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 June 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) |

 

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

(Address of principal executive offices and zip code)

 

**(415) 543-7696**

(Registrant’s telephone number, 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  o                    |   | Accelerated filer x         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer o                       |   | Smaller reporting company o |
| (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 July 31,2009 was 25,491,455.

 

 

 

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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)**

** **
| ** **                                       | ** ** | **June 30** | ** **    | **December 31** | ** ** |
|--------------------------------------------------|------------|-------------|---------------|-----------------|------------|
| ** **                                       | ** ** | **2009**    | ** **    | **2008**        | ** ** |
| **ASSETS**                                       | ** ** | ** **  | ** **    | ** **      | ** ** |
| Current  assets:                                 |       |        |          |            |       |
| Cash  and cash equivalents                       |       | $           |  47,038  |            | $          |  48,351 |   |
| Accounts  receivable, net                        |       | 45,516      |          | 51,670          |       |
| Deferred  taxes, current                         |       | 13,133      |          | 13,121          |       |
| Prepaid  expenses and other                      |       | 17,574      |          | 20,153          |       |
| Total  current assets                            |       | 123,261     |          | 133,295         |       |
| Property  and equipment, net                     |       | 38,244      |          | 41,240          |       |
| Goodwill                                         |       | 151,232     |          | 149,609         |       |
| Other  intangibles, net                          |       | 26,849      |          | 29,110          |       |
| Deferred  taxes, long-term                       |       | 54,785      |          | 54,786          |       |
| Other  assets                                    |       | 10,642      |          | 11,554          |       |
|                                             |       |        |          |            |       |
| Total  assets                                    |       | $           |  405,013 |            | $          |  419,594 |   |
|                                             |       |        |          |            |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |       |        |          |            |       |
| Current  liabilities:                            |       |        |          |            |       |
| Accounts  payable                                |       | $           | 3,966         |            | $          |  5,625 |   |
| Accrued  liabilities                             |       | 26,083      |          | 27,924          |       |
| Deferred  revenues                               |       | 141,131     |          | 146,714         |       |
| Income  taxes payable                            |       | 6,141       |          | 978             |       |
| Total  current liabilities                       |       | 177,321     |          | 181,241         |       |
| Deferred  income taxes                           |       | 280         |          | 286             |       |
| Long-term  debt                                  |       | —      |          | 25,000          |       |
| Deferred  revenue, long-term                     |       | 6,987       |          | 6,449           |       |
| Other  long-term liabilities                     |       | 10,148      |          | 10,795          |       |
| Total  liabilities                               |       | 194,736     |          | 223,771         |       |
|                                             |       |        |          |            |       |
| Commitments  and contingencies (See Note 10)     |       |        |          |            |       |
|                                             |       |        |          |            |       |
| Stockholders’  equity:                      |       |        |          |            |       |
| Common  stock                                    |       | 254         |          | 257             |       |
| Additional  paid-in capital                      |       | 369,509     |          | 365,351         |       |
| Accumulated  deficit                             |       | (168,216    | )             | (176,484        | )          |
| Accumulated  other comprehensive income          |       | 8,730       |          | 6,699           |       |
| Total  stockholders’ equity                 |       | 210,277     |          | 195,823         |       |
|                                             |       |        |          |            |       |
| Total  liabilities and stockholders’ equity |       | $           |  405,013 |            | $          |  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 June 30** | ** **  | **Six Months Ended June 30** | ** ** |
|----------------------------------------------------------------|------------|-------------------------------------|-------------|-----------------------------------|------------|
| ** **                                                     | ** ** | **2009**                            | ** **  | **2008**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Net revenues:**                                              |       |                                |        |                              |       |   |   |   |   |
| Term  license, maintenance and other recurring                 |       | $                                   | 59,742      |                              | $          |  50,838 |   | $ |  120,639 |   | $ |  99,977 |   |
| Perpetual  license fees                                        |       | 3,323                               |        | 5,242                             |       | 7,225 |   | 10,867 |   |
| Professional  services and other                               |       | 6,467                               |        | 7,947                             |       | 14,454 |   | 14,656 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Total  net revenues                                            |       | 69,532                              |        | 64,027                            |       | 142,318 |   | 125,500 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| **Cost of revenues:**                                          |       |                                |        |                              |       |   |   |   |   |
| Term  license, maintenance and other recurring                 |       | 12,272                              |        | 11,379                            |       | 24,408 |   | 22,313 |   |
| Perpetual  license fees                                        |       | 128                                 |        | 224                               |       | 303 |   | 541 |   |
| Professional  services and other                               |       | 8,010                               |        | 8,519                             |       | 16,691 |   | 16,245 |   |
| Amortization  of developed technology                          |       | 1,446                               |        | 732                               |       | 2,963 |   | 1,454 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Total  cost of revenues                                        |       | 21,856                              |        | 20,854                            |       | 44,365 |   | 40,553 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Gross  margin                                                  |       | 47,676                              |        | 43,173                            |       | 97,953 |   | 84,947 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| **Operating expenses:**                                        |       |                                |        |                              |       |   |   |   |   |
| Sales  and marketing                                           |       | 16,280                              |        | 15,626                            |       | 33,357 |   | 31,016 |   |
| Product  development                                           |       | 12,881                              |        | 13,008                            |       | 26,476 |   | 25,898 |   |
| General  and administrative                                    |       | 9,438                               |        | 9,232                             |       | 18,701 |   | 18,459 |   |
| Amortization  of other intangibles                             |       | 444                                 |        | 242                               |       | 888 |   | 729 |   |
| Restructuring  charges (benefit)                               |       | 2                                   |        | (1                                | )          | 47 |   | 55 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Total  operating expenses                                      |       | 39,045                              |        | 38,107                            |       | 79,469 |   | 76,157 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Income  from operations                                        |       | 8,631                               |        | 5,066                             |       | 18,484 |   | 8,790 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Interest  and other income, net                                |       | 2,201                               |        | 3,559                             |       | 1,824 |   | 3,786 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Income  before income taxes                                    |       | 10,832                              |        | 8,625                             |       | 20,308 |   | 12,576 |   |
| Provision  for income taxes                                    |       | 2,810                               |        | 1,270                             |       | 6,057 |   | 2,586 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| **Net income**                                                 |       | $                                   |  8,022 |                              | $          |  7,355 |   | $ |  14,251 |   | $ |  9,990 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Net  income per share:                                         |       |                                |        |                              |       |   |   |   |   |
| Basic                                                          |       | $                                   |  0.32  |                              | $          |  0.28 |   | $ |  0.56 |   | $ |  0.37 |   |
| Diluted                                                        |       | $                                   |  0.31  |                              | $          |  0.26 |   | $ |  0.55 |   | $ |  0.36 |   |
|                                                           |       |                                |        |                              |       |   |   |   |   |
| Weighted  average shares used to compute net income per share: |       |                                |        |                              |       |   |   |   |   |
| Basic                                                          |       | 25,288                              |        | 26,712                            |       | 25,265 |   | 26,641 |   |
| Diluted                                                        |       | 26,140                              |        | 28,119                            |       | 26,053 |   | 28,046 |   |

 

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)**

 
| ** **                                                                         | ** ** | **Six Months Ended June 30** | ** **       |
|------------------------------------------------------------------------------------|------------|-----------------------------------|------------------|
| ** **                                                                         | ** ** | **2009**                          | ** **       | **2008** | ** ** |
| **Cash  flows from operating activities:**                                         |       |                              |             |   |   |
| Net  income                                                                        |       | $                                 |  14,251     |   | $ |  9,990 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                              |             |   |   |
| Stock-based  compensation                                                          |       | 9,152                             |             | 7,252 |   |
| Depreciation  and amortization                                                     |       | 8,664                             |             | 6,220 |   |
| Loss  on dispositions of fixed assets                                              |       | 40                                |             | 2 |   |
| Provision  for doubtful accounts                                                   |       | 217                               |             | 485 |   |
| Provision  for sales returns                                                       |       | 797                               |             | 4 |   |
| Gain  on investments                                                               |       | (2,056                            | )                | (3,393 | ) |
| Deferred  income taxes                                                             |       | (18                               | )                | (66 | ) |
| Other                                                                              |       | 8                                 |             | 3 |   |
| Effect of statement of operations adjustments                                      |       | 16,804                            |             | 10,507 |   |
| Changes  in operating assets and liabilities:                                      |       |                              |             |   |   |
| Accounts  receivable                                                               |       | 5,929                             |             | 5,688 |   |
| Prepaid  and other assets                                                          |       | 3,435                             |             | (571 | ) |
| Accounts  payable                                                                  |       | (1,670                            | )                | 3,034 |   |
| Accrued  liabilities                                                               |       | (2,416                            | )                | (5,870 | ) |
| Deferred  revenues                                                                 |       | (5,842                            | )                | 10,282 |   |
| Income  taxes payable                                                              |       | 5,163                             |             | 1,979 |   |
| Effect of changes in operating assets and  liabilities                             |       | 4,599                             |             | 14,542 |   |
|                                                                               |       |                              |             |   |   |
| Net  cash provided by operating activities                                         | ** ** | **35,654**                        | ** **       | **35,039** | ** ** |
|                                                                               |       |                              |             |   |   |
| **Cash flows from investing activities:**                                          |       |                              |             |   |   |
| Purchases  of property and equipment                                               |       | (1,789                            | )                | (9,777 | ) |
| Capitalized  software development costs                                            |       | (1,314                            | )                | (420 | ) |
| Proceeds  from sale of investments                                                 |       | 2,056                             |             | 3,393 |   |
| Change  in restricted cash                                                         |       | —                            |             | (248 | ) |
|                                                                               |       |                              |             |   |   |
| Net  cash used in investing activities                                             | ** ** | **(1,047**                        | **)**            | **(7,052** | **)** |
|                                                                               |       |                              |             |   |   |
| **Cash flows from financing activities:**                                          |       |                              |             |   |   |
| Proceeds  from exercises of stock options                                          |       | 2,383                             |             | 3,240 |   |
| Withholding  taxes related to equity award net share settlement                    |       | (1,792                            | )                | (1,271 | ) |
| Proceeds  from common stock issued under the employee stock purchase plan          |       | 2,946                             |             | 2,576 |   |
| Common  stock repurchased and retired                                              |       | (14,578                           | )                | — |   |
| Repayment  of long-term borrowing                                                  |       | (25,000                           | )                | — |   |
|                                                                               |       |                              |             |   |   |
| Net  cash provided by (used in) financing activities                               | ** ** | **(36,041**                       | **)**            | **4,545** | ** ** |
|                                                                               |       |                              |             |   |   |
| Effect  of exchange rate changes on cash and cash equivalents                      | ** ** | **121**                           | ** **       | **322** | ** ** |
|                                                                               |       |                              |             |   |   |
| **Net change in cash and cash equivalents**                                        | ** ** | **(1,313**                        | **)**            | **32,854** | ** ** |
| **Cash and cash equivalents at beginning of period**                               | ** ** | **48,351**                        | ** **       | **49,589** | ** ** |
|                                                                               |       |                              |             |   |   |
| **Cash and cash equivalents at end of period**                                     | ** ** | **$**                             | ** 47,038** | ** ** | **$** | ** 82,443** | ** ** |

 

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 all adjustments necessaryto state fairly the financial position and results of operations for eachinterim period shown. All such adjustments occur in the ordinary course ofbusiness and are of a normal, recurring nature.

 

**Note 2—Recent AccountingPronouncements**

 

Withthe exception of those discussed below, there have been no recent accountingpronouncements or changes in accounting pronouncements during the six monthsended June 30, 2009, as compared to the recent accounting pronouncementsdescribed in Advent’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2008, that are of significance, or potential significance, tothe Company.

 

InApril 2009, the Financial Accounting Standards Board (“FASB”) issued StaffPosition (“FSP”) FAS 157-4, “Determining Fair Value When the Volume orLevel of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly” (“FSPFAS 157-4”). FSP FAS 157-4 provides additional guidance for estimatingfair value in accordance with SFAS No. 157 when the volume and level ofactivity for the asset or liability have significantly decreased and requiresthat companies provide interim and annual disclosures of the inputs andvaluation technique(s) used to measure fair value. FSP FAS 157-4 iseffective for interim and annual reporting periods ending after June 15,2009 and is to be applied prospectively. The Company’s adoption of FSP FAS157-4 during the three months ended June 30, 2009 did not have a materialimpact to the Company’s condensed consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition andPresentation of Other-Than-Temporary Impairments.” FSP FAS 115-2 and FAS 124-2amends the other-than-temporary impairment guidance to improve the presentationand disclosure of other-than-temporary impairments on debt and equitysecurities in the financial statements. FSP FAS 115-2 and FAS 124-2 iseffective for interim and annual reporting periods ending after June 15,2009. The Company’s adoption of FSP FAS 115-2 and FAS 124-2 during the threemonths ended June 30, 2009 did not have a material impact to the Company’scondensed consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “InterimDisclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 and APB28-1 requires disclosures about fair value of financial instruments for interimreporting periods of publicly traded companies as well as in annual financialstatements. FSP FAS 107-1 and APB 28-1 is effective for interim and annualreporting periods ending after June 15, 2009. The Company’s adoption ofFSP FAS 107-1 and APB 28-1 during the quarter ended June 30, 2009 did nothave a material impact the Company’s condensed consolidated financialstatements.

 

InMay 2009, the FASB issued SFAS No. 165, “Subsequent Events”, whichestablishes general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. The provisions of SFAS 165 are effective forinterim and annual reporting periods ending after June 15, 2009 and areeffective for the Company in the second quarter of fiscal 2009. Since SFAS 165only requires additional disclosures, adoption of SFAS 165 did not have animpact to the Company’s condensed consolidated financial position, results ofoperations or cash flows. See Note 16, “Subsequent Event” to our condensedconsolidated financial statements for our discussion of the subsequent eventthat has occurred since the balance sheet date of June 30, 2009.

 

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**Note3—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 |       | 4,093              |       | $            |  28.26 |                 |       |               |       |   |
| Options &  SARs granted       |       | 549                |       | $            |  31.15 |                 |       |               |       |   |
| Options &  SARs exercised     |       | (194               | )          | $            |  20.68 |                 |       |               |       |   |
| Options &  SARs canceled      |       | (70                | )          | $            |  35.94 |                 |       |               |       |   |
| Outstanding  at June 30, 2009     |       | 4,378              |       | $            |  28.84 |                 | 6.47       |               | $          |  28,285 |   |
| Exercisable  at June 30, 2009     |       | 2,590              |       | $            |  25.29 |                 | 5.08       |               | $          |  24,025 |   |

 

The aggregate intrinsic valueis calculated as the difference between the exercise price of the underlyingawards and the Company’s closing stock price of $32.79 as of June 30, 2009for options that were in-the-money as of that date.

 

The weighted averagegrant date fair value of options and SARs granted (as determined underSFAS 123R), total intrinsic value of options and SARs exercised and cashreceived from option exercises during the six months ended June 30, 2009and 2008 were as follows (in thousands, except weighted average grant date fairvalue):

 

| ** **                                 | ** ** | **Six Months Ended June 30** | ** **  |
|--------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                 | ** ** | **2009**                          | ** **  | **2008** | ** ** |
| *Options and SARs*                         |       |                              |        |   |   |
| Weighted  average grant date fair value    |       | $                                 |  14.57 |   | $ |  18.41 |   |
| Total  intrinsic value of awards exercised |       | $                                 |  2,078 |   | $ |  5,091 |   |
|                                       |       |                              |        |   |   |
| *Options*                                  |       |                              |        |   |   |
| Cash  received from exercises              |       | $                                 |  2,383 |   | $ |  3,240 |   |

 

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

 

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

 

| ** **                                          | ** ** | ** **         | ** ** | **Weighted**   | ** **  |
|-----------------------------------------------------|------------|--------------------|------------|----------------|-------------|
| ** **                                          | ** ** | **Number of**      | ** ** | **Average**    | ** **  |
| ** **                                          | ** ** | **Shares**         | ** ** | **Grant Date** | ** **  |
| ** **                                          | ** ** | **(in thousands)** | ** ** | **Fair Value** | ** **  |
| ** **                                          | ** ** | ** **         | ** ** | ** **     | ** **  |
| Outstanding  and unvested at December 31, 2008 |       | 700                |       | $              |  37.89 |   |
|                                                |       |               |       |           |        |
| RSUs  granted                                       |       | 190                |       | $              |  32.30 |   |
|                                                |       |               |       |           |        |
| RSUs  vested                                        |       | (139               | )          | $              |  36.58 |   |
|                                                |       |               |       |           |        |
| RSUs  canceled                                      |       | (11                | )          | $              |  39.86 |   |
|                                                |       |               |       |           |        |
| Outstanding  and unvested at June 30, 2009     |       | 740                |       | $              |  36.67 |   |

 

The weighted average grantdate fair value was determined based on the closing market price of the Company’scommon stock on the date of the award. The aggregate intrinsic value of RSUsoutstanding at June 30, 2009 was $24.3 million, using the closing price of$32.79 per share as of June 30, 2009.

 

**Stock-Based Compensation Expense**

 

The effect of stock-basedemployee compensation expense recognized on Advent’s condensed consolidatedstatement of operations for the three and six months ended June 30, 2009and 2008 was as follows (in thousands):

 
| ** **                                                      | ** ** | **Three Months Ended June 30** | ** **  | **Six Months Ended June 30** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------|-------------|-----------------------------------|------------|
| ** **                                                      | ** ** | **2009**                            | ** **  | **2008**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Statement of operations classification**                      | ** ** | ** **                          | ** **  | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost  of term license, maintenance and other recurring revenues |       | $                                   |  505   |                              | $          |  323 |   | $ |  874 |   | $ |  613 |   |
| Cost  of professional services and other revenues               |       | 353                                 |        | 258                               |       | 658 |   | 495 |   |
| Total  cost of revenues                                         |       | 858                                 |        | 581                               |       | 1,532 |   | 1,108 |   |
|                                                            |       |                                |        |                              |       |   |   |   |   |
| Sales  and marketing                                            |       | 1,526                               |        | 1,099                             |       | 2,732 |   | 2,137 |   |
| Product  development                                            |       | 1,367                               |        | 1,009                             |       | 2,481 |   | 1,880 |   |
| General  and administrative                                     |       | 1,338                               |        | 1,172                             |       | 2,407 |   | 2,127 |   |
| Total  operating expenses                                       |       | 4,231                               |        | 3,280                             |       | 7,620 |   | 6,144 |   |
|                                                            |       |                                |        |                              |       |   |   |   |   |
| Total  stock-based employee compensation expense                |       | $                                   |  5,089 |                              | $          |  3,861 |   | $ |  9,152 |   | $ |  7,252 |   |
|                                                            |       |                                |        |                              |       |   |   |   |   |
| Tax  effect on stock-based employee compensation                |       | (1,694                              | )           | (1,351                            | )          | $ |  (3,509 | ) | $ |  (2,651 | ) |
|                                                            |       |                                |        |                              |       |   |   |   |   |
| Net  effect on net income                                       |       | $                                   |  3,395 |                              | $          |  2,510 |   | $ |  5,643 |   | $ |  4,601 |   |

 

Advent capitalizedstock-based employee compensation expense of $120,000 and $85,000 during thesix months ended June 30, 2009 and 2008, respectively, associated with theCompany’s software development, internal-use software and professional servicesimplementation projects.

 

As of June 30, 2009,total unrecognized compensation cost related to unvested awards not yetrecognized under all equity compensation plans, adjusted for estimatedforfeitures, was $34.0 million and is expected to be recognized through theremaining vesting period of each grant, with a weighted average remainingperiod of 2.7 years.

 

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**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 June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|-----------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **                        | ** ** | **2009**                            | ** ** | **2008**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Stock Options & SARs** | ** ** | ** **                          | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Expected  volatility              |       | 50.7% - 52.0%                       |       | 42.8% - 43.5%                     |       | 50.7% - 57.7% |   | 41.8% - 43.5% |   |
| Expected  life (in years)         |       | 4.17 - 5.10                         |       | 3.82 - 5.27                       |       | 4.17 - 5.47 |   | 3.82 - 5.27 |   |
| Risk-free  interest rate          |       | 1.8% - 3.0%                         |       | 2.8% - 3.9%                       |       | 1.8% - 3.0% |   | 2.6% - 3.9% |   |
| Expected  dividends               |       | None                                |       | None                              |       | None |   | None |   |
| ** **                        | ** ** | ** **                          | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
|                              |       |                                |       |                              |       |   |   |   |   |
| **Employee Stock Purchase Plan**  |       |                                |       |                              |       |   |   |   |   |
| Expected  volatility              |       | 58.3% - 72.8%                       |       | 43.8% - 46.0%                     |       | 58.3% - 72.8% |   | 43.8% - 46.0% |   |
| Expected  life (in months)        |       | 6                                   |       | 6                                 |       | 6 |   | 6 |   |
| Risk-free  interest rate          |       | 0.3% - 0.4%                         |       | 2.0% - 3.4%                       |       | 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.

 

**Note 4—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, as a result of the implementation ofSFAS 123R.

 

Thefollowing table sets forth the computation of basic and diluted net income pershare (in thousands, except per-share data):

 
| ** **                                                                                                                                | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                | ** ** | **2009**                            | ** ** | **2008**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Numerator:**                                                                                                                            |       |                                |       |                              |       |   |   |   |   |
| Net  income                                                                                                                               |       | $                                   | 8,022      |                              | $          | 7,355 |   | $ | 14,251 |   | $ | 9,990 |   |
|                                                                                                                                      |       |                                |       |                              |       |   |   |   |   |
|                                                                                                                                      |       |                                |       |                              |       |   |   |   |   |
| **Denominator:**                                                                                                                          |       |                                |       |                              |       |   |   |   |   |
| Denominator  for basic net income per share-weighted average shares outstanding                                                           |       | 25,288                              |       | 26,712                            |       | 25,265 |   | 26,641 |   |
|                                                                                                                                      |       |                                |       |                              |       |   |   |   |   |
| Dilutive  common equivalent shares:                                                                                                       |       |                                |       |                              |       |   |   |   |   |
| Employee  stock options and other                                                                                                         |       | 852                                 |       | 1,407                             |       | 788 |   | 1,405 |   |
|                                                                                                                                      |       |                                |       |                              |       |   |   |   |   |
| Denominator  for diluted net income per share-weighted average shares outstanding,  assuming exercise of potential dilutive common shares |       | 26,140                              |       | 28,119                            |       | 26,053 |   | 28,046 |   |
|                                                                                                                                      |       |                                |       |                              |       |   |   |   |   |
| Basic  net income per share                                                                                                               |       | $                                   | 0.32       |                              | $          | 0.28 |   | $ | 0.56 |   | $ | 0.37 |   |
| Diluted  net income per share                                                                                                             |       | $                                   | 0.31       |                              | $          | 0.26 |   | $ | 0.55 |   | $ | 0.36 |   |

 

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Weighted average stockoptions, SARs and RSUs of approximately 2.4 million and 2.6 million for thethree and six months ended June 30, 2009, respectively, were excluded fromthe calculation of diluted net income per share because their inclusion wouldhave been anti-dilutive. Similarly, weighted average stock options, SARs andRSUs of approximately 1.4 million and 1.0 million for the three and six monthsended June 30, 2008, respectively, were excluded from the calculation ofdiluted net income per share.

 

**Note5—Goodwill**

 

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

 

| ** **                         | ** ** | **Goodwill** | ** ** |
|------------------------------------|------------|--------------|------------|
| ** **                         | ** ** | ** **   | ** ** |
| Balance  at December 31, 2008 |       | $            | 149,609    |   |
| Translation  adjustments           |       | 1,677        |       |
| Other                              |       | (54          | )          |
|                               |       |         |       |
| Balance  at June 30, 2009     |       | $            | 151,232    |   |

 

Foreigncurrency translation adjustments totaling $1.7 million reflect the generalweakening of the U.S. dollar versus European currencies during the six monthsended June 30, 2009.

 

**Note 6—Other Intangibles**

 

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

 
| ** **                      | ** ** | **Average**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                      | ** ** | **Amortization** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
| ** **                      | ** ** | **Period**       | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                      | ** ** | **(Years)**      | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
| ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Purchased  technologies         |       | 4.9              |       | $                | 30,616     |             | $          | (16,231          | )          | $ | 14,385 |   |
| Product  development costs      |       | 3.0              |       | 10,204           |       | (5,450           | )          | 4,754            |       |
|                            |       |             |       |             |       |             |       |             |       |
| Developed  technology sub-total |       |             |       | 40,820           |       | (21,681          | )          | 19,139           |       |
|                            |       |             |       |             |       |             |       |             |       |
| Customer  relationships         |       | 6.1              |       | 30,033           |       | (23,338          | )          | 6,695            |       |
| Other  intangibles              |       | 4.1              |       | 1,587            |       | (572             | )          | 1,015            |       |
|                            |       |             |       |             |       |             |       |             |       |
| Other  intangibles sub-total    |       |             |       | 31,620           |       | (23,910          | )          | 7,710            |       |
|                            |       |             |       |             |       |             |       |             |       |
| Balance  at June 30, 2009  |       |             |       | $                | 72,440     |             | $          | (45,591          | )          | $ | 26,849 |   |

 

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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              |       | $                | 30,337     |             | $          | (14,361          | )          | $ | 15,976 |   |
| Product  development costs         |       | 3.0              |       | 8,823            |       | (4,272           | )          | 4,551            |       |
|                               |       |             |       |             |       |             |       |             |       |
| Developed  technology sub-total    |       |             |       | 39,160           |       | (18,633          | )          | 20,527           |       |
|                               |       |             |       |             |       |             |       |             |       |
| Customer  relationships            |       | 6.1              |       | 30,023           |       | (22,618          | )          | 7,405            |       |
| Other  intangibles                 |       | 4.0              |       | 1,578            |       | (400             | )          | 1,178            |       |
|                               |       |             |       |             |       |             |       |             |       |
| Other  intangibles sub-total       |       |             |       | 31,601           |       | (23,018          | )          | 8,583            |       |
|                               |       |             |       |             |       |             |       |             |       |
| Balance  at December 31, 2008 |       |             |       | $                | 70,761     |             | $          | (41,651          | )          | $ | 29,110 |   |

 

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

 
| ** **                          | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
|-------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                          | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                                |       |             |       |             |       |             |       |
| Balance  at December 31, 2008  |       | $                | 70,761     |             | $          | (41,651          | )          | $ | 29,110 |   |
| Additions                           |       | 1,313            |       | —           |       | 1,313            |       |
| Stock-based  compensation additions |       | 67               |       | —           |       | 67               |       |
| Amortization                        |       | —           |       | (3,851           | )          | (3,851           | )          |
| Translation  adjustments            |       | 299              |       | (89              | )          | 210              |       |
|                                |       |             |       |             |       |             |       |
| Balance  at June 30, 2009      |       | $                | 72,440     |             | $          | (45,591          | )          | $ | 26,849 |   |

 

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

 
| ** **                         | ** ** | **Six**              | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|------------------------------------|------------|----------------------|------------|----------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                         | ** ** | **Months Ended**     | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **December 31** | ** ** | **Years Ended December 31** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **2009**             | ** ** | **2010**                         | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Estimated  future amortization of: | ** ** | ** **           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Developed  technology              |       | $                    | 3,101      |                             | $          | 5,768      |       | $          | 4,480      |       | $          | 3,600          |       | $          | 2,190      |   | $ | — |   | $ | 19,139 |   |
| Other  intangibles                 |       | 801                  |       | 1,212                            |       | 1,092      |       | 1,093      |       | 1,047      |       | 2,465          |       | 7,710      |       |
|                               |       |                 |       |                             |       |       |       |       |       |       |       |           |       |       |       |
| Total                              |       | $                    | 3,902      |                             | $          | 6,980      |       | $          | 5,572      |       | $          | 4,693          |       | $          | 3,237      |   | $ | 2,465 |   | $ | 26,849 |   |

 

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**Note 7—Balance Sheet Detail**

 

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

 
| ** **                        | ** ** | **June 30** | ** ** | **December 31** | ** ** |
|-----------------------------------|------------|------------------|------------|----------------------|------------|
| ** **                        | ** ** | **2009**         | ** ** | **2008**             | ** ** |
| ** **                        | ** ** | ** **       | ** ** | ** **           | ** ** |
| Prepaid  commission               |       | $                | 5,403      |                 | $          | 6,019 |   |
| Prepaid  contract expense         |       | 5,863            |       | 7,473                |       |
| Prepaid  royalty                  |       | 1,185            |       | 1,744                |       |
| Other                             |       | 5,123            |       | 4,917                |       |
|                              |       |             |       |                 |       |
| Total  prepaid expenses and other |       | $                | 17,574     |                 | $          | 20,153 |   |

 

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

 
| ** **                           | ** ** | **June 30** | ** ** | **December 31** | ** ** |
|--------------------------------------|------------|------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2009**         | ** ** | **2008**             | ** ** |
|                                 |       |             |       |                 |       |
| Long-term  investments               |       | $                | 500        |                 | $          | 500 |   |
| Long-term  prepaid commissions       |       | 3,508            |       | 4,915                |       |
| Deposits                             |       | 2,961            |       | 3,255                |       |
| Prepaid  contract expense, long-term |       | 3,670            |       | 2,859                |       |
| Other                                |       | 3                |       | 25                   |       |
|                                 |       |             |       |                 |       |
| Total  other assets, net             |       | $                | 10,642     |                 | $          | 11,554 |   |

 

Long-term investmentsinclude an equity investment in a privately held company. This equityinvestment is carried at the lower of cost or fair value at June 30, 2009and December 31, 2008. Deposits include restricted cash of $1.9 million tosecure a bank letter of credit associated with the Company’s definitive leaseagreement, as amended, with Toda Development, Inc. (“Toda”) for its SanFrancisco headquarters facility.

 

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

 
| ** **                              | ** ** | **June 30** | ** ** | **December 31** | ** ** |
|-----------------------------------------|------------|------------------|------------|----------------------|------------|
| ** **                              | ** ** | **2009**         | ** ** | **2008**             | ** ** |
|                                    |       |             |       |                 |       |
| Salaries  and benefits payable          |       | $                | 16,191     |                 | $          | 18,492 |   |
| Accrued  restructuring, current portion |       | 564              |       | 823                  |       |
| Other                                   |       | 9,328            |       | 8,609                |       |
|                                    |       |             |       |                 |       |
| Total  accrued liabilities              |       | $                | 26,083     |                 | $          | 27,924 |   |

 

Accrued restructuringcharges are discussed further in Note 9, “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):

 
| ** **                                | ** ** | **June 30** | ** ** | **December 31** | ** ** |
|-------------------------------------------|------------|------------------|------------|----------------------|------------|
| ** **                                | ** ** | **2009**         | ** ** | **2008**             | ** ** |
|                                      |       |             |       |                 |       |
| Deferred  rent                            |       | $                | 8,043      |                 | $          | 8,444 |   |
| Accrued  restructuring, long-term portion |       | 944              |       | 1,195                |       |
| Other                                     |       | 1,161            |       | 1,156                |       |
|                                      |       |             |       |                 |       |
| Total  other long-term liabilities        |       | $                | 10,148     |                 | $          | 10,795 |   |

 

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**Note 8—Comprehensive Income**

 

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

 
| ** **                               | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|------------------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **                               | ** ** | **2009**                            | ** ** | **2008**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                     |       |                                |       |                              |       |   |   |   |   |
| Net  income                              |       | $                                   | 8,022      |                              | $          | 7,355 |   | $ | 14,251 |   | $ | 9,990 |   |
| Foreign  currency translation adjustment |       | 3,886                               |       | 5                                 |       | 2,031 |   | 2,422 |   |
|                                     |       |                                |       |                              |       |   |   |   |   |
| Total  comprehensive income              |       | $                                   | 11,908     |                              | $          | 7,360 |   | $ | 16,282 |   | $ | 12,412 |   |

 

**Note9—Restructuring Charges**

 

Minor restructuringinitiatives were implemented in the Company’s Advent Investment Managementsegment in 2006 and in the MicroEdge operating segment in 2008, to reduce costsand improve operating efficiencies. These initiatives have resulted inrestructuring charges comprised primarily of costs related to propertiesabandoned in connection with facilities consolidation, associated write-down ofleasehold improvements and severance and associated employee termination costsrelated to headcount reductions. Advent’s restructuring charges includedaccruals for estimated losses on facility costs based on the Company’scontractual obligations net of estimated sublease income. Advent reassessesthis liability periodically based on market conditions.

 

##### ***During the sixmonths ended June 30, 2009 and 2008, Advent recorded restructuring chargesof $47,000 and $55,000, respectively, which related to the present valueamortization of facility exit obligations partially offset by adjustments tofacility exit assumptions.***

##### *** ***

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

 
| ** **                                                  | ** ** | **Facility Exit** | ** ** | **Severance &** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|--------------------------|------------|------------|------------|
| ** **                                                  | ** ** | **Costs**         | ** ** | **Benefits**             | ** ** | **Total**  | ** ** |
|                                                        |       |              |       |                     |       |       |       |
| Balance  of restructuring accrual at December 31, 2008 |       | $                 | 1,735      |                     | $          | 283        |       | $ | 2,018 |   |
| Restructuring  charges                                      |       | 18                |       | —                   |       | 18         |       |
| Cash  payments                                              |       | (286              | )          | (271                     | )          | (557       | )          |
| Adjustment  of prior restructuring costs                    |       | 41                |       | (12                      | )          | 29         |       |
|                                                        |       |              |       |                     |       |       |       |
| Balance of  restructuring accrual at June 30, 2009     |       | $                 | 1,508      |                     | $          | —     |       | $ | 1,508 |   |

 

Ofthe remaining restructuring accrual of $1.5 million at June 30, 2009, $0.6million and $0.9 million are included in accrued liabilities and otherlong-term liabilities, respectively, on the accompanying condensed consolidatedbalance sheet. The remaining excess facility costs of $1.5 million are statedat estimated fair value, net of estimated sublease income of approximately $3.0million. 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 10—Commitments andContingencies**

#### ** **

*LeaseObligations*

 

Adventleases office space and equipment under non-cancelable operating leaseagreements, which expire at various dates through December 2018. Someoperating leases contain escalation provisions for adjustments in the consumerprice index. Advent is responsible for maintenance, insurance, and propertytaxes. As of June 30, 2009, Advent’s remaining operating lease commitmentsthrough 2018 were approximately $44.9 million, net of future minimum rentalreceipts of $3.4 million to be received under non-cancelable sub-leases.

 

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*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 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, 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 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.

 

**Note 11—Segment Information**

 

*Descriptionof Segments*

 

Advent’sorganizational structure is based on a number of factors that the chiefoperating decision maker (“CODM”) uses to evaluate, view and run its businessoperations which include, but are not limited to, customer base, homogeneity ofproducts and technology. Advent’s operating segments are based on thisorganizational structure and information reviewed by Advent’s CODM to evaluatethe operating segment results. Advent has determined that its operations areorganized into two reportable segments: Advent Investment Management andMicroEdge. Future changes to this organizational structure may result inchanges to the business segments disclosed.

 

AdventInvestment Management is the Company’s core business and derives revenues fromthe development, marketing and sale of software products, data interfaces andrelated maintenance and services that automate, integrate and support certainmission-critical functions of investment management organizations. MicroEdgederives revenues from the sale of software and services for grant management,matching gifts and volunteer tracking for the grant-making community.

 

*SegmentData*

 

Theresults of the operating segments are derived directly from Advent’s internalmanagement reporting system. The accounting policies used to derive operatingsegment results are substantially the same as those used by the consolidatedcompany. Management measures the performance of each operating segment based onseveral metrics, including income from operations. These results are used, inpart, to evaluate the performance of, and to assign resources to, each of theoperating segments. Certain operating expenses, including stock-based employeecompensation expense, and amortization of developed technology and otherintangibles, which Advent manages separately at the corporate level, are notallocated to the operating segments. Advent does not separately accumulate andreview asset information by segment.

 

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Segmentinformation for the periods presented is as follows (in thousands):

* *
| ** **                                           | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **                                           | ** ** | **2009**                            | ** ** | **2008**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net  revenues:                                       |       |                                |       |                              |       |   |   |   |   |
| Advent  Investment Management                        |       | $                                   | 63,076     |                              | $          | 57,979 |   | $ | 129,401 |   | $ | 113,243 |   |
| MicroEdge                                            |       | 6,456                               |       | 6,048                             |       | 12,917 |   | 12,257 |   |
|                                                 |       |                                |       |                              |       |   |   |   |   |
| Total  net revenues                                  |       | $                                   | 69,532     |                              | $          | 64,027 |   | $ | 142,318 |   | $ | 125,500 |   |
|                                                 |       |                                |       |                              |       |   |   |   |   |
| Income  from operations:                             |       |                                |       |                              |       |   |   |   |   |
| Advent  Investment Management                        |       | $                                   | 13,881     |                              | $          | 9,290 |   | $ | 28,005 |   | $ | 17,226 |   |
| MicroEdge                                            |       | 1,729                               |       | 611                               |       | 3,482 |   | 999 |   |
| Unallocated  corporate operating costs and expenses: |       |                                |       |                              |       |   |   |   |   |
| Stock-based  employee compensation                   |       | (5,089                              | )          | (3,861                            | )          | (9,152 | ) | (7,252 | ) |
| Amortization  of developed technology                |       | (1,446                              | )          | (732                              | )          | (2,963 | ) | (1,454 | ) |
| Amortization  of other intangibles                   |       | (444                                | )          | (242                              | )          | (888 | ) | (729 | ) |
|                                                 |       |                                |       |                              |       |   |   |   |   |
| Total  income from operations                        |       | $                                   | 8,631      |                              | $          | 5,066 |   | $ | 18,484 |   | $ | 8,790 |   |

 

On July 27, 2009,the Company executed an Agreement and Plan of Merger to sell the MicroEdgesegment, as further described in Note 16, “Subsequent Event”. Following thedisposition of MicroEdge, the Company will operate under one reporting segment.

 

*MajorCustomers*

 

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

 

**Note12—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 June 30, 2009, there were no outstandingborrowings under the Credit Facility.

 

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**Note13—Income Taxes**

 

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

 
| ** **                                               | ** ** | **Total**  | ** ** |
|----------------------------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | ** ** | ** ** |
| Balance  at December 31, 2008                       |       | $          | 6,904      |   |
|                                                     |       |       |       |
| Gross  increases related to current period tax positions |       | 542        |       |
|                                                     |       |       |       |
| Balance  at June 30, 2009                           |       | $          | 7,446      |   |

 

At June 30, 2009 andDecember 31, 2008, Advent had $7.4 million and $6.9 million of grossunrecognized tax benefits, respectively. During the first six months of 2009,Advent increased the amount of unrecognized tax benefits by $0.5 millionrelating to federal and California research credits. If recognized, the totalunrecognized tax benefits would decrease Advent’s tax provision and increasenet income $6.2 million. The impact on net income reflects the liabilities forunrecognized tax benefits net of the federal tax benefit of state income taxitems. The Company’s liabilities for unrecognized tax benefits relate tofederal research credits, California research and enterprise zone tax creditsand various state net operating losses.

 

Advent is subjectto taxation in the US and various states and foreign jurisdictions. Thematerial jurisdictions that are subject to examination by tax authoritiesinclude California for tax years after fiscal 2003 and the US and New York fortax years after 2004. Currently, Advent and our subsidiary MicroEdge areunder examination by the State of New York for tax years 2005 through 2007.

 

**Note 14—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 June 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) |       | $                                                   | 36,508     |   | $ | 36,508 |   | $ | — |   | $ | — |   |
|                         |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |

 

----

(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 the short-term maturities of theseinstruments.

 

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 June 30, 2009, isperiodically assessed for other-than-temporary impairment. If Advent determinesthat an other-than-temporary impairment has occurred, the Company writes downthe investment to its fair value. Advent estimates fair value using a varietyof valuation methodologies. Such methodologies include comparing the privatecompany with publicly traded companies in similar lines of business, applyingrevenue and price/earnings multiples to estimated future operating results forthe private company and estimating discounted cash flows for that company.

 

**Note 15**—Common Stock Repurchase Program

** **

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 six months ended June 30, 2008 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   |       | —        |       | —     |       | —        |       |
|       |       |          |       |       |       |          |       |
| Total      |       | 690           |       | $          | 14,578     |          | $          | 21.13 |   |

 

At June 30, 2009, there remained approximately 1.0 million sharesauthorized by the Board for repurchase.

 

**Note 16—Subsequent Event**

** **

In accordance with therecently issued Statement of Financial Accounting Standards No. 165 “SubsequentEvents” (“SFAS 165”), the Company evaluated subsequent events after the balancesheet date of June 30, 2009 through August 6, 2009, which is the datethe financial statements were issued.

 

On July 27, 2009,Advent Software, Inc. (the “Company”) entered into an Agreement and Planof Merger (the “Agreement”), by and among the Company, Microedge Holdings, LLC(“Purchaser”), a Delaware limited liability company and an affiliate of VistaEquity Partners III, LLC, Microedge Merger Sub, LLC, a New York limitedliability company and a wholly-owned subsidiary of Purchaser (“Merger Sub”),MicroEdge, Inc. (“MicroEdge”) a wholly-owned subsidiary of the Company,and, with respect to Article VII, Article VIII and Article IXthereof only, U.S. Bank National Association as escrow agent. The Agreementprovides that, upon the terms and subject to the conditions set forth in theAgreement, the Purchaser will acquire MicroEdge through the merger of MicroEdgewith and into Merger Sub.

 

Under the terms of theagreement, the Purchaser will pay approximately $30 million in cash (the “PurchasePrice”) to Advent for all of the outstanding capital stock of MicroEdge subjectto adjustment for a working capital adjustment and certain other specifieditems. Approximately $3 million of the Purchase Price will be placed intoescrow for eighteen (18) months following the closing date to be held assecurity for losses incurred by the Purchaser in the event of certain breachesof the representations and warranties contained in the Agreement or certainother events. The Company anticipates that the acquisition will close in thefourth quarter of 2009 and will result in a gain on sale.

 

Effective with theCompany’s reporting for the third quarter ended September 30, 2009,MicroEdge’s results of operations will be reported as a discontinued operationin accordance with Statement of Financial Accounting Standards No. 144 “Accountingfor the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).

 

**Item 2.****Management’s Discussion and Analysis of Financial Condition and Resultsof 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 in the future of the investment management market andopportunities for us related thereto, future expansion, acquisition, divestmentof or investment in other businesses, projections of revenues, future cost andexpense levels, expected timing and amount of amortization expenses

 

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relatedto past acquisitions, the adequacy of resources to meet future cashrequirements, estimates or predictions of actions by customers, suppliers,competitors or regulatory authorities, future client wins, future hiring andfuture product introductions. Such forward-looking statements are based on ourcurrent plans and expectations and involve known and unknown risks anduncertainties which may cause our actual results or performance to bematerially different from any results or performance expressed or implied bysuch forward-looking statements. Such factors include, but are not limited tothe “Risk Factors” set forth in “Item 1A. Risk Factors” in this Form 10-Q,as well as other risks identified from time to time in other Securities andExchange Commission (“SEC”) reports. You should not place undue reliance on ourforward-looking statements, as they are not guarantees of future results,levels of activity or performance and represent our expectations only as of thedate 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.

 

Oursoftware solutions within our MicroEdge subsidiary also support the grantmanagement, gifts matching and volunteer tracking processes for thegrant-making community. On July 27, 2009, we entered into a definitiveagreement to divest our MicroEdge subsidiary for approximately $30 million. We anticipate that the acquisition willclose in the fourth quarter of 2009 and will result in a gain on sale.Effective with the Company’s reporting for the third quarter ended September 30,2009, MicroEdge’s results of operations will be reported as a discontinuedoperation in accordance with Statement of Financial Accounting Standards No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). See Note 16, “SubsequentEvent” to our condensed consolidated financial statements for furtherdiscussion of the subsequent event related to the MicroEdge subsidiary.

 

*Current Economic Environment*

 

In the fourth quarter of2008, the gross domestic product (“GDP”) contracted at an estimated annual rateof 6% and decreased another 6% during the first quarter of 2009. The equitymarkets experienced intense volatility with the S&P 500 Index down 22% and12% during the fourth quarter of 2008 and the first quarter of 2009,respectively. Although these macro-economic indicators stabilized during thesecond quarter of 2009 (GDP contracted at an estimated annual rate of 1% andthe S&P 500 Index was up 15%), our business continued to be impacted by thegenerally weak macro-economic environment. The current recession has createdpressure on our clients to decrease their information technology budgets, whichnegatively impacted our customer renewal rates and annual term license contractvalue (“ACV”) in the first half of 2009. Renewal rates, which we report onequarter in arrears, decreased to 85% for the second quarter of 2009 compared to103% in the second quarter of 2008, while ACV decreased to $3.6 million in thesecond quarter of 2009, compared to $6.9 million in the comparable period of2008.

 

We believe that fiscal2009 will continue to be a difficult period for the investment managementindustry in the United States and worldwide. During the first half of 2009,investment managers have seen their revenues decrease as a result of decreasesin their assets under management and some hedge funds and other types ofclients have gone out of business and we believe more firms may go out ofbusiness during 2009. While we are not immune to downturns in technologyspending, should our customers continue to reduce or limit their spending, webelieve we are well positioned to maintain our competitive position in thelonger 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.

 

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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.

 

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. Additionally, we intend to continue to carefully manage our expensesand headcount growth.

 

*Operating Overview*

 

Operating highlights ofour second 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 8 APX contracts, bringing the totalnumber of licenses sold globally to 299, and we added 8 new Geneva clientswhich brings the total number of Geneva licenses sold to 221 as of June 30,2009.

 

·                 *Continued momentum in customerwins for Tamale**.* As of June 30,2009, we have sold 31 Tamale contracts worldwide since our acquisition ofTamale Software in October 2008.

 

·                 *New and incremental bookings*. The term license contracts signed inthe second quarter of 2009 will contribute approximately $3.6 million in annualrevenue (“annual term license contract value” or “ACV”) once they are fullyimplemented.

 

*Financial Overview*

 

The components of revenueduring the second quarters of 2009 and 2008, and associated dollar andpercentage fluctuations were as follows (in thousands, except % change):

 
| ** **                                                        | ** ** | **Three Months Ended June 30** | ** **       | **$**      | ** ** | **%**            | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------|------------------|------------|------------|------------------|------------|
| ** **                                                        | ** ** | **2009**                            | ** **       | **2008**   | ** ** | **Change**       | ** ** | **Change** | ** ** |
|                                                              |       |                                |             |       |       |             |       |   |   |
| Term  license revenues                                            |       | $                                   |  24,540     |       | $          |  15,078     |       | $ |  9,462 |   | 63 | % |
| Maintenance  revenues                                             |       | 22,384                              |             | 22,892     |       | (508             | )          | -2 | % |
| Other  recurring revenues                                         |       | 12,818                              |             | 12,868     |       | (50              | )          | 0 | % |
| **Total term license, maintenance and other recurring  revenues** | ** ** | **59,742**                          | ** **       | **50,838** | ** ** | **8,904**        | ** ** | **18** | **%** |
| *Recurring revenue as % of total revenue*                         | * *   | *86*                                | *%*              | *79*       | *%*        | * *         | * *   | * * | * * |
|                                                              |       |                                |             |       |       |             |       |   |   |
| Asset  under administration (AUA) fees                            |       | 1,359                               |             | 1,416      |       | (57              | )          | -4 | % |
| Other  perpetual license fees                                     |       | 1,964                               |             | 3,826      |       | (1,862           | )          | -49 | % |
| **Total perpetual license fees**                                  | ** ** | **3,323**                           | ** **       | **5,242**  | ** ** | **(1,919**       | **)**      | **-37** | **%** |
|                                                              |       |                                |             |       |       |             |       |   |   |
| **Professional services and other**                               | ** ** | **6,467**                           | ** **       | **7,947**  | ** ** | **(1,480**       | **)**      | **-19** | **%** |
|                                                              |       |                                |             |       |       |             |       |   |   |
| **Total net revenues**                                            | ** ** | **$**                               | ** 69,532** | ** ** | **$**      | ** 64,027** | ** ** | **$** | ** 5,505** | ** ** | **9** | **%** |

 

We recognized revenue of$69.5 million during the second quarter of 2009, which represented an increaseof 9% over the same quarter of last year. This increase was driven bysignificant growth in term license revenue as we continued to layer inincremental ACV sold in previous periods. Perpetual license fees in the secondquarter of 2009 were down compared to the second 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.

 

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Total recurring revenues,which we define as term license, perpetual maintenance, and other recurringrevenues, increased to 86% of total net revenues during the second quarter of2009, as compared to 79% during the same period of 2008. Term license revenuesincreased 63% in the second quarter of 2009 from the prior year period andrepresented 35% of total net revenues in the second quarter of 2009, as comparedto 24% in the same period in 2008.

 

Totalexpenses, including cost of revenues, were $60.9 million in the second quarterof 2009, compared with $59.0 million in the second quarter of 2008. Ourexpenses increased in 2009 from 2008 largely as a result of increased payroll,variable compensation and benefit expenses resulting from increases inheadcount primarily from our acquisition of Tamale Software, Inc. on October 1,2008.

 

Our income fromoperations in the second quarter of 2009 increased to $8.6 million or 12% ofrevenue from $5.1 million or 8% of revenue in the second quarter of 2008 whichis reflective of revenue growth and our cost reduction initiatives.

 

We recognized $2.8million of income tax expense resulting in a 26% effective tax rate during thesecond quarter of 2009, compared to $1.3 million or 15%, respectively, in thesecond quarter of 2008.

 

We earned net income of$8.0 million, resulting in diluted earnings per share of $0.31 for the secondquarter of 2009, compared to $7.4 million or $0.26 in the second quarter of2008.

 

We generated $35.7million in cash from operations in the first half of 2009, which compares to$35.0 million in the first half 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,customers purchase a license to use our software and receive maintenance for alimited period of time and we recognize all of the revenue ratably over thelength of the contract. This had the effect of lowering revenues in the AdventInvestment Management (“AIM”) segment in the early stages of the transition,but increasing the total potential value of the customer relationship. Becauseour products are used by customers for an average of approximately ten years,we believe 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 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. In the first half of 2009, the revenue recognized from completedimplementations exceeded the revenue deferred from projects being implementedby $4.4 million composed of $3.1 million of term license revenue and $1.3million of professional services revenue. We do not expect this trend ofrevenue recognition exceeding revenue deferral to continue. For example, in thefirst half of 2008, the revenue deferred from projects being implementedexceeded the revenue recognized from completed implementations by $5.0 millioncomposed of $0.9 million of term license revenue and $4.1 million ofprofessional services revenue.

 

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Amountsof revenues and directly-related expenses deferred as of June 30, 2009 andDecember 31, 2008 associated with our term licensing deferral was asfollows (in millions):

 

| ** **                 | ** ** | **June 30** | ** ** | **December 31** | ** ** |
|----------------------------|------------|------------------|------------|----------------------|------------|
| ** **                 | ** ** | **2009**         | ** ** | **2008**             | ** ** |
| Deferred  revenues         | ** ** | ** **       | ** ** | ** **           | ** ** |
| Short-term                 |       | $                |  20.7 |                 | $          |  26.0 |   |
| Long-term                  |       | 5.7              |       | 4.8                  |       |
|                       |       |             |       |                 |       |
| Total                      |       | $                |  26.4 |                 | $          |  30.8 |   |
|                       |       |             |       |                 |       |
| Directly-related  expenses |       |             |       |                 |       |
| Short-term                 |       | $                |  6.3  |                 | $          |  8.1 |   |
| Long-term                  |       | 2.9              |       | 2.1                  |       |
|                       |       |             |       |                 |       |
| Total                      |       | $                |  9.2  |                 | $          |  10.2 |   |

 

Deferrednet revenue and directly-related expenses are classified as “Deferred revenues”(short-term and long-term), and “Prepaid expenses and other,” and “Otherassets, net,” 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 followingaccounting policies contain the more significant judgments and estimates usedin the preparation 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

 

There have been nosignificant changes in our critical accounting policies and estimates duringthe first six 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.

 

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**RecentAccounting Pronouncements**

 

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

 

InApril 2009, the Financial Accounting Standards Board (“FASB”) issued StaffPosition (“FSP”) FAS 157-4, “Determining Fair Value When the Volume orLevel of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly” (“FSPFAS 157-4”). FSP FAS 157-4 provides additional guidance for estimatingfair value in accordance with SFAS No. 157 when the volume and level ofactivity for the asset or liability have significantly decreased and requiresthat companies provide interim and annual disclosures of the inputs andvaluation technique(s) used to measure fair value. FSP FAS 157-4 iseffective for interim and annual reporting periods ending after June 15,2009 and is to be applied prospectively. The Company’s adoption of FSP FAS157-4 during the three months ended June 30, 2009 did not have a materialimpact to the Company’s condensed consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition andPresentation of Other-Than-Temporary Impairments.” FSP FAS 115-2 and FAS 124-2amends the other-than-temporary impairment guidance to improve the presentationand disclosure of other-than-temporary impairments on debt and equitysecurities in the financial statements. FSP FAS 115-2 and FAS 124-2 iseffective for interim and annual reporting periods ending after June 15,2009. The Company’s adoption of FSP FAS 115-2 and FAS 124-2 during the threemonths ended June 30, 2009 did not have a material impact to the Company’scondensed consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “InterimDisclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 and APB28-1 requires disclosures about fair value of financial instruments for interimreporting periods of publicly traded companies as well as in annual financialstatements. FSP FAS 107-1 and APB 28-1 is effective for interim and annualreporting periods ending after June 15, 2009. The Company’s adoption ofFSP FAS 107-1 and APB 28-1 during the quarter ended June 30, 2009 did nothave a material impact the Company’s condensed consolidated financialstatements.

 

InMay 2009, the FASB issued SFAS No. 165, “Subsequent Events”, whichestablishes general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. The provisions of SFAS 165 are effective forinterim and annual reporting periods ending after June 15, 2009 and areeffective for us in the second quarter of fiscal 2009. Since SFAS 165 onlyrequires additional disclosures, adoption of SFAS 165 did not have animpact to our condensed consolidated financial position, results of operationsor cash flows.

 

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**RESULTSOF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008**

 

The following table sets forth, for the periods indicated,certain financial information as a percentage of total net revenues. Thefinancial information and the ensuing discussion should be read in conjunctionwith the accompanying condensed consolidated financial statements and notesthereto:

 
| ** **                                     | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30** | ** ** |
|------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **                                     | ** ** | **2009**                            | ** ** | **2008**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Net revenues:**                              |       |                                |       |                              |       |   |   |   |   |
| Term  license, maintenance and other recurring |       | 86                                  | %          | 79                                | %          | 85 | % | 80 | % |
| Perpetual  license fees                        |       | 5                                   |       | 8                                 |       | 5 |   | 9 |   |
| Professional  services and other               |       | 9                                   |       | 12                                |       | 10 |   | 12 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| Total  net revenues                            |       | 100                                 |       | 100                               |       | 100 |   | 100 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| **Cost of revenues:**                          |       |                                |       |                              |       |   |   |   |   |
| Term  license, maintenance and other recurring |       | 18                                  |       | 18                                |       | 17 |   | 18 |   |
| Perpetual  license fees                        |       | *                                   |       | *                                 |       | * |   | * |   |
| Professional  services and other               |       | 12                                  |       | 13                                |       | 12 |   | 13 |   |
| Amortization  of developed technology          |       | 2                                   |       | 1                                 |       | 2 |   | 1 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| Total  cost of revenues                        |       | 31                                  |       | 33                                |       | 31 |   | 32 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| Gross  margin                                  |       | 69                                  |       | 67                                |       | 69 |   | 68 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| **Operating expenses:**                        |       |                                |       |                              |       |   |   |   |   |
| Sales  and marketing                           |       | 23                                  |       | 24                                |       | 23 |   | 25 |   |
| Product  development                           |       | 19                                  |       | 20                                |       | 19 |   | 21 |   |
| General  and administrative                    |       | 14                                  |       | 14                                |       | 13 |   | 15 |   |
| Amortization  of other intangibles             |       | 1                                   |       | *                                 |       | 1 |   | 1 |   |
| Restructuring  charges (benefit)               |       | *                                   |       | *                                 |       | * |   | * |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| Total  operating expenses                      |       | 56                                  |       | 60                                |       | 56 |   | 61 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| Income  from operations                        |       | 12                                  |       | 8                                 |       | 13 |   | 7 |   |
| Interest  and other income, net                |       | 3                                   |       | 6                                 |       | 1 |   | 3 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| Income  before income taxes                    |       | 16                                  |       | 13                                |       | 14 |   | 10 |   |
| Provision  for income taxes                    |       | 4                                   |       | 2                                 |       | 4 |   | 2 |   |
|                                           |       |                                |       |                              |       |   |   |   |   |
| Net  income                                    |       | 12                                  | %          | 11                                | %          | 10 | % | 8 | % |

 

----

*Lessthan 1%

 

# **NETREVENUES**

 
| ** **                         | ** ** | **Three Months Ended June 30** | ** **   | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** **  |
|------------------------------------|------------|-------------------------------------|--------------|------------|------------|-----------------------------------|------------|------------|-------------|
| ** **                         | ** ** | **2009**                            | ** **   | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** **  | **2008** | ** ** | **Change** | ** ** |
| ** **                         | ** ** | ** **                          | ** **   | ** ** | ** ** | ** **                        | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
| Total  net revenues (in thousands) |       | $                                   |  69,532 |       | $          |  64,027                      |       | $          |  5,505 |   | $ |  142,318 |   | $ |  125,500 |   | $ |  16,818 |   |
|                                    |            |                                     |              |            |            |                                   |            |            |             |  |  |  |  |  |  |  |  |  |  |

 

Our net revenues aremade up of three components: term license, maintenance and other recurringrevenue; perpetual license 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 AUA fees. Professionalservices and other revenues include fees for consulting, fees from training,and project management services and our client conferences. Sales returns, which we generally donot provide to customers, are accounted for as deductions to these threerevenue categories 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 from 75% in 2006, to 77% in 2007, to 79% in 2008 and to 85% in the firsthalf of 2009 and conversely revenues from perpetual licenses have decreasedfrom 15% in 2006, to 12% in 2007, to 9% in 2008 and to 5% in the first half of2009. As we continue to sign term license agreements for new customers, weexpect our revenue from recurring sources to continue to represent over 80% ofour total net revenues.

 

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Revenue derived fromsales to the Europe, Middle East and Africa (“EMEA”) region was $7.9 millionand $16.8 million for the three and six months ended June 30, 2009 whichreflected a decrease of $1.2 million and $0.6 million when compared tocomparable periods in 2008. These decreases are primarily due to the impact ofthe US dollar strengthening against the Pound Sterling and Euro during thefirst half of 2009 compared to the comparable period of 2008. We plan tocontinue expanding our international sales efforts, both in our current marketsand elsewhere. The revenues from customers in any single international countrydid not exceed 10% of total net revenues.

 

Weexpect that total net revenues from continuing operations, which do not includethe results of our MicroEdge segment, to be between $61 million and $63 millionin the third quarter of 2009.

 

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

 
| **(in thousands, except percent  of**                         | ** ** | **Three Months Ended June 30** | ** **   | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** **  |
|---------------------------------------------------------------|------------|-------------------------------------|--------------|------------|------------|-----------------------------------|------------|------------|-------------|
| **total net revenues)**                                       | ** ** | **2009**                            | ** **   | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** **  | **2008** | ** ** | **Change** | ** ** |
|                                                          |       |                                |         |       |       |                              |       |       |        |   |   |   |   |
| Term  license revenues                                        |       | $                                   |  24,540 |       | $          |  15,078                      |       | $          |  9,462 |   | $ |  50,573 |   | $ |  29,449 |   | $ |  21,124 |   |
| Maintenance  revenues                                         |       | 22,384                              |         | 22,892     |       | (508                              | )          | 44,729     |        | 45,391 |   | (662 | ) |
| Other  recurring revenues                                     |       | 12,818                              |         | 12,868     |       | (50                               | )          | 25,337     |        | 25,137 |   | 200 |   |
| Total  term license, maintenance and other recurring revenues |       | $                                   |  59,742 |       | $          |  50,838                      |       | $          |  8,904 |   | $ |  120,639 |   | $ |  99,977 |   | $ |  20,662 |   |
| Percent  of total net revenues                                |       | 86                                  | %            | 79         | %          |                              |       | 85         | %           | 80 | % |   |   |

 

Theincrease in term license revenues reflected the continued market acceptance ofour Geneva, APX, Partner and Moxy products. Revenues from term licenses, which include both thesoftware license and maintenance services for term licenses, grew 63% and72% during the three and six months ended June 30, 2009, respectively,compared to the same periods in 2008, and represented 41% and 42% of total termlicense, maintenance and other recurring revenues as compared to 30% and 29% inthe comparable periods of 2008. The growth of term license revenues in thesecond quarter of 2009 reflects the continued layering of incremental ACV soldin previous quarters into our term revenue. In addition, in the first half of2009, the revenue recognized from completed implementations exceeded therevenue deferred from projects being implemented by $3.1 million. The amount ofnet revenue recognized from completed implementations was $0.8 million and $3.1million for the three and six months ended June 30, 2009, respectively.This is in contrast to our historical trend of net revenue deferral. In thefirst half of 2008, term license revenue deferred from projects beingimplemented exceeded the revenue recognized from completed implementations by$0.9 million. Revenues from Tamale Software, acquired in October 2008 alsocontributed to the growth of our term license revenues for the three and sixmonths ended June 30, 2009.

 

Thedecrease in maintenance revenues during the 2009 periods was attributable tothe perpetual 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 initial disclosure to include all cash collections subsequent tothe initial disclosure. The following summarizes our initial and updatedrenewal rates for the previous five quarters:

 
| **Renewal Rates**                                                                                              | ** ** | **Q209**   | ** ** | **Q109**   | ** ** | **Q408**   | ** ** | **Q308**   | ** ** | **Q208**   | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Current  Methodology (based on cash collections relative to prior year collections)*                          | * *   |
| Initially  Disclosed Rate (1)                                                                                  |       | 85         | %          | 93         | %          | 98         | %          | 103        | %          | 103        | %          |
| Updated  Disclosed Rate (2)                                                                                    |       | —     |       | 98         | %          | 100        | %          | 109        | %          | 106        | %          |
|                                                                                                           |       |       |       |       |       |       |       |       |       |       |       |
| *Previous  Methodology (based on cash collections relative to original list price  including price increases)* |       |
| Initially  Disclosed Rate (1)                                                                                  |       | 77         | %          | 82         | %          | 88         | %          | 86         | %          | 92         | %          |
| Updated  Disclosed Rate (2)                                                                                    |       | —     |       | 84         | %          | 88         | %          | 92         | %          | 95         | %          |

 

----

(1)   “Initially Disclosed Rate” is based on cashcollections and reported one quarter in arrears

 

(2)   “Updated Disclosed Rate” reflects initiallydisclosed rate updated for subsequent cash collections

 

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

 

Total recurring revenues,which we define as term license, perpetual maintenance, and other recurringrevenues, increased to 86% of total net revenues during the second quarter of2009, as compared to 79% during the same period of 2008.

 

***PerpetualLicense Fees***

 
| **(in thousands, except percent  of**   | ** ** | **Three Months Ended June 30** | ** **  | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** **   |
|-----------------------------------------|------------|-------------------------------------|-------------|------------|------------|-----------------------------------|------------|------------|--------------|
| **total net revenues)**                 | ** ** | **2009**                            | ** **  | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** **   | **2008** | ** ** | **Change** | ** ** |
| ** **                              | ** ** | ** **                          | ** **  | ** ** | ** ** | ** **                        | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** |
| Assets  under administration (AUA) fees |       | $                                   |  1,359 |       | $          |  1,416                       |       | $          |  (57    | ) | $ |  2,853 |   | $ |  3,395 |   | $ |  (542 | ) |
| Other  perpetual license fees           |       | 1,964                               |        | 3,826      |       | (1,862                            | )          | 4,372      |         | 7,472 |   | (3,100 | ) |
| ** **                              | ** ** | ** **                          | ** **  | ** ** | ** ** | ** **                        | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** |
| Total  perpetual license fees           |       | $                                   |  3,323 |       | $          |  5,242                       |       | $          |  (1,919 | ) | $ |  7,225 |   | $ |  10,867 |   | $ |  (3,642 | ) |
|                                    |       |                                |        |       |       |                              |       |       |         |   |   |   |   |
| Percent  of total net revenues          |       | 5                                   | %           | 8          | %          |                              |       | 5          | %            | 9 | % |   |   |

 

Totalperpetual license fees decreased 37% and 34% during the three and six monthsended June 30, 2009, respectively. As a percentage of total net revenues,perpetual license fees decreased to 5% in the second quarter of 2009 down from8% in the same period of 2008. Consistent with our transition to termlicensing, perpetual license fees continue to account for a smaller percentageof total net revenues. Additionally, we licensed fewer perpetual seats andmodules to our existing perpetual client base. Incremental assets underadministration fees from perpetual licenses decreased by $0.5 million duringthe six months ended June 30, 2009 when compared to the same period in2008 as clients experienced declines in the market value of AUA balances during2009 due to market conditions.

 

***Professional Services and Other Revenues***

 
| ** **                                               | ** ** | **Three Months Ended June 30** | ** **  | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** **   |
|----------------------------------------------------------|------------|-------------------------------------|-------------|------------|------------|-----------------------------------|------------|------------|--------------|
| ** **                                               | ** ** | **2009**                            | ** **  | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** **   | **2008** | ** ** | **Change** | ** ** |
| Professional  services and other revenues (in thousands) |       | $                                   |  6,467 |       | $          |  7,947                       |       | $          |  (1,480 | ) | $ |  14,454 |   | $ |  14,656 |   | $ |  (202 | ) |
| Percent  of total net revenues                           |       | 9                                   | %           | 12         | %          |                              |       | 10         | %            | 12 | % |   |   |
|                                                          |            |                                     |             |            |            |                                   |            |            |              |  |  |  |  |  |  |  |  |  |  |

 

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                      |       | $                |  (3,348 | )                | $          |  (3,843 | ) |
| Decreased  reimbursable travel revenue              |       | (534             | )            | (747             | )          |
| Decreased  project management                       |       | (298             | )            | (415             | )          |
| Decreased  net term license implementation deferral |       | 3,085            |         | 5,423            |       |
| Various  other items                                |       | (385             | )            | (620             | )          |
|                                                |       |             |         |             |       |
| Total  change                                       |       | $                |  (1,480 | )                | $          |  (202 | ) |

 

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Total professionalservices and other revenues decreased 19% and 1% during the three and sixmonths ended June 30, 2009, respectively. Revenues from consulting servicesdecreased during the three and six months ended June 30, 2009 due to lowerutilization of our consultants resulting from a decrease in demand forconsulting services. This decrease was partially offset by the recognition ofnet professional services revenue related to the completion of term licenseimplementations during the three and six months ended June 30, 2009. Wedeferred less professional services revenues for services performed on termlicense implementations which contributed to $3.1 million and $5.4 million ofthe increase for the three and six months ended June 30, 2009,respectively. During the first and second quarters of 2009, a number ofprofessional service implementation projects reached substantial completion.

 

***Revenues by Segment***

 
| ** **                    | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|-------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| **(in thousands)**            | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                          |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Advent  Investment Management |       | $                                   | 63,076     |       | $          | 57,979                            |       | $          | 5,097      |   | $ | 129,401 |   | $ | 113,243 |   | $ | 16,158 |   |
| MicroEdge                     |       | 6,456                               |       | 6,048      |       | 408                               |       | 12,917     |       | 12,257 |   | 660 |   |
|                          |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Total  net revenues           |       | $                                   | 69,532     |       | $          | 64,027                            |       | $          | 5,505      |   | $ | 142,318 |   | $ | 125,500 |   | $ | 16,818 |   |

 

Wehave two reportable segments: Advent Investment Management (“AIM”) andMicroEdge. AIM derives revenues from the development, marketing and sale ofsoftware products, data interfaces and related maintenance and services thatautomate, integrate and support certain mission critical functions ofinvestment management organizations. MicroEdge derives revenues from the saleof software and services for grant management, matching gifts and volunteertracking for the grant-making community.

 

The9% and 14% increase in AIM’s revenue during the three and six months ended June 30,2009 reflected the increase in term license revenues described in the “Term License,Maintenance and Other Recurring Revenue” section above.

 

The 7% and 5% increase inMicroEdge revenue during the three and six months ended June 30, 2009primarily reflected an increase in perpetual license sales in MicroEdge’s coreproduct GIFTS, and to a lesser extent an increase in maintenance revenues dueto price increases and continued strong customer retention. The technologyspending patterns of organizations in MicroEdge’s primary markets (independentfoundations, community foundations and corporations) are directly affected byeconomic fluctuations as foundation budgets are largely driven by endowmentincome. Given that endowments often contain market-exposed components, they aresignificantly affected by the economy and foundation spending typicallydecreases in an economic downturn. Community foundations are subject to similarinfluences, compounded by the fact that in many cases much of their ongoingfunding and endowment comes from active donors who may increase or reduce theirgiving depending on the economic climate and the related effect on their incomeand wealth. Corporations typically fund charitable activities from operatingbudgets, and the allocation to charitable donations and supporting companycharitable operations is often closely tied to a company’s performance. Thus,corporate philanthropy and spending on related technology are correlated withcompany and overall economic performance.

 

On July 27, 2009,the Company executed an Agreement and Plan of Merger to sell the MicroEdgesegment, as further described in Note 16, “Subsequent Event”. Following thedisposition of MicroEdge, the Company will operate under one reporting segment.

 

### **COST OF REVENUES**

 
| ** **                             | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                             | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                             | ** ** | ** **                          | ** ** | ** ** | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  cost of revenues (in thousands) |       | $                                   | 21,856     |       | $          | 20,854                            |       | $          | 1,002      |   | $ | 44,365 |   | $ | 40,553 |   | $ | 3,812 |   |
| Percent  of total net revenues         |       | 31                                  | %          | 33         | %          |                              |       | 31         | %          | 32 | % |   |   |
|                                        |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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. Theincrease in total cost of revenues in absolute dollars was due principally toheadcount additionsin our client support and services groups to support our new term licensebookings since the second quarter of 2008 and associated increase in clientimplementation projects. Cost of revenues as a percent of total net revenuesdecreased for the three and six months ending June 30, 2009 resultingprincipally from the recognition of term license and professional servicesrevenue from several projects that reached substantial completion during thefirst and second quarters of 2009. We defer revenues and direct costsassociated with services performed on term license implementations. Indirectcosts such as management and other overhead expenses are recognized in theperiod in which they are incurred.

 

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

 
| ** **                                                              | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                                              | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Cost  of term license, maintenance and other recurring (in thousands)   |       | $                                   | 12,272     |       | $          | 11,379                            |       | $          | 893        |   | $ | 24,408 |   | $ | 22,313 |   | $ | 2,095 |   |
| Percent  of total term license, maintenance and other recurring revenue |       | 21                                  | %          | 22         | %          |                              |       | 20         | %          | 22 | % |   |   |
|                                                                         |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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 |       | $                | 1,153      |             | $          | 2,406 |   |
| Increased  computers and telecom     |       | 84               |       | 197              |       |
| Decreased  royalty                   |       | (342             | )          | (184             | )          |
| Decreased  outside services          |       | (73              | )          | (157             | )          |
| Decreased  recruiting                |       | (55              | )          | (176             | )          |
| Various  other items                 |       | 126              |       | 9                |       |
|                                 |       |             |       |             |       |
| Total  change                        |       | $                | 893        |             | $          | 2,095 |   |

 

Theincreases in absolute dollars for the three and six months ended June 30,2009 were due primarily to an increase in compensation and related costsresulting from increases in salary costs and headcount. This increase wasoffset by decreases to royalty expenses resulting from the cessation of royaltycontracts with certain software vendors. Additionally, decreases to outsideservices and recruiting expenses reflect less activity and utilization duringthe three and six months ended June 30, 2009.

 

Weexpect cost of term license, maintenance and other recurring revenue in thethird quarter of 2009 to increase slightly as compared to the second quarter.

 

***Cost of Perpetual License Fees***

*** ***
| ** **                                     | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                     | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                           |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Cost  of perpetual license fees (in thousands) |       | $                                   | 128        |       | $          | 224                               |       | $          | (96        | ) | $ | 303 |   | $ | 541 |   | $ | (238 | ) |
| Percent  of total perpetual license revenues   |       | 4                                   | %          | 4          | %          |                              |       | 4          | %          | 5 | % |   |   |
|                                                |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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 sixmonths ended June 30, 2009 decreased by $0.1 million and $0.2 millioncompared with the same period in 2008 as a result of a reduction in payroll andrelated expenses due to a decline in headcount and product media costs as wecontinue to transition away from perpetual licensing.

 

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

 
| ** **                                                 | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Cost  of professional services and other (in thousands)    |       | $                                   | 8,010      |       | $          | 8,519                             |       | $          | (509       | ) | $ | 16,691 |   | $ | 16,245 |   | $ | 446 |   |
| Percent  of total professional services and other revenues |       | 124                                 | %          | 107        | %          |                              |       | 115        | %          | 111 | % |   |   |
|                                                            |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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  travel and entertainment                                  |       | $                | (654       | )                | $          | (914 | ) |
| Decreased  outside services                                          |       | (446             | )          | (612             | )          |
| Decreased  marketing                                                 |       | (289             | )          | (278             | )          |
| Increased  (decreased) payroll and related costs                     |       | (258             | )          | 191              |       |
| Decreased  recruiting                                                |       | (99              | )          | (195             | )          |
| Decreased  net service cost deferral related to term implementations |       | 1,375            |       | 2,400            |       |
| Various  other items                                                 |       | (138             | )          | (146             | )          |
|                                                                 |       |             |       |             |       |
| Total  change                                                        |       | $                | (509       | )                | $          | 446 |   |

 

Cost of professionalservices and other expense as a percent of total professional services andother revenues increased for the three and six months ending June 30, 2009as a result of decreased total professional services and other revenues for thesame periods. While the cost of professional services fluctuated slightly forthe three and six months ended June 30, 2009, when compared to the sameperiods in 2008, professional services revenues decreased by a greater rate dueto lower billing rates for our consultants and lower utilization of our existingconsultants. The change in total dollars of professional servicesand other expense during the three and six months ended June 30, 2009reflects decreases in travel and entertainment expenses, outside services,marketing and recruiting resulting from less professional service activity andlower utilization of consulting employees. These decreases were offset byincreased payroll and related costs related to less cost deferral associatedwith our term implementations. During the first and second quarter of 2009, werecognized revenue on several professional service implementation projects thatreached substantial completion. We defer direct costs associated with servicesperformed on term license implementations until a project reaches substantialcompletion. As a result, we recognized previously deferredsalary costs related to these completed projects. We recognized netprofessional service costs of $0.4 million and $0.6 million during the threeand six months ended June 30, 2009, compared to a deferral of netprofessional service costs of $0.9 million and $1.8 million for the sameperiods in 2008. As a result, less cost deferral from our term implementationsresulted in increases of $1.4 million and $2.4 million in costs for the threeand six months ended June 30, 2009.

 

***Amortization of Developed Technology***

 
| ** **                                          | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                          | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Amortization  of developed techology (in thousands) |       | $                                   | 1,446      |       | $          | 732                               |       | $          | 714        |   | $ | 2,963 |   | $ | 1,454 |   | $ | 1,509 |   |
| 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 FAS 86. The increase during the three and six months ended June 30,2009 reflects increased amortization from technology-related intangible assetsassociated with Tamale Software which we acquired in October 2008, andadditional amortization from software development costs capitalized during2009.

 

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### **OPERATING EXPENSES**

### ** **

***Sales and Marketing***

 
| ** **                          | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                          | ** ** | ** **                          | ** ** | ** ** | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales  and marketing (in thousands) |       | $                                   | 16,280     |       | $          | 15,626                            |       | $          | 654        |   | $ | 33,357 |   | $ | 31,016 |   | $ | 2,341 |   |
| Percent  of total net revenues      |       | 23                                  | %          | 24         | %          |                              |       | 23         | %          | 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.

 

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 |       | $                | 1,414      |             | $          | 3,746 |   |
| Decreased  travel and entertainment  |       | (568             | )          | (884             | )          |
| Decreased  advertising               |       | (144             | )          | (229             | )          |
| Various  other items                 |       | (48              | )          | (292             | )          |
|                                 |       |             |       |             |       |
| Total  change                        |       | $                | 654        |             | $          | 2,341 |   |

 

Theincrease in expense in absolute dollars for the three and six months ended June 30,2009 reflected the growth of payroll related costs, while the decrease ofexpense as a percentage of revenue during 2009 reflected revenue growing ata  higher rate as we implemented programsto control operating costs in 2009. The increase in payroll related costs wasdue principally to an increase in salary costs as headcount grew to 200 at June 30,2009 from 189 at June 30, 2008 resulting from the acquisition of TamaleSoftware, Inc. on October 1, 2008. The decreases in travel andentertainment costs and advertising costs were due to the impact of cost control measuresimplemented in 2009.

 

***Product Development***

 
| ** **                          | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Product  development (in thousands) |       | $                                   | 12,881     |       | $          | 13,008                            |       | $          | (127       | ) | $ | 26,476 |   | $ | 25,898 |   | $ | 578 |   |
| Percent  of total net revenues      |       | 19                                  | %          | 20         | %          |                              |       | 19         | %          | 21 | % |   |   |
|                                     |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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             |       | $                | 1,154      |             | $          | 2,652 |   |
| Increased  capitalization of product development |       | (1,110           | )          | (933             | )          |
| Decreased  outside services                      |       | (94              | )          | (829             | )          |
| Various  other items                             |       | (77              | )          | (312             | )          |
|                                             |       |             |       |             |       |
| Total  change                                    |       | $                | (127       | )                | $          | 578 |   |

 

The change in totalproduct development expenses for the three and six months ended June 30,2009 reflects increases in payroll related costs during the three and sixmonths ended June 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 increases in payroll related costsfrom the increase in headcount were offset by increases in capitalized payrollcosts related to our software development efforts primarily associated with anew release of Geneva. The decrease in outside services primarily reflects our cost controlmeasures implemented in 2009. We invested 19% of ourrevenues in product development during the three and six months ended June 30,2009.

 

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***General and Administrative***

 
| ** **                                 | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                 | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                                 | ** ** | ** **                          | ** ** | ** ** | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| General  and administrative (in thousands) |       | $                                   | 9,438      |       | $          | 9,232                             |       | $          | 206        |   | $ | 18,701 |   | $ | 18,459 |   | $ | 242 |   |
| Percent  of total net revenues             |       | 14                                  | %          | 14         | %          |                              |       | 13         | %          | 15 | % |   |   |
|                                            |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Generaland administrative expenses consist primarily of personnel costs forinformation technology, finance, administration, operations and generalmanagement, as well as legal and accounting expenses.

 

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

 
| ** **                                       | ** ** | **Change From**  | ** ** | **Change From**  | ** ** |
|--------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **2008 to 2009** | ** ** | **2008 to 2009** | ** ** |
| ** **                                       | ** ** | **QTD**          | ** ** | **YTD**          | ** ** |
|                                             |       |             |       |             |       |
| Increased  depreciation                          |       | $                | 401        |             | $          | 797 |   |
| Increased  (decreased) payroll and related costs |       | (129             | )          | 303              |       |
| Decreased  legal and professional                |       | (106             | )          | (444             | )          |
| Various  other items                             |       | 40               |       | (414             | )          |
|                                             |       |             |       |             |       |
| Total  change                                    |       | $                | 206        |             | $          | 242 |   |

 

Theincrease in expenses during the three and six months ended June 30, 2009is partially attributable to the increase in depreciation as a result of thebuild out of our headquarters in San Francisco. The change in payroll and otherrelated costs during the three and six months ended June 30, 2009 is primarily associated with an increase inheadcount to 170 at June 30,2009 from 165 at June 30, 2008 as a result of our Tamaleacquisition. Theincreases in payroll related costs associated with the increase in headcountwere offset by a decrease in the use of outside contractors during the threeand, to a lesser extent, six months ended June 30, 2009. The decrease inlegal and professional fees primarily reflects a reduction in externalaccounting fees.

 

***Amortization of Other Intangibles***

 
| ** **                                        | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                        | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Amortization  of other intangibles (in thousands) |       | $                                   | 444        |       | $          | 242                               |       | $          | 202        |   | $ | 888 |   | $ | 729 |   | $ | 159 |   |
| Percent  of total net revenues                    |       | 1                                   | %          | 0          | %          |                              |       | 1          | %          | 1 | % |   |   |
|                                                   |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Amortizationof other intangibles represents amortization of non-technology relatedintangible assets. Theincrease during 2009 reflected increased amortization from technology-relatedintangible assets associated 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 (Benefit)***

 
| ** **                                      | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                      | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                            |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Restructuring  charges (benefit) (in thousands) |       | $                                   | 2          |       | $          | (1                                | )          | $          | 3          |   | $ | 47 |   | $ | 55 |   | $ | (8 | ) |
| Percent  of total net revenues                  |       | 0                                   | %          | 0          | %          |                              |       | 0          | %          | 0 | % |   |   |
|                                                 |            |                                     |            |            |            |                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

##### ***During the sixmonths ended June 30, 2009 and 2008, we recorded restructuring charges of$47,000 and $55,000, respectively, which related to the present valueamortization of facility exit obligations partially offset by adjustments tofacility exit assumptions.***

##### *** ***

Foradditional analysis of the components of the payments and charges made againstthe restructuring accrual during the first half of 2009, see Note 9, “RestructuringCharges” to our condensed consolidated financial statements.

 

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***Income from Operations by Segment***

 
| ** **                                           | ** ** | **Three Months Ended June 30** | ** ** | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|------------|------------|-----------------------------------|------------|------------|------------|
| **(in thousands)**                                   | ** ** | **2009**                            | ** ** | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** ** | **2008** | ** ** | **Change** | ** ** |
|                                                 |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Advent  Investment Management                        |       | $                                   | 13,881     |       | $          | 9,290                             |       | $          | 4,591      |   | $ | 28,005 |   | $ | 17,226 |   | $ | 10,779 |   |
| MicroEdge                                            |       | 1,729                               |       | 611        |       | 1,118                             |       | 3,482      |       | 999 |   | 2,483 |   |
| Unallocated  corporate operating costs and expenses: |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Stock-based  employee compensation                   |       | (5,089                              | )          | (3,861     | )          | (1,228                            | )          | (9,152     | )          | (7,252 | ) | (1,900 | ) |
| Amortization  of developed technology                |       | (1,446                              | )          | (732       | )          | (714                              | )          | (2,963     | )          | (1,454 | ) | (1,509 | ) |
| Amortization  of other intangibles                   |       | (444                                | )          | (242       | )          | (202                              | )          | (888       | )          | (729 | ) | (159 | ) |
|                                                 |       |                                |       |       |       |                              |       |       |       |   |   |   |   |
| Total  income from operations                        |       | $                                   | 8,631      |       | $          | 5,066                             |       | $          | 3,565      |   | $ | 18,484 |   | $ | 8,790 |   | $ | 9,694 |   |

 

Incomefrom operations for the AIM segment increased by approximately $4.6 million inthe second quarter of 2009 compared with the second quarter of 2008 primarilyas a result of an increase in AIM revenue of $5.1 million or 9%, reflectingsubstantially increased term license revenues while our total expensesincreased by $0.5 million or 1%, primarily due to payroll and other related costs. Headcount remainedrelatively flat during the three and six months ended June 30, 2009 whencompared to the same periods in 2008, with the exception of personnel addedfrom our acquisition of Tamale Software in October 2008.

 

MicroEdge’sincome from operations increased by $1.1 million and $2.5 million during the threeand six months ended June 30, 2009, as compared to comparable periods of2008, primarily due to an decrease in total costs of $0.7 million and $1.8million. Thisdecrease primarily resulted from initiatives that have been implemented in theMicroEdge operating segment to reduce costs and improve operating efficiencies.

 

On July 27, 2009,the Company executed an Agreement and Plan of Merger to sell the MicroEdgesegment, as further described in Note 16, “Subsequent Event”. Following thedisposition of MicroEdge, the Company will operate under one reporting segment.

 

### ***Interest and Other Income,Net***

 
| ** **                                     | ** ** | **Three Months Ended June 30** | ** **  | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** **   |
|------------------------------------------------|------------|-------------------------------------|-------------|------------|------------|-----------------------------------|------------|------------|--------------|
| ** **                                     | ** ** | **2009**                            | ** **  | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** **   | **2008** | ** ** | **Change** | ** ** |
|                                           |       |                                |        |       |       |                              |       |       |         |   |   |   |   |
| Interest  and other income, net (in thousands) |       | $                                   |  2,201 |       | $          |  3,559                       |       | $          |  (1,358 | ) | $ |  1,824 |   | $ |  3,786 |   | $ |  (1,962 | ) |
| Percent  of total net revenues                 |       | 3                                   | %           | 6          | %          |                              |       | 1          | %            | 3 | % |   |   |
|                                                |            |                                     |             |            |            |                                   |            |            |              |  |  |  |  |  |  |  |  |  |  |

 

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

 

Interestand other income, 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 |       | $                |  (1,337 | )                | $          |  (1,335 | ) |
| Decreased  interest income                            |       | (234             | )            | (547             | )          |
| (Increased)  decreased interest expense               |       | 11               |         | (77              | )          |
| Various  other items                                  |       | 202              |         | (3               | )          |
|                                                  |       |             |         |             |       |
| Total  change                                         |       | $                |  (1,358 | )                | $          |  (1,962 | ) |

 

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.  In April 2007, the Company, togetherwith other LatentZero shareholders, sold their ownership in LatentZero toroyalblue group plc. Total payments received by Advent from the sale ofits LatentZero ownership were $15.4 million.

 

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

 

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

 
| ** **                                 | ** ** | **Three Months Ended June 30** | ** **  | ** ** | ** ** | **Six Months Ended June 30** | ** ** | ** ** | ** **  |
|--------------------------------------------|------------|-------------------------------------|-------------|------------|------------|-----------------------------------|------------|------------|-------------|
| ** **                                 | ** ** | **2009**                            | ** **  | **2008**   | ** ** | **Change**                        | ** ** | **2009**   | ** **  | **2008** | ** ** | **Change** | ** ** |
| Provision  for income taxes (in thousands) |       | $                                   |  2,810 |       | $          |  1,270                       |       | $          |  1,540 |   | $ |  6,057 |   | $ |  2,586 |   | $ |  3,471 |   |
| Effective  tax rate                        |       | 26                                  | %           | 15         | %          |                              |       | 30         | %           | 21 | % |   |   |
|                                            |            |                                     |             |            |            |                                   |            |            |             |  |  |  |  |  |  |  |  |  |  |

 

The increases in the effective taxrates during the 2009 periods over the prior year periods primarily reflect thesmaller percentage impact of the discrete tax benefits in 2009 due to theincrease in income before tax in 2009 over 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.

 

### **LIQUIDITYAND CAPITAL RESOURCES**

### ** **

Ouraggregate cash and cash equivalents were $47.0 million at June 30, 2009,compared with $48.4 million at December 31, 2008. Cash equivalents arecomprised of highly liquid investments purchased with an original or remainingmaturity of 90 days or less at the date of purchase.

 

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

 
| ** **                                           | ** ** | **Six Months Ended June 30** | ** **    |
|------------------------------------------------------|------------|-----------------------------------|---------------|
| ** **                                           | ** ** | **2009**                          | ** **    | **2008** | ** ** |
|                                                 |       |                              |          |   |   |
| Net  cash provided by operating activities           |       | $                                 |  35,654  |   | $ |  35,039 |   |
| Net  cash used in investing activities               |       | $                                 |  (1,047  | ) | $ |  (7,052 | ) |
| Net  cash provided by (used in) financing activities |       | $                                 |  (36,041 | ) | $ |  4,545 |   |

 

***Cash Flows from Operating Activities***

 

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 of $35.7 million during the six monthsended June 30, 2009 was primarily the result of our net income andnon-cash charges including stock-based compensation and depreciation andamortization, partially offset by a gain from our equity investment activity.Cash flows resulting from changes in assets and liabilities included decreases inaccounts receivable, deferred revenue, accounts payable and accruedliabilities. The decrease in accounts receivable primarily reflectedcollections during the first half of 2009 of invoices billed in our previousfourth quarter. Days’ sales outstanding based on billings were 66 and 59 daysduring the first and second quarters of 2009, respectively, compared to 63 and52 days in the first and second quarters of 2008. The decrease in deferredrevenue reflected the recognition of revenue as several term licenseimplementation projects reached substantial completion during the first andsecond quarters of 2009 and lower level of bookings. The decreases in accountspayable and accrued liabilities reflected cash payments of fiscal 2008liabilities including year-end bonuses, commissions, and payroll taxes.

 

Ourcash provided by operating activities of $35.0 million during the six monthsended June 30, 2008 was primarily the result of our net income andnon-cash charges including stock-based compensation and depreciation andamortization, partially offset by a gain from our equity investment activityduring the six months. Cash flows resulting from changes in assets andliabilities included decreases in accounts receivable and increases in deferredrevenue and accounts payable. The decrease in accounts receivable primarilyreflected collections during the first half of 2008 of invoices billed in theprevious fourth quarter. The increase in deferred revenue primarily reflectedour continued transition to the term license model. Under the term model, wegenerally bill and collect for a term agreement in equal installments inadvance of each annual period. These amounts are deferred at billing andrecognized over the annual term period. This has the effect of increasingdeferred revenue when compared to a perpetual license model where no licenserevenue is deferred. Other changes in assets and liabilities included anincrease in our prepaid and other assets and decreases in accrued liabilities.The decrease in accrued liabilities reflected cash payments of fiscal 2007liabilities including year-end payables and bonuses, commissions and payrolltaxes.

 

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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 increase deferredrevenues, collection of accounts receivable, and timing of payments.

 

***Cash Flows from Investing Activities***

 

Net cash used ininvesting activities of $1.0 million for the six months ended June 30,2009 reflects capital expenditures of $1.8 million primarily related tointernal use software and capitalized software development costs of $1.3million, partially offset by the receipt of $2.1 million for the final deferredcontingent consideration from the sale of our ownership interest in LatentZero.

 

Netcash used in investing activities of $7.1 million for the six months ended June 30,2008 reflects capital expenditures of $9.8 million primarily related to thebuild-out of additional space at our San Francisco headquarters facility,capitalized software development costs of $0.4 million 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***

 

Net cash used infinancing activities of $36.0 million for the six months ended June 30,2009 reflected the repurchase of 0.7 million shares of our common stock for$14.6 million, repayment of $25.0 million on our credit facility, and paymentstotaling $1.8 million to satisfy withholding taxes on equity awards that arenet share settled. This was partially offset by cash received from theexercise of employee stock options of $2.4 million and proceeds of $2.9 millionfrom the issuance of common stock under the employee stock purchase plan.

 

Netcash provided by financing activities of $4.5 million for the six months ended June 30,2008 reflected proceeds of $2.6 million from the issuance of common stock underthe employee stock purchase plan and $3.3 million received from the exercise ofemployee stock options, partially offset by payments totaling $1.3 million tosatisfy withholding taxes on net share settled equity awards.

 

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.

 

AtJune 30, 2009, we had negative working capital of $(54.1) million,compared to negative working capital of $(47.9) 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 six months ended June 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 half of 2009 and paid $27.8million in cash to acquire Tamale in the fourth quarter of 2008.  Excluding deferred revenues and deferredtaxes, we had working capital of $73.9 million at June 30, 2009, comparedto $85.6 million at December 31, 2008.

 

On July 27, 2009, weexecuted an Agreement and Plan of Merger to sell the MicroEdge segment, asfurther described in Note 16, “Subsequent Event”. We anticipate that theacquisition will close in the fourth quarter of 2009 and will result in a gainon sale. Under the terms of the agreement, the Purchaser will pay approximately$30 million in cash, less transaction costs, to Advent for all of theoutstanding capital stock of MicroEdge subject to adjustment for a workingcapital adjustment and certain other specified items. Approximately $3 millionof the Purchase Price will be placed into escrow for eighteen (18) monthsfollowing the closing date to be held as security for losses incurred by thePurchaser in the event of certain breaches of the representations andwarranties contained in the Agreement or certain other events. Our cash flowsfrom operating activities and investing activities will be impacted upon theclose of the transaction.

 

***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, to providebackup liquidity for general corporate purposes, including stock repurchases,or investment opportunities for a period of three years. The credit facilitywill expire in February 2010. As of June 30, 2009, there was no outstanding balance underthe Credit Facility.

 

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***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 second quarter of 2009, the Company did not make anyrepurchases of its common stock and at June 30, 2009, there remainedapproximately 1.0 million shares authorized by the Board for 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 opportunities arise.We believe that our cash and cash equivalents, cash generated from operationsand availability under our Credit Facility will be sufficient to satisfy ourworking capital needs, capital expenditures, investment requirements, stockrepurchases and financing activities for the next year. However, if we identifyopportunities that exceed our current expectation, we may choose to seekadditional capital resources through equity or debt financing. However, suchfinancing may not be available at all particularly in the current economicenvironment, or if available may not be obtainable on terms favorable to us andcould be dilutive.

 

**Off-BalanceSheet Arrangements and Contractual Obligations**

 

Thefollowing table summarizes our contractual cash obligations as of June 30,2009 (in thousands):

 
| ** **                                                | ** ** | **Six**              | ** **  | ** **                       | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** **     | ** ** | ** ** | ** **  |
|-----------------------------------------------------------|------------|----------------------|-------------|----------------------------------|------------|-------------|------------|------------|-------------|------------|------------|----------------|------------|------------|-------------|
| ** **                                                | ** ** | **Months Ended**     | ** **  | ** **                       | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** **     | ** ** | ** ** | ** **  |
| ** **                                                | ** ** | **December 31** | ** **  | **Years Ended December 31** | ** ** | ** **  | ** ** | ** ** | ** **  |
| ** **                                                | ** ** | **2009**             | ** **  | **2010**                         | ** ** | **2011**    | ** ** | **2012**   | ** **  | **2013**   | ** ** | **Thereafter** | ** ** | **Total**  | ** **  |
| Operating  lease obligations,****net of  sub-lease income | ** ** | $                    |  3,645 | ** **                       | $          |  6,830 | ** ** | $          |  6,229 | ** ** | $          |  5,428    | ** ** | $          |  4,820 | ** ** | $ |  17,939 | ** ** | $ |  44,891 | ** ** |
|                                                           |            |                      |             |                                  |            |             |            |            |             |            |            |                |            |            |             |  |  |  |  |  |  |  |

 

At June 30, 2009 andDecember 31, 2008, we had a gross liability of $7.4 million and $6.9million for uncertain tax positions associated with the adoption of FIN 48.Since almost all of this liability relates to reserves against deferred taxassets that we do not expect to utilize in the short term, we cannot estimatethe timing of potential future cash settlements and have not included anyestimates in the table of contractual cash obligations above. Additionally, ourcash payments for income taxes will continue to be nominal over the next fewyears as we have significant net operating losses, capital losses and taxcredit carryforwards to utilize.

 

At June 30, 2009 andDecember 31, 2008, we did not have any relationships with unconsolidatedentities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities, which would have beenestablished for the purpose of facilitating off-balance sheet arrangements orother contractually narrow or limited purposes. As such, we are not materiallyexposed to any financing, liquidity, market or credit risk that could arise ifwe had engaged in such relationships.

 

**Item 3. Quantitative and Qualitative Disclosures About MarketRisk**

 

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.Additionally as of June 30, 2009, $42.4 million of goodwill and $1.8million of other intangibles 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 $3 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 $48.4 millionin cash and cash equivalents as of December 31, 2008 and $47.0 million incash and cash equivalents as of June 30, 2009. Cash equivalent securitieswere comprised of overnight US government and treasury obligation money marketmutual funds which would not be materially affected by an immediate sharpincrease or decrease in interest rates.

 

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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. Fromtime to time we have drawn on that line of credit. As of June 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. The evaluationprocess is based on information that we request from these privately heldcompanies. This information is not subject to the same disclosure regulationsas US publicly traded companies, and as such, the basis for these evaluationsis subject to timing and the accuracy of the data received from thesecompanies.

 

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 inprivately held companies are written down to estimated fair value. We estimatefair value using a variety of valuation methodologies. Such methodologiesinclude comparing the private company with publicly traded companies in similarlines of business, applying revenue and price/earnings multiples to estimatedfuture operating results for the private company and estimating discounted cashflows for that company. We could lose our entire investment in these companies.At June 30, 2009 and December 31, 2008, our net investments inprivately-held companies totaled $0.5 million.

 

**Item 4. Controls andProcedures**

 

**Evaluation of disclosure controls and procedures.**

 

TheCompany’s management evaluated, with the participation of the PrincipalExecutive and Financial Officer, the effectiveness of the Company’s disclosurecontrols 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, thePrincipal Executive and Financial Officer has concluded our disclosure controlsand procedures were effective as of June 30, 2009 to ensure thatinformation we are required to disclose in reports that we file or submit underthe Securities Exchange Act of 1934 (i) is recorded, processed, summarizedand reported within the time periods specified in Securities and ExchangeCommission rules and forms and (ii) is accumulated and communicatedto Advent’s management, including our Principal Executive and FinancialOfficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

**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 second quarter ended June 30, 2009that has materially affected, or is reasonably likely to materially affect,Advent’s internal control over financial reporting.

 

**PART II.OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

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.

 

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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. Inaddition, in our MicroEdge business segment, we target corporations, publicfunds, universities and non-profit organizations, which also manage investmentportfolios and have many of the same needs. The success of many of our clientsis intrinsically linked to the health of the financial markets. The demand forour solutions has been and currently is disproportionately affected byfluctuations, disruptions, instability and downturns in the economy andfinancial services industry, which may cause clients and potential clients toexit the industry or delay, cancel or reduce any planned expenditures forinvestment management systems and software products. We have recentlyexperienced some clients and prospects delaying or cancelling additionallicense purchases. For example, our bookings in the second quarter of 2009 werelower than they have been in previous quarters. 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, have resulted and will likely continue toresult in reduced expenditures for software and related services. Additionally,the economic downturn has also decreased our clients’ AUA or AUM, which in turncauses our revenues to decrease since some pricing is based on assets underadministration or management. In addition, the failure of existing investmentfirms or the slowdown in the formation of new investment firms could cause adecline in demand for our solutions. Consolidation of financial services firmsand other clients will result in reduced technology expenditures or acquiredcustomers using the acquirer’s own proprietary software and services solutionsor the solutions of another vendor.  Insome circumstances 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.

 

The technology spendingpatterns of organizations in MicroEdge’s primary markets (independentfoundations, community foundations and corporations) are directly affected byeconomic fluctuations as foundation budgets are largely driven by endowmentincome. Given that endowments often contain market-exposed components, they aresignificantly affected by the economy and foundation spending typicallydecreases in an economic downturn. Community foundations are subject to similarinfluences, compounded by the fact that in many cases much of their ongoingfunding and endowment comes from active donors who may increase or reduce theirgiving depending on the economic climate and the related effect on their incomeand wealth. Corporations typically fund charitable activities from operatingbudgets, and the allocation to charitable donations and supporting companycharitable operations is often closely tied to a company’s performance. Thus,corporate philanthropy and spending on related technology are correlated withcompany and overall economic performance.

 

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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 asignificant level of education to prospective customers regarding the use andbenefit of our products. Our business and prospects are subject touncertainties in the financial markets that can cause customers to remaincautious about capital and information technology expenditures particularly inthe current economic environment or to decrease their information technologybudgets as an expense reduction measure. The sales cycle associated with thepurchase of our solutions is typically between two and twelve months dependingupon the size of the client, and is subject to a number of significant risksover which we have little or no control, including broader financial market volatility,adverse economic conditions, customers’ budgeting constraints, internalselection procedures, and changes in customer personnel, among others. Recentvolatility in the US and global financial markets has further exacerbated thisrisk.

 

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 half of 2009, our perpetual license revenue and ACV decreased by 34%and 44%, respectively, compared to the first half 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 contractsrepresented 85%, 79% and 77% of total net revenues in the first half of 2009,fiscal 2008 and 2007, respectively. We expect to continue to derive asignificant portion of our revenue from our clients’ renewal of term license,perpetual maintenance and other recurring contracts and such renewals arecritical to our future success. Some factors that may affect the renewal rateof our contracts include:

 

·                  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 fourth quarter of 2008 and the first andsecond quarters of 2009 were below the ranges of our previous four quarters.The decrease in renewal rates reflects increases in the number of customers whohave gone out of business or reduced maintenance expenditures, as well as fromslower payments received 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 renewal thatwere renewed in the second half of 2007 through the first half of 2009, wecannot yet conclude whether customers will renew in a manner consistent withour perpetual maintenance customers. Additionally, we cannot predict whether the renewals will be lessadvantageous to us than the original term contract. For example, the renewalperiods for our term license contracts are typically shorter than our originalterm license contract and customers may request a reduction in the number ofusers or products licensed, resulting in a lower annual term license fee.  Further, customers may elect to not renewtheir term license contracts at all. We may incur significantly more costs insecuring our term license contract renewals than we incur for our perpetualmaintenance renewals. If our term license contract customers renew under termsless favorable to us or choose not to renew their contracts, or if it costssignificantly more to secure a renewal for us, our operating results may beharmed.

 

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

 

In the first half of 2009 and in fiscal 2008 and2007, we recognized 85%, 79% and 77%, respectively, of total net revenues fromrecurring 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 ormaintenance, which would affect our renewal rates. Also, the significantdeclines in market value of our clients affect their AUA or AUM.  Consequently, we may also experience adecline in the ACV of bookings since the pricing of some of our products isbased upon our client’s AUA or AUM. Furthermore, we have some contracts for which clients pay us fees basedon the greater of a negotiated annual minimum fee or a calculated fee that isdetermined by the client’s AUA or AUM. If a client previously had paid us basedon the calculated fee, rather than the annual minimum fee, we would experiencea decline in revenue as a result of any decline 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.

 

**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 regulatoryrequirements. New products based on new technologies or new industry standardscan render existing products obsolete and unmarketable. As a result, our futuresuccess will continue to depend upon our ability to develop new products orproduct enhancements that address the future needs of our target markets andrespond to their changing standards and practices. We continue to releasenumerous new products and product upgrades and we believe our future successdepends on continuing such releases. Additionally, in October 2008, weacquired Tamale Software which enables us to offer a new product in the nascentresearch management field. However, it is too early to know whether theseproducts will meet anticipated sales or will be broadly accepted in the marketor that we will 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 products andproduct 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 75% in fiscal 2006, to 77% in 2007, to79% in 2008 and to 85% in the first half of fiscal 2009. Term license revenuescomprised approximately 42% of term license, maintenance and other recurringrevenues during the first half of 2009 compared to 29% in the first half of2008. During fiscal 2008, term license revenues comprised approximately 32% of termlicense, maintenance and other recurring revenues as compared to approximately22% and 14% in fiscal 2007 and 2006, respectively. Term license contracts arecomprised of both software licenses and maintenance services. Individualperpetual software licenses vary significantly in value, and the value andtiming of these transactions can therefore cause our quarterly perpetuallicense revenues to fluctuate. As we continue to sign term license agreementsfor new customers, grow our subscription, data management and outsourcedservices revenues, and our customers renew their perpetual maintenance, weexpect our revenue from recurring sources to continue to represent over 80% ofour total net revenues.

 

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Whena customer purchases a term license together with implementation services, wedo not recognize any revenue under the contract until the implementation servicesare substantially completed and then we recognize revenue ratably over theremaining length of the contract. If the implementation services are still inprogress 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 expenses of $1.0 million. 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. In the first and second quarters of 2009, the revenuerecognized from completed implementations exceeded the revenue deferred fromprojects being implemented. The total amount of net revenue recognizedfrom completed implementations for the second half of 2009 amounted to $4.4million, with $0.9 million of directly related expenses. In future periods, ourrevenues related to 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 marginhistorically achieved on our products, an unanticipated decline in net revenuesin any particular quarter may adversely affect our operating results.

 

Inaddition, we experience seasonality in our licensing. We believe that this seasonalityresults primarily from customer budgeting cycles and the annual nature of someAUA or AUM contracts, and expect this seasonality to continue in thefuture.  The fourth quarter of the yeartypically 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 withTIAA-CREF.  It is too early to knowwhether we will be able to continue to sign large recurring revenue contractsof this nature, and our operating results could be adversely impacted if thoseagreements are not fully implemented, terminated or not renewed or if we areunable to continue to generate similar opportunities.  Some of these agreements are subject tomilestones, acceptance and penalties and there is no assurance that theseagreements will be fully implemented, renewed, or that Advent will be able toenter similar or larger sized contracts in the future.

 

**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

 

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anticipatedincrease in product implementations; we must hire client services personnel toprovide technical support to our growing installed base of customers; and wemust attract and retain financial and accounting personnel to comply with therequirements of Section 404 of the Sarbanes-Oxley Act of 2002. We needto identify, attract, motivate and retain such employees with therequisite education, backgrounds and industry experience.  However,experienced high quality personnel in the information technology industrycontinue to be in high demand and competition for their talents remainsintense, especially in the San Francisco Bay Area where the majority of ouremployees 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. Fluctuations in our stock pricemay make it more difficult to retain and motivate employees. The recent significant adverse volatilityin our stock price has resulted in many employees’ stock option and/or stockappreciation right exercises exceeding the underlying stock’s market value aswell as the deterioration in the value of employees restricted stock units granted,thus lessening the effectiveness of retaining employees through stock-basedawards. Additionally, accounting regulations requiring the expensing of equitycompensation impair our ability to provide these incentives without reportingsignificant compensation costs.

 

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 a subsidiary of Advent Software, Inc.in Hong Kong in 2008.  We cannot becertain that establishing businesses in other countries will produce thedesired levels of revenues, such as in the case of our former Greek subsidiary,Advent Hellas, which produced less than satisfactory revenues and profitabilitybefore its sale by Advent in 2005. Also, the recent worldwide decline infinancial markets may disrupt our sales efforts in overseas markets. Wecurrently 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 have begun to outsource certainengineering activities with a business partner located in China. In addition,international operations are subject to other 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.

 

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**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 November 2007, ourMicroEdge subsidiary acquired Vivid Orange Limited, a United Kingdom companyproviding corporate community involvement and employee charitable givingtechnology.  In December 2006, weacquired East Circle Solutions, Inc., a developer of investment managementbilling solutions to integrate their product into our software offerings. From2001 through the middle of 2003, we made five major acquisitions, includingKinexus Corporation, Techfi Corporation and Advent Outsource Data ManagementLLC, and also acquired all of the common stock of five of our Europeandistributor’s subsidiaries. In addition, we purchased our European distributor’sremaining two subsidiaries in the United Kingdom and Switzerland in May 2004.

 

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 prior experience.Integrating these acquisitions in the past has been time-consuming, expensiveand disruptive to our business. This integration process has strained ourmanagerial resources, resulting in the diversion of these resources from ourcore business objectives and may do so in the future. Failure to achieve theanticipated benefits of these acquisitions or to successfully integrate theoperations of these entities has harmed and could potentially harm ourbusiness, results of operations and cash flows in future periods. Theassumptions we made in determining the value of, and relative risks, of theseacquisitions could be erroneous. For example, in the first quarter of 2003, weclosed our Australian subsidiary because it failed to perform at a satisfactoryprofit level and similarly in the fourth quarter of 2005, we disposed of ourAdvent Hellas subsidiary because of less than satisfactory profitability. Inaddition, as we have expanded into new business areas and built new offeringsthrough strategic alliances and internal development, as well as acquisitions,some of this expansion has required significant management time and resourceswithout generating required revenues. We have had difficulty and may continueto have difficulty creating demand for such offerings. Furthermore, we may faceother unanticipated costs from our acquisitions, such as disputes involvingearn-out and incentive compensation amounts, similar to those we haveexperienced with our Kinexus and Advent Outsource acquisitions.

 

Wemay make additional acquisitions of complementary companies, products ortechnologies in the future. In addition, we periodically evaluate theperformance of all our products and services and may sell or discontinuecurrent products, product lines or services, particularly as we focus on waysto streamline our operations. For example, in July 2009, we entered into adefinitive agreement to divest our MicroEdge subsidiary. Failure to achieve theanticipated benefits of any acquisition or divestiture could harm our business,results of operations and cash flows. Furthermore, we may have to incur debt,write-off investments, infrastructure costs or other assets, incur severanceliabilities, write-off impaired goodwill or other intangible assets or issueequity securities to pay for any future acquisitions. The issuance of equitysecurities could dilute our existing stockholders’ ownership. Finally, we maynot identify suitable businesses to acquire or negotiate acceptable terms forfuture acquisitions.

 

**Thereis no guarantee that the proposed divestiture of MicroEdge will close or willachieve expected benefits.**

 

Asdescribed in Note 16, “Subsequent Events,” to our unaudited condensedconsolidated financial statements in this Form 10-Q, and as previouslyannounced by us on July 28, 2009, we entered into a definitive agreementwith Microedge Holdings LLC (“Purchaser”) pursuant to which Purchaser willacquire all of the outstanding shares of our MicroEdge subsidiary in a cashmerger transaction. The transaction is subject closing conditions and otherfactors that may cause the proposed transaction not to close when anticipatedor at all. These factors include, but are not limited to, (1) theoccurrence of any event, change or other circumstances that could give rise tothe termination of the merger agreement with Purchaser; and (2) theinability to complete the merger due to the failure to satisfy conditions tocompletion of the merger. The merger may not result in achieving the expectedfinancial, operational and other benefits to the transaction, and there arealso risks related to the proposed transaction, including the potentialdisruption of current plans and operations and the potential difficulties inemployee retention as a result of the merger announcement. In addition, theCompany may be unable to create new revenue sources or grow current revenues toreplace the amounts previously provided by the operations of its MicroEdgesubsidiary.

 

**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, theycould harm our business and results of operations.

 

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**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.

 

**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 Web site for our development,marketing, operational, support, and sales activities. A disruption or failureof these systems in the event of major earthquake, fire, telecommunicationsfailure, cyber-attack, terrorist attack, or other catastrophic event couldcause system interruptions, reputational harm, delays in our productdevelopment and loss of critical data and could affect our ability to sell anddeliver products and services and other critical functions of our business. Ourcorporate headquarters, a significant portion of our research and developmentactivities, our data centers, and certain other critical business operationsare located in the San Francisco Bay Area, which is a region of seismicactivity. We have developed certain disaster recovery plans and certain backupsystems to reduce the potentially adverse effect of such events, but acatastrophic event that results in the destruction or disruption of any of ourdata centers or our critical business or information technology systems couldseverely affect our ability to conduct normal business operations and, as aresult, our future operating results could be adversely affected. Further, suchdisruptions could cause further instability in the financial markets or thespending of our clients and prospects upon which we depend.

 

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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 (approximately38% as of July 31, 2009). As a result, if these people act together, theywill have the ability to exert significant influence on matters submitted toour 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.

 

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 to investigationsor legal proceedings may be adversely impacted possibly leading to theirliquidation, bankruptcy, receivership, reductions in AUM or AUA, or diminishedoperations that would adversely affect our revenues and collection ofreceivables.

 

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.

 

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**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 SFAS 123R which requires the measurement of all stock-basedcompensation to employees, including grants of employee stock options,restricted stock units and stock appreciation rights, using a fair-value-basedmethod and the recording of such expense in our consolidated statements ofoperations. The adoption of SFAS 123R had a significant adverse effect on ourresults of operations. It will continue to significantly adversely affect ourresults of operations and has resulted in changes to our compensationpractices, such as an increased reliance on using equity vehicles such asstock-settled stock appreciation rights (“SAR”) and restricted stock units (“RSU”).

 

Wealso adopted FIN 48 in the first quarter of 2007. The adoption of FIN 48resulted in an increase in both assets and liabilities in our consolidatedbalance sheet as of the beginning of fiscal 2007 and may create increasedvolatility in our future operating results.

 

Additionally,in December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(revised 2007), (“SFAS 141R”), “Business Combinations,” which changes theaccounting for business combinations including the measurement of acquirershares issued in consideration for a business combination, the recognition ofcontingent consideration, the accounting for pre-acquisition gain and losscontingencies, the recognition of capitalized in-process research anddevelopment, the accounting for acquisition related restructuring liabilities,the treatment of acquisition related transaction costs and the recognition ofchanges in the acquirer’s income tax valuation allowance. FAS 141R is effectivefor financial statements issued for fiscal years beginning after December 15,2008. We currently believe that the adoption of SFAS 141R will result in therecognition of certain types of expenses in our results of operations that wecurrently capitalize pursuant to existing accounting standards and may alsoimpact our financial statement in other ways. Additionally, the nature andmagnitude of the specific effects will depend upon the nature, terms and sizeof the acquisitions the Company consummates after the 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. In addition, if our anticipated cash flow from ourrecurring sources of revenue is materially impaired due to customer defaults orfailure to renew term licenses or maintenance contracts, our ability to borrowunder the credit facility, or continue to meet the contractual covenants, maybe compromised. Our continued ability to borrow under our credit facility issubject to compliance with certain financial and non-financial covenants. Thefinancial covenant is limited to a maximum ratio of senior debt to earningsbefore interest, taxes, depreciation, and amortization (EBITDA), adjusted forcost capitalizations, extraordinary gains (losses) and non-cash stockcompensation. Our failure to comply with such covenants could cause defaultunder the agreement, and we may then be required to repay such debt withcapital from other sources. Under those circumstances, other sources of capitalmay not be available to us, or be available only on unfavorable terms, particularlyin the current economic environment. In the event of a default which is notremedied within the prescribed timeframe, the assets of the Company (subject tothe amount borrowed) may be attached or seized by the lender. On October 30,2008, the Board of Directors authorized a share repurchase program of up to 3.0million shares, and in November 2008, we borrowed $25.0 million under thecredit facility to fund a portion of these repurchases. As of June 30,2009, we had no outstanding balance under this credit facility.

 

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**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 systemsinaccessible or allow access to proprietary information and data of Advent orits clients.  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 orsecurities are 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 mustmake a reasonable allocation of client commissions in accordance with theeligible and ineligible uses of the items. Based on this new guidance, ourcustomers may change their method of paying all or a portion of certain Adventproducts or services from soft to hard dollars, and as a result reduce theirusage of these products or services in order to avoid increasing expenses,which could cause our 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 internalcontrol is necessary for us to provide reliable financial reports. If we cannotprovide reliable financial reports, our business and operating results could beharmed. We have in the past discovered, and may in the future discover, areasof our internal control that need improvement including control deficienciesthat may constitute 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.

 

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 internalresources, and we cannot be certain that these changes will be as effective orwill control costs as anticipated.

 

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**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 material weaknessremains dependent in part on our level of profitability during a particularquarter. If our quarterly or fiscal year pre-tax income were to decrease, thiswill make it statistically less likely for us and our independent registeredpublic accounting firm to determine that a control deficiency is not a materialweakness.

 

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.    Unregistered Sales of Equity Securities andUse 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 second quarter of 2009, Adventdid not make any repurchases of common stock.

 

Wewithheld shares through net share settlements during the three months ended June 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 June 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**     | ** ** |
|       |       |              |       |          |        |                   |       |
| April      |       | 6                 |       | $             |  34.76 |                   | —     |   |
| May        |       | 1                 |       | $             |  32.56 |                   | —     |   |
| June       |       | 3                 |       | $             |  31.23 |                   | —     |   |
|       |       |              |       |          |        |                   |       |
| Total      |       | 10                |       | $             |  33.62 |                   | —     |   |

 

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(1)         These purchases representshares cancelled when surrendered in lieu of cash payments for withholdingtaxes due from employees. These shares were not purchased as part of a publiclyannounced program to purchase shares.

 

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**Item 3.    Defaults Upon Senior Securities**

 

None.

 

**Item 4.    Submission of Matters to a Vote of SecurityHolders**

 

TheAnnual Meeting of Stockholders (the “Annual Meeting”) of Advent Software, Inc.was held at the principal office of the Company at 600 Townsend Street, SanFrancisco, California 94103 on May 13, 2009. Stockholders of record at theclose of business on March 20, 2009 (the “Record Date”) were entitled tonotice of and to vote at the meeting. As of the Record Date, 25,166,391 sharesof the Company’s common stock were issued and outstanding, and a quorum of21,822,283 shares of common stock was represented in person or by proxy at theAnnual Meeting.

 

Atthe Annual Meeting, three items were voted upon:

 

1.                                       To elect eightdirectors to serve for the ensuing year and until their successors are dulyelected and qualified.

 
| ** **             | ** ** | **Number of Shares** | ** ** |
|------------------------|------------|----------------------|------------|
| ** **             | ** ** | **Voted For**        | ** ** | **Withheld** | ** ** |
|                   |       |                 |       |   |   |
| John  H. Scully        |       | 21,110,930           |       | 711,353 |   |
| Stephanie  G. DiMarco  |       | 21,339,857           |       | 482,426 |   |
| A.  George Battle      |       | 19,856,042           |       | 1,957,241 |   |
| Robert  A. Ettl        |       | 21,697,453           |       | 124,830 |   |
| James  D. Kirsner      |       | 21,576,052           |       | 246,231 |   |
| Christine  S. Manfredi |       | 21,799,983           |       | 22,300 |   |
| James  P. Roemer       |       | 21,576,703           |       | 245,580 |   |
| Wendell  G. Van Auken  |       | 20,105,847           |       | 1,716,436 |   |

 

2.                                       To ratify theappointment of PricewaterhouseCoopers LLP as the independent registered publicaccounting firm of the Company for the year ending December 31, 2009.

 
| ** **                                                     | ** ** | **Number of Shares** | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                     | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** | ** ** |
| ** **                                                     | ** ** | **For**              | ** ** | **Against** | ** ** | **Abstained** | ** ** | **Non-Votes** | ** ** |
| Ratification  of appointment of****PricewaterhouseCoopers  LLP | ** ** | 21,769,240           | ** ** | 46,902 | ** ** | 6,141 | ** ** | — | ** ** |

 

3.                                       To approve theamended and restated 2002 Stock Plan, and add and reserve 1,800,000 sharesthereunder.

 
| ** **                            | ** ** | **Number of Shares** | ** ** |
|---------------------------------------|------------|----------------------|------------|
| ** **                            | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** | ** ** |
| ** **                            | ** ** | **For**              | ** ** | **Against** | ** ** | **Abstained** | ** ** | **Non-Votes** | ** ** |
| Amended  and restated 2002 Stock Plan |       | 16,449,909           |       | 2,683,711 |   | 9,601 |   | 2,679,062 |   |

 

**Item 5.    Other Information**

 

None.

 

**Item 6.    Exhibits**

 

10.1               Description of Director Compensation*

 

31.1               Certification of Principal Executive andFinancial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1               Certification of Principal Executive andFinancial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

 

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*Denotesmanagement contract or compensatory plan or arrangement.

 

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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:  August 6, 2009 | By:                    | /s/  Stephanie G. DiMarco |
|   |                        |                   | Stephanie  G. DiMarco |
|   |                        |                   | *Executive President,* |
|   |                        |                   | *Chief Executive Officer and**Chief Financial Officer* |
|   |                        |                   | *(Principal Executive and Financial Officer)* |

 

 
|   | Dated:  August 6, 2009 | By:    | /s/  James S. Cox                         |
|--------|-----------------------------|--------|-------------------------------------------|
|   |                        |   | James  S. Cox                             |
|   |                        |   | *Vice President and Corporate Controller* |
|   |                        |   | *(Principal Accounting Officer)*          |

 

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