehad no outstanding balance under this credit facility.

 

We have also invested inseveral privately-held companies. These non-marketable investments areclassified as other assets on our consolidated balance sheets. Our investmentsin privately-held companies could be affected by an adverse movement in thefinancial markets for publicly-traded equity securities, although the impactcannot be directly quantified. These investments are inherently risky as themarket for the technologies or products these privately-held companies haveunder development are typically in the early stages and may never materialize.It is our policy to review investments in privately held companies on a regularbasis to evaluate the carrying amount and economic viability of thesecompanies. This policy includes, but is not limited to, reviewing each of thecompanies’ cash position, financing needs, earnings/revenue outlook,operational performance, management/ownership changes and competition. Theevaluation process is based on information that we request from these privatelyheld companies. This information is not subject to the same disclosureregulations as US publicly traded companies, and as such, the basis for theseevaluations is subject to timing and the accuracy of the data received fromthese companies.

 

Our investments inprivately held companies are assessed for impairment when a review of theinvestee’s operations indicates that a decline in value of the investment isother-than-temporary. Such indicators include, but are not limited to, limitedcapital resources, limited prospects of receiving additional financing, andprospects for liquidity of the related securities. Impaired investments in privatelyheld companies are written down to estimated fair value. We estimate fair valueusing a variety of valuation methodologies. Such methodologies includecomparing the private company with publicly traded companies in similar linesof business, applying revenue and price/earnings multiples to estimated futureoperating results for the private company and estimating discounted cash flowsfor that company. We could lose our entire investment in these companies. At September 30,2009 and December 31, 2008, our net investments in privately-heldcompanies totaled $0.5 million.

 

**Item 4. Controls and Procedures**

 

**Evaluation of disclosure controls and procedures.**

 

TheCompany’s management evaluated, with the participation of the Chief ExecutiveOfficer and Chief Financial Officer, the effectiveness of the Company’sdisclosure controls and procedures, as such term is defined under Rule 13a-15(f) ofthe Securities and Exchange Act of 1934, as of the end of the period covered bythis Quarterly Report on Form 10-Q. Based on this evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded our disclosurecontrols and procedures were effective as of September 30, 2009 to ensurethat information we are required to disclose in reports that we file or submitunder the Securities Exchange Act of 1934 (i) is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms and (ii) is accumulated andcommunicated to Advent’s management, including our Chief Executive Officer andChief Financial Officer, as appropriate to allow timely decisions regardingrequired disclosure.

 

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**Changes in internal control overfinancial reporting.**

 

There were no changes inour internal control over financial reporting which were identified inconnection with the evaluation required by Rule 13a-15(e) of theExchange Act that occurred during the third quarter ended September 30,2009 that has materially affected, or is reasonably likely to materiallyaffect, Advent’s internal control over financial reporting.

 

**PART II.OTHER INFORMATION**

 

**Item 1.    LegalProceedings**

 

OnMarch 8, 2005, certain of the former shareholders of Kinexus and theshareholders’ representative filed suit against Advent in the Delaware ChanceryCourt. The complaint alleges that Advent breached the Agreement and Plan ofMerger dated as of December 31, 2001 pursuant to which Advent acquired allof the outstanding shares of Kinexus due principally to the fact that no amountwas paid by Advent on an earn-out of up to $115 million. The earn-out, whichwas payable in cash or stock at the election of Advent, was based upon Kinexusmeeting certain revenue targets in both 2002 and 2003. The complaint seeksunspecified compensatory damages, an accounting and restitution for unjustenrichment. Advent advised the shareholders’ representative in January 2003that the earn-out terms had not been met in 2002 and accordingly no earn-outwas payable for 2002 and would not be payable for 2003. There has been nofurther activity in this case since additional document discovery andinterrogatory answers were provided by the parties in December 2008. Advent disputes theplaintiff’s claim and believes that it has meritorious defenses and intends tovigorously defend this action. Management has not determined that any potentialloss associated with this litigation is either probable or reasonably estimableat this time and accordingly has not accrued any amounts for any potentialloss.

 

From time to time, we areinvolved in claims and legal proceedings that arise in the ordinary course ofbusiness. Based on currently available information, management does not believethat the ultimate outcome of these unresolved matters, individually and in theaggregate, is likely to have a material adverse effect on the Company’sfinancial position or results of operations. However, litigation is subject toinherent uncertainties and our view of these matters may change in the future.Were an unfavorable outcome to occur, there exists the possibility of amaterial adverse impact on our financial position and results of operations forthe period in which the unfavorable outcome occurs, and potentially in futureperiods.

 

**Item 1A. Risk Factors**

 

*Investors should carefully consider the risks described below beforemaking an investment decision. The trading price of our common stock coulddecline due to any of, but are not limited to, these risks. In assessing theserisks, investors should also refer to the other information contained orincorporated by reference in this Quarterly Report on Form 10-Q filed withthe SEC, including our condensed consolidated financial statements and relatednotes thereto.*

 

**Uncertain economic and financial market conditions adversely affect ourbusiness.**

 

Themarket for investment management software systems has been and currently isnegatively affected by a number of factors, including reductions in capitalexpenditures by customers and poor performance of major financial markets. Thecurrent market downturn, dissolution and acquisitions of our clients andprospects, the decline in Assets Under Administration (AUA) or Assets UnderManagement (AUM) as a result of significant declines in asset values of ourclients and the accompanying market uncertainty affects and will continue toaffect both our ability to sell our solutions and the amount of revenue wereceive from such sales. The target clients for our products include a range offinancial services organizations that manage investment portfolios. The successof many of our clients is intrinsically linked to the health of the financialmarkets. The demand for our solutions has been and currently isdisproportionately affected by fluctuations, disruptions, instability anddownturns in the economy and financial services industry, which may causeclients and potential clients to exit the industry or delay, cancel or reduceany planned expenditures for investment management systems and softwareproducts. We have recently experienced some clients and prospects delaying orcancelling additional license purchases. In addition, some prospects andclients have gone out of business, undergone personnel reductions or turnover,or have been acquired, which we expect to continue as the financial marketsface continued hardship.

 

Beginningin the second half of 2008, difficulties in the mortgage and broader creditmarkets in the United States and elsewhere resulted in a relatively sudden andsubstantial decrease in the availability of credit and a corresponding increasein funding costs.  More recently, thecurrent volatility and uncertainty in the financial markets generally has alsocaused large losses, layoffs, dissolutions and acquisitions by financialinstitutions and other clients and  haveresulted and will likely continue to result in reduced expenditures forsoftware and related services. Additionally, the economic downturn has alsodecreased our clients’ AUA or AUM, which in turn causes our revenues todecrease since some pricing is based on assets under administration ormanagement. In addition, the failure of existing investment firms or theslowdown in the formation of new investment firms could cause a decline indemand for our solutions. Consolidation of financial services firms and otherclients will result in reduced technology expenditures or acquired customersusing the acquirer’s own proprietary software and services solutions or thesolutions of another vendor.  In somecircumstances where both acquisition parties are customers of Advent, thecombined entity may require fewer Advent products and services than eachindividually licensed, thus reducing our revenue. Challenging economicconditions may also cause our customers to experience difficulty with gainingtimely access to sufficient credit or our customers may become unable to payfor the products or services they have purchased, which could result in theirinability to fulfill or make timely payments to us. If that were to occur, ourability to collect receivables would be negatively affected, and our reservesfor doubtful accounts and write-offs of accounts receivable may increase.

 

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Wehave, in the past, experienced a number of market downturns in the financialservices industry and resulting declines in information technology spending,which has caused longer sales and contracting cycles, deferral or delay ofinformation technology projects and generally reduced expenditures for softwareand related services. The severity of the market downturn and worseningvolatility and uncertainty in the financial markets and the financial servicessector in recent quarters makes it difficult for us to forecast operatingresults and may result in a material adverse effect on our revenues and resultsof operations in the longer term.

 

**Our sales cycle is long and we have limited ability to forecast thetiming and amount of specific sales and the timing of specific implementations.**

 

Thepurchase of our software products often requires prospective customers toprovide significant executive-level sponsorship and to make major systemsarchitecture decisions. As a result, we must generally engage in relativelylengthy sales and contracting efforts. Sales transactions may therefore bedelayed during the customer decision process because we must provide a significantlevel of education to prospective customers regarding the use and benefit ofour products. Our business and prospects are subject to uncertainties in thefinancial markets that can cause customers to remain cautious about capital andinformation technology expenditures, particularly in the current economicenvironment, or to decrease their information technology budgets as an expensereduction measure. The sales cycle associated with the purchase of oursolutions is typically between two and twelve months depending upon the size ofthe client, and is subject to a number of significant risks over which we havelittle or no control, including broader financial market volatility, adverseeconomic conditions, customers’ budgeting constraints, internal selectionprocedures, and changes in customer personnel, among others. Recent volatilityin the US and global financial markets has further exacerbated this risk.

 

Asa result of a lengthy and unpredictable sales cycle, we have limited ability toforecast the timing and amount of specific perpetual license sales, or termlicense sales which we report quarterly as annual term license contract value(ACV). The timing of large individual license sales is especially difficult toforecast, and we may not be successful in closing large license transactions ona timely basis or at all. Customers may postpone their purchases of ourexisting products or product enhancements in advance of the anticipatedintroduction of new products or product enhancements by us or our competitors.Accordingly, our perpetual license revenue or our level of ACV in anyparticular period is subject to significant fluctuation. For example, duringthe first nine months of 2009, our perpetual license revenue and ACV decreasedby 34% and 31%, respectively, compared to the first nine months of 2008.

 

Whena customer purchases a term license together with implementation services we donot recognize any revenue under the contract until the implementation servicesare substantially complete. The timing of large implementations is difficult toforecast. Customers may delay or postpone the timing of their particularprojects due to the availability of resources or other customer specificpriorities. If we are not able to complete an implementation project for a termlicense in a quarter, it will cause us to defer all of the proportionatecontract revenues to a subsequent quarter. Because our expenses are relativelyfixed in the near term, any shortfall from anticipated revenues could result ina significant variation in our operating results from quarter to quarter.

 

**If our existing customers do not renew their term license, perpetualmaintenance or other recurring contracts, our business will suffer.**

 

Revenues recognized from recurring contracts represented86%, 80% and 79% of total net revenues in the first nine months of 2009, fiscal2008 and 2007, respectively. We expect to continue to derive a significantportion of our revenue from our clients’ renewal of term license, perpetualmaintenance and other recurring contracts and such renewals are critical to ourfuture success. Some factors that may affect the renewal rate of our contractsinclude:

 

·                  The impact of the currentextreme market volatility on our clients and prospects;

·                  The price, performance andfunctionality of our solutions;

·                  The availability, price,performance and functionality of competing products and services;

·                  The effectiveness of ourmaintenance and support services; and

·                  Our ability to developcomplementary products and services.

 

Most of our perpetuallicense customers have historically renewed their annual maintenance althoughour customers have no obligation to renew such maintenance after the first yearof their license agreements. In addition, our customers may select maintenancelevels less advantageous to us upon renewal, which may reduce recurring revenuefrom these customers. The current market downturn has caused, and may in thefuture cause, some clients not to renew their maintenance or reduce their levelof maintenance, which would affect our renewal rates and revenue. Our renewalrates are based on cash collections and are disclosed one quarter in arrears.Our reported renewal rates for the first two quarters of 2009 were below thelevels we disclosed for our quarterly periods of 2008. The decrease in renewalrates reflects increases in the number of customers who have gone out ofbusiness or reduced maintenance expenditures, as well as from slower paymentsreceived from renewal clients.

 

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As a result of ourrelatively recent transition to term licensing, we only have limited experiencewith renewals of our term license contracts. During the third quarter of 2007,we commenced renewing term license contracts signed in the third quarter of2004.  These were the first three-yearterm license contracts to be renewed by Advent since our transition to a termpricing model began. Our customers have no obligation to renew their termlicense contracts and given the small number of contracts subject to renewalthat were renewed in the second half of 2007 through the first nine months of2009, we cannot yet conclude whether customers will renew in a mannerconsistent with our perpetual maintenance customers. Additionally, we cannotpredict whether the renewals will be less advantageous to us than the originalterm contract. For example, the renewal periods for our term license contractsare typically shorter than our original term license contract and customers mayrequest a reduction in the number of users or products licensed, resulting in alower annual term license fee.  Further,customers may elect to not renew their term license contracts at all. We mayincur significantly more costs in securing our term license contract renewalsthan we incur for our perpetual maintenance renewals. If our term licensecontract customers renew under terms less favorable to us or choose not torenew their contracts, or if it costs significantly more to secure a renewalfor us, our operating results may be harmed.

 

**Our current operating results may not be reflective of our futurefinancial performance.**

 

In the first nine months of 2009 and in fiscal 2008and 2007, we recognized 86%, 80% and 79%, respectively, of total net revenuesfrom recurring sources, which we define as revenues from term license, maintenanceon perpetual licenses, and other recurring revenue. We generally recognizerevenue from these sources ratably over the terms of these agreements, whichtypically range from one to three years. As a result, almost all of ourrevenues in any quarter are generated from contracts entered into duringprevious periods.

 

Consequently, a significant decline in new businessgenerated in any quarter may not materially affect our results of operations inthat quarter but will have an impact on our revenue growth rate in futurequarters. Additionally, a decline in renewals of term agreements, maintenanceor data and other subscription contracts during a quarter will not be fullyreflected in our financial performance in that quarter. For example, because werecognize revenue ratably, the non-renewal of term agreements or maintenancecontracts late in a quarter may have very little impact on revenue for thatquarter, but will reduce revenue in future quarters. In addition, we may beunable to adjust our costs in response to reduced revenue.

 

Further, because of the large percentage of revenuefrom recurring sources, our historical operating results on a generallyaccepted accounting principles (GAAP) basis will not necessarily be the sole ormost relevant factor in predicting our future operating results. Accordingly,we report non-GAAP information, such as our quarterly term license bookingsmetrics (expressed as annual term license contract value, “ACV”) andmaintenance renewal rates, that is intended to provide investors with certainof the information that management uses as a basis for planning and forecastingof future periods. However, placing undue reliance upon non-GAAP or operatinginformation is not appropriate because this information is neither standardizedacross companies nor subjected to the same control activities and auditprocedures that produce our GAAP financial results.

 

The current market downturn has started to cause,and may in the future cause more, clients not to renew their licenses or maintenance,which would affect our renewal rates. Also, the significant declines in marketvalue of our clients affect their AUA or AUM. Consequently, we may also experience a decline in the ACV of bookingssince the pricing of some of our products is based upon our client’s AUA orAUM.  Furthermore, we have some contractsfor which clients pay us fees based on the greater of a negotiated annualminimum fee or a calculated fee that is determined by the client’s AUA or AUM.If a client previously had paid us based on the calculated fee, rather than theannual minimum fee, we would experience a decline in revenue as a result of anydecline in those clients’ AUA or AUM.

 

**Our stock price may fluctuate significantly.**

 

Likemany other companies, our stock price has been subject to wide fluctuations inrecent months as part of the high market volatility. If net revenues orearnings in any quarter or our financial guidance for future periods fail tomeet the investment community’s expectations, our stock price is likely todecline. Even if our revenues or earnings meet or exceed expectations, ourstock price is subject to decline in this period of high market volatilitybecause our stock price is affected by trends in the financial services sectorand by broader market trends unrelated to our performance. Unfavorable oruncertain economic and market conditions, which can be caused by many factors,including declines in economic growth, business activity or investor orbusiness confidence; limitation on the availability or increases in the cost ofcredit or capital; increases in inflation, interest rates, exchange ratevolatility, default rates or the price of basic commodities; corporate,political or other scandals that reduce investor confidence in capital markets;outbreaks of hostilities or other geopolitical instability; natural disastersor pandemics; or a combination of these or other factors, have adverselyaffected, and may in the future adversely affect, our business, profitabilityand stock price.

 

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**We operate in a highly competitive industry.**

 

Themarket for investment management software is competitive and highly fragmented,is subject to rapid change and is sensitive to new product introductions andmarketing efforts by industry participants. Our largest single source ofcompetition is from proprietary systems used by existing and potential clients,many of whom develop their own software for their particular needs andtherefore may be reluctant to license software products offered by third partyvendors such as Advent. We also face significant competition from otherproviders of software and related services as well as providers of outsourcedservices. Many of our competitors have longer operating histories and greaterfinancial, technical, sales and marketing resources than we do. In addition,consolidation has occurred among some of the competitors in our markets. Competitors vary in size, scope ofservices offered and platforms supported. In recent years, many of ourcompetitors have merged with each other or with other larger third parties, andit is possible that even larger companies will emerge through additionalacquisitions of companies and technologies. Any further consolidation among ourcompetitors may result in stronger competitors in our markets and may thereforeeither result in a loss of market share or harm our results of operations. Inaddition, we also face competition from potential new entrants into our marketthat may develop innovative technologies or business models. Furthermore,competitors may respond to worsening market conditions by lowering prices,offering better contractual terms and attempting to lure away our customers andprospects to lower cost solutions. We cannot guarantee that we will be able tocompete successfully against current and future competitors or that competitivepressure will not result in price reductions, reduced operating margins or lossof market share, any one of which could seriously harm our business.

 

**We depend heavily on our Axys®, Geneva®, APX and Moxy® products.**

 

Wederive a majority of our net revenues from the license and maintenance revenuesfrom our Axys, Geneva, APX and Moxy products. In addition, Moxy and many of ourapplications, such as Partner and various data services, have been designed toprovide an integrated solution with Axys, Geneva and APX. As a result, webelieve that for the foreseeable future a majority of our net revenues willdepend upon continued market acceptance of Axys, Geneva, APX, and Moxy, andupgrades to those products. This is particularly true as a result of ourdivestment of our MicroEdge grants management products, which further concentratesour revenue streams.

 

**We must continue to introduce new products and product enhancements.**

 

Themarket for our products is characterized by rapid technological change, changesin customer demands, evolving industry standards and new regulatory requirements.New products based on new technologies or new industry standards can renderexisting products obsolete and unmarketable. As a result, our future successwill continue to depend upon our ability to develop new products or productenhancements that address the future needs of our target markets and respond totheir changing standards and practices. We continue to release numerous newproducts and product upgrades and we believe our future success depends oncontinuing such releases. Additionally, in October 2008, we acquiredTamale Software which enables us to offer a new product in the nascent researchmanagement field. However, it is too early to know whether these products willmeet anticipated sales or will be broadly accepted in the market or that wewill continue to introduce more products.

 

Wemay not be successful in developing, introducing, marketing and licensing ournew products or product enhancements on a timely and cost effective basis, orat all, and our new products and product enhancements may not adequately meetthe requirements of the marketplace or achieve market acceptance. Delays in thecommencement of commercial shipments of new products or enhancements or delaysin client implementations or migrations may result in client dissatisfactionand delay or loss of product revenues. Additionally, existing clients may bereluctant to go through the sometimes complex and time consuming process ofmigrating from our Axys to APX product, which may slow the migration of ourcustomer base to APX. In addition, clients may delay purchases in anticipationof new products or product enhancements. Our ability to develop new productsand product enhancements is also dependent upon the products of other softwarevendors, including certain system software vendors, such as MicrosoftCorporation, Sun Microsystems, database vendors and development tool vendors.If the products of such vendors have design defects or flaws, are unexpectedlydelayed in their introduction, are unavailable on acceptable terms, or thevendors exit the business, our business could be seriously harmed.

 

**Our operating results may fluctuate significantly.**

 

Revenuesfrom recurring sources have grown from 77% in fiscal 2006, to 79% in 2007, to80% in 2008 and to 86% in the first nine months of fiscal 2009. Term licenserevenues comprised approximately 45% of term license, maintenance and otherrecurring revenues during the first nine months of 2009 compared to 32% in thefirst nine months of 2008. During fiscal 2008, term license revenuescomprised approximately 35% of term license, maintenance and otherrecurring revenues as compared to approximately 24% and 15% in fiscal 2007 and2006, respectively. Term license contracts are comprised of both softwarelicenses and maintenance services. Individual perpetual software licenses varysignificantly in value, and the value and timing of these transactions cantherefore cause our quarterly perpetual license revenues to fluctuate. As wecontinue to sign term license agreements for new customers, grow oursubscription, data management and outsourced services revenues, and ourcustomers renew their perpetual maintenance, we expect our revenue fromrecurring sources to continue to represent over 80% of our total net revenues.

 

Whena customer purchases a term license together with implementation services, wedo not recognize any revenue under the contract until the implementationservices are substantially completed and then we recognize revenue ratably overthe remaining length of the contract. If the implementation services are stillin progress as of quarter-end, we will defer all of the contract revenues to asubsequent quarter. For example, during the third quarter of 2008, we deferrednet revenues of $3.8 million and directly related 

 

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expensesof $1.0 million. Atthe point professional services are substantially completed, we recognize apro-rata amount of the term license revenue, professional services fees earnedand related expenses, based on the elapsed time from the start of the termlicense to the substantial completion of professional services. During thefirst nine months of 2009, the revenue recognized from completedimplementations exceeded the revenue deferred from projects being implementedby $6.6 million composed of $3.8 million of term license revenue and $2.8million of professional services revenue. In future periods, our revenues relatedto completed implementations may be lower depending on the number of projectsthat reach substantial completion during the quarter. Term license revenue for the remainingcontract years and the remaining deferred professional services revenue andrelated expenses are recognized ratably over the remaining contract length. The term licensecomponent of the deferred revenue balance will increase or decrease in thefuture depending on the amount of new term license bookings relative to thenumber of implementations that reach substantial completion in a particularquarter. Although our substantial revenue from recurring sources under our term license model provides us with longerterm stability and more visibility in the short term,  our quarterly net revenues and operatingresults may still fluctuate significantly depending on these and other factors.Our expense levels are relatively fixed in the short-term. Due to the fixednature of these expenses, combined with the relatively high gross margin historicallyachieved on our products, an unanticipated decline in net revenues in anyparticular quarter may adversely affect our operating results.

 

Inaddition, we experience seasonality in our licensing. We believe that thisseasonality results primarily from customer budgeting cycles and the annualnature of some AUA or AUM contracts, and expect this seasonality to continue inthe future.  The fourth quarter of theyear typically has more licensing activity. That can result in term license bookings and perpetual license feerevenue being the highest in the fourth quarter, followed by lower term licensebookings and perpetual license revenue in the first quarter of the followingyear. This seasonality may be adversely affected by the current market downturnand worsening economic conditions.  Also,term licenses entered into during a quarter may not result in recognition ofassociated revenue until later quarters, as we begin recognizing revenue forsuch licenses when the related implementation services are substantiallycomplete. In addition, we may incur commission and bonus expenses in the periodin which we enter into a license, but not recognize the associated revenueuntil later periods.

 

Becauseof the above factors, we believe that quarter-to-quarter comparisons of ouroperating results are not necessarily reliable indicators of futureperformance.

 

**If our relationship with Financial Times/Interactive Data is terminatedor other large subscription-based relationships are terminated, our businessmay be harmed.**

 

Manyof our clients use our proprietary interface to electronically retrieve pricingand other data from Financial Times/Interactive Data (“FTID”). FTID pays us acommission based on their revenues from providing this data to our clients. Oursoftware products have been customized to be compatible with their system andthis software would need to be redesigned if their services were unavailablefor any reason. Termination of our current agreement with FTID would require atleast two years’ notice by either us or them, or 90 days in the case ofmaterial breach. Our operating results would be adversely impacted if ourrelationship with FTID was terminated or their services were unavailable to ourclients for any reason. In recent years, Advent has entered into contractsrelating to our subscription, data management revenue streams and outsourcedservices with contract values that are substantially larger than we havecustomarily entered into in the past, including our agreement with TIAA-CREF.  It is too early to know whether we will beable to continue to sign large recurring revenue contracts of this nature, andour operating results could be adversely impacted if those agreements are notfully implemented, terminated or not renewed or if we are unable to continue togenerate similar opportunities.  Some ofthese agreements are subject to milestones, acceptance and penalties and thereis no assurance that these agreements will be fully implemented, renewed, orthat Advent will be able to enter similar or larger sized contracts in thefuture.

 

**We must retain and recruit key employees.**

 

Webelieve that our future success is dependent on the continuedemployment of our senior management and our ability to identify, attract,motivate and retain qualified technical, sales and otherpersonnel. Members of our executive management team have acquiredspecialized knowledge and skills with respect to Advent. We need technicalresources such as our product development engineers to develop new products andenhance existing products; we rely upon sales personnel to sell our productsand services and maintain healthy business relationships; we must recruitprofessional service consultants to support the anticipated increase in productimplementations; we must hire client services personnel to provide technicalsupport to our growing installed base of customers; and we must attract andretain financial and accounting personnel to comply with the requirements of Section 404of the Sarbanes-Oxley Act of 2002. We need to identify, attract, motivateand retain such employees with the requisite education, backgrounds andindustry experience.  However, experienced high quality personnel in theinformation technology industry continue to be in high demand and competitionfor their talents remains intense, especially in the San Francisco Bay Areawhere the majority of our employees are located.

 

Wehave relied on our ability to grant equity compensation as one mechanism forrecruiting and retaining such highly skilled personnel. In making employmentdecisions, particularly in the high-technology industries and San Francisco BayArea, job candidates often consider the value of the equity awards they are toreceive in connection with their employment. Additionally, accountingregulations requiring the expensing of equity compensation impair our abilityto provide these incentives without reporting significant compensation costs.

 

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Wemay also choose to create additional performance and retention incentives inorder to retain our employees, including the granting of additional stockoptions, restricted stock, restricted stock units, stock appreciation rights,performance shares or performance units to employees or issuing incentive cashbonuses. Such incentives may either dilute our existing stockholder base orresult in unforeseen operating expenses which may have a material adverseeffect on our operating results, or could result in our stock price falling; ormay not be valued as highly by our employees which may create retention issues.

 

**We face challenges in expanding our international operations in whichwe may have limited experience or business partners.**

 

Wemarket and sell our products in the United States and, to a growing extent,internationally. From 2001 through 2005, we acquired the subsidiaries of ourindependent distributor. In addition, we have begun to expand our sales inrelatively new jurisdictions for Advent, such as the Middle East, EasternEurope, and Asia. In 2006 we opened a branch office of Advent Europe Ltd. inthe United Arab Emirates, and we established Advent Software (Asia) Ltd. asubsidiary of Advent Software, Inc. in Hong Kong in 2008.  In addition, in the third quarter of 2009, weestablished a subsidiary of Advent Software (Asia), Ltd. in Beijing, China. Wecannot be certain that establishing businesses in other countries will producethe desired levels of revenues, such as in the case of our former Greeksubsidiary, Advent Hellas, which produced less than satisfactory revenues andprofitability before its sale by Advent in 2005. Also, the recent worldwidedecline in financial markets may disrupt our sales efforts in overseas markets.We currently have limited experience in developing localized versions of ourproducts and marketing and distributing our products internationally. In otherinstances, we may rely on the efforts and abilities of foreign businesspartners in such markets. For example, we outsourced certain engineeringactivities to a business partner located in China. Now, Advent is transitioningthose contract developers to become employees of Advent as part of our recentlyopened Beijing office. In addition, international operations are subject toother inherent risks, including:

 

·                  The impact ofrecessions and market fluctuations in economies outside the United States;

·                  Adverse changesin foreign currency exchange rates;

·                  Greaterdifficulty in accounts receivable collection and longer collection periods;

·                  Difficulty ofenforcement of contractual provisions in local jurisdictions;

·                  Unexpectedchanges in foreign laws and regulatory requirements;

·                  US and foreigntrade-protection measures and export and import requirements;

·                  Difficulties insuccessfully adapting our products to the language, regulatory and technologystandards of other countries;

·                  Resistance oflocal cultures to foreign-based companies and difficulties establishing localpartnerships or engaging local resources;

·                  Difficulties inand costs of staffing and managing foreign operations;

·                  Reducedprotection for intellectual property rights in some countries;

·                  Foreign taxstructures and potentially adverse tax consequences; and

·                  Political andeconomic instability.

 

Therevenues, expenses, assets and liabilities of our international subsidiariesare primarily denominated in local foreign currencies. We have not historicallyundertaken foreign exchange hedging transactions to cover potential foreigncurrency exposure. Future fluctuations in currency exchange rates may adverselyaffect revenues and accounts receivable from international sales and the USdollar value of our foreign subsidiaries’ revenues, expenses, assets andliabilities. Our international service revenues and certain license revenuesfrom our European subsidiaries are generally denominated in local foreigncurrencies.

 

**Difficultiesin integrating our acquisitions and expanding into new business areas haveimpacted and could continue to adversely impact our business and we face risksassociated with potential acquisitions, investments, divestitures andexpansion.**

 

Periodicallywe seek to grow through the acquisition of additional complementary businesses.In October 2008, we completed the acquisition of Tamale Software, Inc.,which provides research management software. In December 2006, we acquiredEast Circle Solutions, Inc., a developer of investment management billingsolutions to integrate their product into our software offerings.

 

Theprocess of integrating our acquisitions has required and will continue torequire significant resources, particularly in light of our relativeinexperience in integrating acquisitions, potential regulatory requirements andoperational demands. In particular, our Tamale acquisition reflects our entryinto the research management software market, where we have no priorexperience. Integrating these acquisitions in the past has been time-consuming,expensive and disruptive to our business. This integration process has strainedour managerial resources, resulting in the diversion of these resources fromour core business objectives and may do so in the future. Failure to achievethe anticipated benefits of these acquisitions or to successfully integrate theoperations of these entities has harmed and could potentially harm our business,results of operations and cash flows in future periods. The assumptions we madein determining the value of, and relative risks, of these acquisitions could beerroneous. For example, in the first quarter of 2003, we closed 

 

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ourAustralian subsidiary because it failed to perform at a satisfactory profitlevel and similarly in the fourth quarter of 2005, we disposed of our AdventHellas subsidiary because of less than satisfactory profitability. In addition,as we have expanded into new business areas and built new offerings throughstrategic alliances and internal development, as well as acquisitions, some ofthis expansion has required significant management time and resources withoutgenerating required revenues. We have had difficulty and may continue to havedifficulty creating demand for such offerings. Furthermore, we may face otherunanticipated costs from our acquisitions, such as disputes involving earn-outand incentive compensation amounts.

 

Wemay make additional acquisitions of complementary companies, products ortechnologies in the future. In addition, we periodically evaluate the performanceof all our products and services and may sell or discontinue current products,product lines or services, particularly as we focus on ways to streamline ouroperations. For example, in October 2009, we divested our MicroEdgesubsidiary. Failure to achieve the anticipated benefits of any acquisition ordivestiture could harm our business, results of operations and cash flows.Furthermore, we may have to incur debt, write-off investments, infrastructurecosts or other assets, incur severance liabilities, write-off impaired goodwillor other intangible assets or issue equity securities to pay for any futureacquisitions. The issuance of equity securities could dilute our existingstockholders’ ownership. Finally, we may not identify suitable businesses to acquireor negotiate acceptable terms for future acquisitions.

 

**Impairment of investments could harm our results of operations.**

 

Wehave made and may make future investments in privately held companies, many ofwhich are considered in the start-up or development stages. These investments,which we classify as other assets on our consolidated balance sheets, areinherently risky, as the market for the technologies or products thesecompanies have under development is typically in the early stages and may nevermaterialize. The value of the investment in these companies is influenced bymany factors, including the operating effectiveness of these companies, theoverall health of these companies’ industries, the strength of the privateequity markets and general market conditions. Due to these and other factors,we have previously determined, and may in the future determine, that the valueof these investments is impaired, which has caused and would cause us to writedown the carrying value of these investments, such as the $0.6 millionwrite-down of one of our investments during the second quarter of 2007.Furthermore, we cannot be sure that future investment, license, fixed asset orother asset write-downs will not occur. If future write-downs do occur, they couldharm our business and results of operations.

 

**If weare unable to protect our intellectual property, we may be subject to increasedcompetition that could seriously harm our business.**

 

Oursuccess depends significantly upon our proprietary technology. We currentlyrely on a combination of copyright, trademark, patent and trade secret law, aswell as confidentiality procedures and contractual provisions to protect ourproprietary rights. We have registered trademarks and copyrights for many ofour products and services and will continue to evaluate the registration ofadditional trademarks and copyrights as appropriate. We generally enter intoconfidentiality agreements with our employees, customers, resellers, vendorsand others. We seek to protect our software, documentation and other writtenmaterials under trade secret and copyright laws. We also have one registeredpatent. Despite our efforts, existing intellectual property laws may affordonly limited protection. It may be possible for unauthorized third parties tocopy certain portions of our products or to reverse engineer or otherwiseobtain and use our proprietary information. In addition, we cannot be certainthat others will not develop or acquire substantially equivalent or supersedingproprietary technology, equivalent or better products will not be marketed incompetition with our products, or others may not design around any patent thatmay be issued to us or other intellectual property rights of ours, therebysubstantially reducing the value of our proprietary rights. We cannot be surethat we will develop proprietary products or technologies that are patentable,that any patent, if issued, would provide us with any competitive advantages orwould not be challenged by third parties, or that the patents of others willnot adversely affect our ability to do business. Despite our efforts to protectour proprietary rights, unauthorized parties may attempt to copy aspects of ourproducts or to obtain and use information that we regard as proprietary. Inaddition, the laws of some foreign countries do not protect proprietary rightsto as great an extent as do the laws of the United States. Litigation may benecessary to protect our proprietary technology which may be time-consuming andexpensive, with no assurance of success. As a result, we cannot be sure that our means of protecting ourproprietary rights will be adequate.

 

**If weinfringe the intellectual property rights of others, we may incur additionalcosts or be prevented from selling our products and services.**

 

Wecannot be certain that our products or services do not infringe theintellectual property rights of others. As a result, we may be subject tolitigation and claims, including claims of misappropriation of trade secrets orinfringement of patents, copyrights and other intellectual property rights ofthird parties that would be time-consuming and costly to resolve and may leadto unfavorable judgments or settlements. If we discovered that our products orservices violated the intellectual property rights of third parties, we mayhave to make substantial changes to our products or services or obtain licensesfrom such third parties. We might not be able to obtain such licenses onfavorable terms or at all, and we may be unable to change our productssuccessfully or in a timely or cost-effective manner. Failure to resolve aninfringement matter successfully or in a timely manner would damage ourreputation and force us to incur significant costs, including payment ofdamages, redevelopment costs, diversion of management’s attention andsatisfaction of indemnification obligations that we have with our clients, aswell as prevent us from selling certain products or services.

 

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**Information we provide to investors is accurate only as of the date wedisseminate it.**

 

Fromtime to time, we may publicly disseminate forward-looking information orguidance in compliance with Regulation FD. This information or guidancerepresents our outlook only as of the date we disseminate it, and we do notundertake to update such information or guidance.

 

**Catastrophic events could adversely affect our business.**

 

Weare a highly automated business and rely on our network infrastructure andenterprise applications, internal technology systems and our Website for ourdevelopment, marketing, operational, support, and sales activities. Adisruption or failure of these systems in the event of major earthquake, fire,telecommunications failure, cyber-attack, terrorist attack, or othercatastrophic event could cause system interruptions, reputational harm, delaysin our product development and loss of critical data and could affect ourability to sell and deliver products and services and other critical functionsof our business. Our corporate headquarters, a significant portion of ourresearch and development activities, our data centers, and certain othercritical business operations are located in the San Francisco Bay Area, whichis a region of seismic activity. We have developed certain disaster recoveryplans and certain backup systems to reduce the potentially adverse effect ofsuch events, but a catastrophic event that results in the destruction ordisruption of any of our data centers or our critical business or informationtechnology systems could severely affect our ability to conduct normal businessoperations and, as a result, our future operating results could be adversely affected.Further, such disruptions could cause further instability in the financialmarkets or the spending of our clients and prospects upon which we depend.

 

Inaddition to the severe market conditions of recent months, other catastrophicevents such as abrupt political change, terrorist acts, conflicts or wars maycause damage or disruption to the economy, financial markets and our customers.The potential for future attacks, the national and international responses toattacks or perceived threats to national security and other actual or potentialconflicts or wars  have created manyeconomic and political uncertainties. Although it is impossible to predict theoccurrences or consequences of any such events, they could unsettle thefinancial markets or result in a decline in information technology spending,which could have a material adverse effect on our revenues.

 

**Undetectedsoftware errors or failures found in new products may result in loss of ordelay in market acceptance of our products that could seriously harm ourbusiness.**

 

Ourproducts may contain undetected software errors or scalability limitations atany point in their lives, but particularly when first introduced or as newversions are released. Despite testing by us and by current and potentialcustomers, errors may not be found in new products until after commencement ofcommercial shipments, resulting in a loss of or a delay in market acceptance,damage to our reputation, customer dissatisfaction and reductions in revenuesand margins, any of which could seriously harm our business. Additionally, ouragreements with customers that attempt to limit our exposure to liabilityclaims may not be enforceable in jurisdictions where we operate, particularlyas we expand into new international markets.

 

**Two of our principal stockholders have an influenceover our business affairs and may make business decisions with which youdisagree and which may adversely affect the value of your investment.**

 

Our Chief ExecutiveOfficer and the Chairman of our board of directors own or control, indirectlyor directly, a substantial number of shares of our common stock (approximately37% as of October 31, 2009). As a result, if these people act together,they will have the ability to exert significant influence on matters submittedto our stockholders for approval, such as the election or removal of directors,amendments to our certificate of incorporation or the approval of a businesscombination. These actions may be taken even if they are opposed by otherstockholders or it may be difficult to approve these actions without theirconsent. This concentration of ownership may also have the effect of delayingor preventing a change of control of our company or discouraging others frommaking tender offers for our shares, which could prevent our stockholders fromreceiving a premium for their shares.

 

**Changes in securities laws and regulations may increase our costs ormay harm demand.**

 

The Sarbanes-Oxley Act (“theAct”) of 2002 required changes in some of our corporate governance andsecurities disclosure and/or compliance practices. As part of the Act’srequirements, the SEC has enacted new rules on a variety of subjects, andthe Nasdaq Stock Market has enacted new corporate governance listingrequirements. These developments have increased and may in the future increaseour accounting and legal compliance costs and could also expose us toadditional liability if we fail to comply with these new rules andreporting requirements. In fiscal 2008, 2007 and 2006, we incurred approximately$0.8 million, $0.9 million and $1.3 million, respectively, in Sarbanes-Oxleyrelated expenses consisting of external consulting costs and auditor fees, andthe Company anticipates similarly spending a significant amount for its 2009compliance activities. In addition, such developments may make retention andrecruitment of qualified persons to serve on our board of directors, or asexecutive officers, more difficult. We continue to evaluate and monitorregulatory and legislative developments and cannot reliably estimate the timingor magnitude of all costs we may incur as a result of the Act or other relatedlegislation or regulation.

 

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In addition, ourcustomers operate within a highly regulated environment. In light of thecurrent conditions in the US financial markets and economy, Congress andregulators have increased their focus on the regulation of the financialservices industry. The information provided by, or resident in, the software orservices we provide to our customers could be deemed relevant to a regulatoryinvestigation or other governmental or private legal proceeding involving ourcustomers, which could result in requests for information from us that could beexpensive and time consuming for us. In addition, clients subject toinvestigations or legal proceedings may be adversely impacted possibly leadingto their liquidation, bankruptcy, receivership, reductions in AUM or AUA, ordiminished operations that would adversely affect our revenues and collectionof receivables.

 

Our customers must complywith governmental and quasi-governmental rules, regulations, directives andstandards.  New legislation or changes in government or quasi-governmentalrules, regulations, directives or standards may reduce demand for our servicesor increase our expenses. We develop, configure and market products andservices to assist customers in meeting these requirements. New legislation, ora significant change in rules, regulations, directives or standards, couldcause our services to become obsolete, reduce demand for our services orincrease our expenses in order to continue providing services to clients.

 

**Changes in, or interpretations of, accounting principles could resultin unfavorable accounting charges.**

 

We prepare our consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America. These principles are subject to interpretation by us, the SEC andvarious bodies formed to interpret and create accounting principles. A changein these principles or a change in the interpretations of these principles canhave a significant effect on our reported results and may even retroactivelyaffect previously reported transactions. Some of our accounting principles thatrecently have been or may be affected include:

 

·                  Software revenuerecognition;

·                  Accounting for stock-basedcompensation;

·                  Accounting for income taxes;and

·                  Accounting for businesscombinations and related goodwill.

 

In particular, in the first quarter of 2006, weadopted ASC 718 which requires the measurement of all stock-based compensationto employees, including grants of employee stock options, restricted stockunits and stock appreciation rights, using a fair-value-based method and therecording of such expense in our consolidated statements of operations. Theadoption of ASC 718 had a significant adverse effect on our results of operations.It will continue to significantly adversely affect our results of operationsand has resulted in changes to our compensation practices, such as an increasedreliance on using equity vehicles such as stock-settled stock appreciationrights (“SAR”) and restricted stock units (“RSU”).

 

Wealso adopted ASC 740 in the first quarter of 2007, which resulted in anincrease in both assets and liabilities in our consolidated balance sheet as ofthe beginning of fiscal 2007 and may create increased volatility in our futureoperating results.

 

Additionally,in December 2007, the Financial Accounting Standards Board (“FASB”) issued ASC 805,“Business Combinations,” which changes the accounting for business combinationsincluding the measurement of acquirer shares issued in consideration for abusiness combination, the recognition of contingent consideration, theaccounting for pre-acquisition gain and loss contingencies, the recognition ofcapitalized in-process research and development, the accounting for acquisitionrelated restructuring liabilities, the treatment of acquisition relatedtransaction costs and the recognition of changes in the acquirer’s income taxvaluation allowance. ASC 805 is effective for financial statements issued forfiscal years beginning after December 15, 2008. In the event we have abusiness combination, we currently believe that the adoption of ASC 805 willresult in the recognition of certain types of expenses in our results ofoperations that we currently capitalize pursuant to existing accountingstandards and may also impact our financial statement in other ways.Additionally, the nature and magnitude of the specific effects will depend uponthe nature, terms and size of the acquisitions the Company consummates afterthe effective date.

 

**Borrowings under our credit facility must be repaid if we fail tocomply with certain covenants.**

 

In February 2007,we entered into a senior secured facility agreement which provides us with arevolving line of credit up to an aggregate amount of $75.0 million. We have inthe past, and may in the future, borrow under the credit facility in order tofund working capital requirements, make share repurchases of our common stockor fund acquisitions. This line of credit expires in February 2010 andthere is no guarantee we will be able to renew on similar terms, or at all. Inaddition, if our anticipated cash flow from our recurring sources of revenue ismaterially impaired due to customer defaults or failure to renew term licensesor maintenance contracts, our ability to borrow under the credit facility, orcontinue to meet the contractual covenants, may be compromised. Our continuedability to borrow under our credit facility is subject to compliance withcertain financial and non-financial covenants. The financial covenant islimited to a maximum ratio of senior debt to earnings before interest, taxes, 

 

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depreciation, andamortization (EBITDA), adjusted for cost capitalizations, extraordinary gains(losses) and non-cash stock compensation. Our failure to comply with suchcovenants could cause default under the agreement, and we may then be requiredto repay such debt with capital from other sources. Under those circumstances,other sources of capital may not be available to us, or be available only onunfavorable terms, particularly in the current economic environment. In theevent of a default which is not remedied within the prescribed timeframe, theassets of the Company (subject to the amount borrowed) may be attached orseized by the lender. On October 30, 2008, the Board of Directorsauthorized a share repurchase program of up to 3.0 million shares, and in November 2008,we borrowed $25.0 million under the credit facility to fund a portion of theserepurchases. As of September 30, 2009, we had no outstanding balance underthis credit facility.

 

**Security risks may harm our business.**

 

Maintainingthe security of computers, computer networks, hosted solutions and thetransmission of confidential information over public networks is essential tocommerce and communications, particularly in the market in which Adventoperates. Efforts of others to seek unauthorized access to Advent’s or itsclients’ computers and networks or introduce viruses, worms and other malicioussoftware programs that disable or impair computers into our systems or those ofour customers or other third parties, could disrupt or make our systems inaccessibleor allow access to proprietary information and data of Advent or itsclients.  Advances in computercapabilities, new discoveries in the field of cryptography or other events ordevelopments, also could result in compromises or breaches of our securitysystems. Our security measures may be inadequate to prevent security breaches,exposing us to a risk of data loss, financial loss, harm to reputation,business interruption, litigation and other possible liabilities, as well aspossibly requiring us to expend significant capital and other resources toprotect against the threat of security breaches or to alleviate problems causedby such breaches.

 

**Potentialchanges in securities laws and regulation governing the investment industry’suse of soft dollars may reduce our revenues.**

 

Asof December 31, 2008, approximately 360 or 4% of our clients utilizedtrading commissions (“soft dollar arrangements”) to pay for software productsand services. During fiscal 2007 and 2006, the total value of Advent productsand services paid with soft dollars was approximately 4% and 5% of our totalbillings. Such soft dollar arrangements could be impacted by changes in theregulations governing those arrangements.

 

During the fourth quarterof 2006, we completed the wind down of the “soft dollar” business of ourSEC-registered broker/dealer subsidiary, Second Street Securities, as it nolonger fits with our corporate strategy. Second Street Securities’ soft dollarbusiness offered our customers the ability to pay for Advent products and otherthird party products and services through brokerage commissions and otherfee-based arrangements. We will continue to allow clients to utilize softdollar arrangements to pay for Advent software products and services throughother independent broker/dealers.

 

In July 2006, theSEC published an Interpretive Release that provides guidance on money managers’use of client commissions to pay for brokerage and research services under thesafe harbor set forth in Section 28(e) of the Securities Exchange Actof 1934. The Interpretive Release clarifies that money managers may use clientcommissions (“soft dollars”) to pay only for eligible brokerage and research services. Among othermatters, the Interpretive Release states that eligible brokerage includes thoseproducts and services that relate to the execution of the trade from the pointat which the money manager communicates with the broker-dealer for the purposeof transmitting an order for execution, through the point at which funds or securitiesare delivered or credited to the advised account.  In addition, for potentially “mixed-use”items (such as trade order management systems) that are partly eligible andpartly ineligible, the Interpretive Release states that money managers must makea reasonable allocation of client commissions in accordance with the eligibleand ineligible uses of the items. Based on this new guidance, our customers maychange their method of paying all or a portion of certain Advent products orservices from soft to hard dollars, and as a result reduce their usage of theseproducts or services in order to avoid increasing expenses, which could causeour revenues to decrease.

 

**If wefail to maintain an effective system of internal control, we may not be able toaccurately report our financial results or our filings may not be timely. As aresult, current and potential stockholders could lose confidence in ourfinancial reporting, which would harm our business and the trading price of ourstock.**

 

Effective internal controlis necessary for us to provide reliable financial reports. If we cannot providereliable financial reports, our business and operating results could be harmed.We have in the past discovered, and may in the future discover, areas of ourinternal control that need improvement including control deficiencies that mayconstitute material weaknesses.

 

We do not expect that our internal control overfinancial reporting will prevent all errors or fraud. A control system, nomatter how well designed and operated, can provide only reasonable, notabsolute, assurance that the control system’s objectives will be met. Further,the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Controls can be circumvented by individual acts of some persons, bycollusion of two or more people, or by management override of the controls.Over time, controls may become inadequate because changes in conditions ordeterioration in the degree of compliance with policies or procedures mayoccur. Because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

 

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Any failure to implement or maintain improvements inour internal control over financial reporting, or difficulties encountered inthe implementation of these improvements in our controls, could causesignificant deficiencies or material weaknesses in our internal controls andconsequently cause us to fail to meet our reporting obligations. Any failure toimplement or maintain required new or improved internal controls could alsocause investors to lose confidence in our reported financial information, whichcould have a negative impact on the trading price of our stock. In addition, weare moving certain compliance functions from external providers to internal resources,and we cannot be certain that these changes will be as effective or willcontrol costs as anticipated.

 

**Our ability to conclude that acontrol deficiency is not a material weakness or that an accounting error doesnot require a restatement can be affected by a number of factors, including ourlevel of pre-tax income.**

 

Under the Sarbanes-OxleyAct of 2002, our management is required to assess the impact of controldeficiencies based upon both quantitative and qualitative factors, anddepending upon that analysis we classify such identified deficiencies as eithera control deficiency, significant deficiency or a material weakness.

 

One element of ourquantitative analysis of any control deficiency is its actual or potentialfinancial impact, and any impact that is greater than 5% of our pre-tax incomein any quarter may be more likely to result in that deficiency being determinedto be a significant deficiency or a material weakness. For example, ourassessment of a control deficiency as a significant deficiency or materialweakness remains dependent in part on our level of profitability during aparticular quarter. If our quarterly or fiscal year pre-tax income were todecrease, this will make it statistically less likely for us and ourindependent registered public accounting firm to determine that a controldeficiency is not a material weakness.

 

In addition, ifmanagement or our independent registered public accountants identify errors inour interim or annual financial statements, it is statistically more likelythat such errors may meet the quantitative threshold established under StaffAccounting Bulletin No. 99, “Materiality”, that could, depending upon thecomplete qualitative and quantitative analysis, result in our having to restatepreviously issued financial statements.

 

**Item 2.    UnregisteredSales of Equity Securities and Use of Proceeds**

 

**Issuer Purchases of Equity Securities**

 

OurBoard of Directors (the “Board”) has approved common stock repurchase programsauthorizing management to repurchase shares of the Company’s common stock inthe open market. The timing and actual number of shares subject to repurchaseare at the discretion of management and are contingent on a number of factors,including the price of our stock, general market conditions and alternativeinvestment opportunities. The purchases are funded from available workingcapital or debt.

 

On October 30, 2008,Advent’s Board authorized the repurchase of up to 3.0 million shares of theCompany’s outstanding common stock. During the third quarter of 2009, Adventdid not make any repurchases of common stock.

 

Wewithheld shares through net share settlements during the three months ended September 30,2009. The following table provides a month-to-month summary of the purchaseactivity upon the employee vesting of restricted stock units and the exerciseof stock-settled stock appreciation rights under our equity compensation planto satisfy tax withholding obligations during the three months ended September 30,2009 (in thousands, except per share data):

 

| ** ** | ** ** | **Total**         | ** ** | ** **    | ** ** | **Maximum Number**     | ** ** |
|------------|------------|-------------------|------------|---------------|------------|------------------------|------------|
| ** ** | ** ** | **Number**        | ** ** | **Average**   | ** ** | **of Shares that May** | ** ** |
| ** ** | ** ** | **of Shares**     | ** ** | **Price Per** | ** ** | **Yet Be Purchased**   | ** ** |
| **Month**  | ** ** | **Purchased (1)** | ** ** | **Share**     | ** ** | **Under the Plan**     | ** ** |
|       |       |              |       |          |       |                   |       |
| July       |       | 3                 |       | $             | 33.48      |                   | —     |   |
| August     |       | 2                 |       | $             | 37.55      |                   | —     |   |
| September  |       | 1                 |       | $             | 39.95      |                   | —     |   |
|       |       |              |       |          |       |                   |       |
| Total      |       | 6                 |       | $             | 36.31      |                   | —     |   |

 

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(1)   These purchasesrepresent shares cancelled when surrendered in lieu of cash payments forwithholding taxes due from employees. These shares were not purchased as partof a publicly announced program to purchase shares.

 

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| **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**                                            |
| ** **  | ** ** | ** **                                              |
|        |       | 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 |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |                          | ADVENT  SOFTWARE, INC. |
|--------|-------------------------------|------------------------|
|   |                          |                   |
|   |                          |                   |   |
|   | Dated:  November 9, 2009 | By:                    | /s/  James S. Cox |
|   |                          |                   | James  S. Cox *Senior Vice President and**Chief Financial Officer**(Principal Financial and Accounting  Officer)* |

 

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