**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| ** ** | **x**      | **Quarterly report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934 for the quarterly period  ended March 31, 2008** |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                 |
| **or**     |
| ** ** | ** ** | ** **                                                                                                                                                 |
| ** ** | **o**      | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**                                                    |

 

**Commission filenumber:  0-26994**

 

**ADVENT SOFTWARE, INC.**

(Exact name of registrant asspecified 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)       |

 

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

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| 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  o No x

 

The number of shares of the registrant’sCommon Stock outstanding as of April 30, 2008 was 26,684,281.

 

 

----

 

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

 

2

----

 

**PART I. FINANCIAL INFORMATION**

 

**Item 1.Financial Statements**

 

**ADVENTSOFTWARE, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                      | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                      | ** ** | **2008**          | ** ** | **2007**             | ** ** |
| **ASSETS**                                      | ** ** | ** **        | ** ** | ** **           | ** ** |
| Current assets:                            | ** ** | ** **        | ** ** | ** **           | ** ** |
| Cash and cash equivalents                       |       | $                 | 58,008     |                 | $          | 49,589 |   |
| Accounts receivable, net                        |       | 44,392            |       | 47,574               |       |
| Deferred taxes, current                         |       | 10,288            |       | 10,288               |       |
| Prepaid expenses and other                      |       | 20,464            |       | 19,577               |       |
| Total current assets                            |       | 133,152           |       | 127,028              |       |
| Property and equipment, net                     |       | 28,227            |       | 27,779               |       |
| Goodwill                                        |       | 108,601           |       | 106,520              |       |
| Other intangibles, net                          |       | 8,391             |       | 9,376                |       |
| Deferred taxes, long-term                       |       | 70,980            |       | 70,981               |       |
| Other assets, net                               |       | 11,396            |       | 10,645               |       |
|                                            |       |              |       |                 |       |
| Total assets                                    |       | $                 | 360,747    |                 | $          | 352,329 |   |
|                                            |       |              |       |                 |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**   |       |              |       |                 |       |
| Current liabilities:                            |       |              |       |                 |       |
| Accounts payable                                |       | $                 | 4,672      |                 | $          | 4,382 |   |
| Accrued liabilities                             |       | 23,796            |       | 29,328               |       |
| Deferred revenues                               |       | 116,497           |       | 115,398              |       |
| Income taxes payable                            |       | 2,207             |       | 1,086                |       |
| Total current liabilities                       |       | 147,172           |       | 150,194              |       |
| Deferred income taxes                           |       | 881               |       | 998                  |       |
| Deferred revenue, long-term                     |       | 6,363             |       | 4,939                |       |
| Other long-term liabilities                     |       | 16,235            |       | 16,352               |       |
|                                            |       |              |       |                 |       |
| Total liabilities                               |       | 170,651           |       | 172,483              |       |
|                                            |       |              |       |                 |       |
| Commitments and contingencies (See Note 10)     |       |              |       |                 |       |
|                                            |       |              |       |                 |       |
| Stockholders’ equity:                      |       |              |       |                 |       |
| Common stock                                    |       | 266               |       | 265                  |       |
| Additional paid-in capital                      |       | 332,161           |       | 326,964              |       |
| Accumulated deficit                             |       | (159,050          | )          | (161,685             | )          |
| Accumulated other comprehensive income          |       | 16,719            |       | 14,302               |       |
| Total stockholders’ equity                 |       | 190,096           |       | 179,846              |       |
|                                            |       |              |       |                 |       |
| Total liabilities and stockholders’ equity |       | $                 | 360,747    |                 | $          | 352,329 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

3

----

 

**ADVENTSOFTWARE, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per sharedata)**

**(Unaudited)**

 
| ** **                                                     | ** ** | **Three Months Ended March 31** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                     | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| **Net revenues:**                                              |       |                                                |       |   |   |
| Term license, maintenance and other  recurring                 |       | $                                                   | 49,139     |   | $ | 37,724 |   |
| Perpetual license fees                                         |       | 5,625                                               |       | 5,927 |   |
| Professional services and other                                |       | 6,709                                               |       | 4,328 |   |
|                                                           |       |                                                |       |   |   |
| Total net revenues                                             |       | 61,473                                              |       | 47,979 |   |
|                                                           |       |                                                |       |   |   |
| **Cost of revenues:**                                          |       |                                                |       |   |   |
| Term license, maintenance and other  recurring                 |       | 10,934                                              |       | 9,032 |   |
| Perpetual license fees                                         |       | 317                                                 |       | 195 |   |
| Professional services and other                                |       | 7,726                                               |       | 5,873 |   |
| Amortization of developed technology                           |       | 722                                                 |       | 364 |   |
|                                                           |       |                                                |       |   |   |
| Total cost of revenues                                         |       | 19,699                                              |       | 15,464 |   |
|                                                           |       |                                                |       |   |   |
| Gross margin                                                   |       | 41,774                                              |       | 32,515 |   |
|                                                           |       |                                                |       |   |   |
| **Operating expenses:**                                        |       |                                                |       |   |   |
| Sales and marketing                                            |       | 15,390                                              |       | 12,889 |   |
| Product development                                            |       | 12,890                                              |       | 9,856 |   |
| General and administrative                                     |       | 9,227                                               |       | 8,784 |   |
| Amortization of other intangibles                              |       | 487                                                 |       | 474 |   |
| Restructuring charges                                          |       | 56                                                  |       | 562 |   |
|                                                           |       |                                                |       |   |   |
| Total operating expenses                                       |       | 38,050                                              |       | 32,565 |   |
|                                                           |       |                                                |       |   |   |
| Income (loss) from operations                                  |       | 3,724                                               |       | (50 | ) |
| Interest and other income (expense), net                       |       | 227                                                 |       | 518 |   |
|                                                           |       |                                                |       |   |   |
| Income before income taxes                                     |       | 3,951                                               |       | 468 |   |
| Provision for income taxes                                     |       | 1,316                                               |       | 29 |   |
|                                                           |       |                                                |       |   |   |
| **Net income**                                                 |       | $                                                   | 2,635      |   | $ | 439 |   |
|                                                           |       |                                                |       |   |   |
| Net income per share:                                          |       |                                                |       |   |   |
| Basic                                                          |       | $                                                   | 0.10       |   | $ | 0.02 |   |
| Diluted                                                        |       | $                                                   | 0.09       |   | $ | 0.02 |   |
|                                                           |       |                                                |       |   |   |
| Weighted average shares used to compute net  income per share: |       |                                                |       |   |   |
| Basic                                                          |       | 26,570                                              |       | 27,389 |   |
| Diluted                                                        |       | 28,080                                              |       | 28,756 |   |

 

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

 

4

----

 

**ADVENT SOFTWARE, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Three Months Ended March 31** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| **Cash flows from operating activities:**                                          |       |                                                |       |   |   |
| Net income                                                                         |       | $                                                   | 2,635      |   | $ | 439 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                                |       |   |   |
| Stock-based compensation                                                           |       | 3,391                                               |       | 3,246 |   |
| Depreciation and amortization                                                      |       | 3,262                                               |       | 2,790 |   |
| Loss on dispositions of fixed assets                                               |       | 1                                                   |       | 3 |   |
| Provision for doubtful accounts                                                    |       | 249                                                 |       | 137 |   |
| Reduction of sales returns                                                         |       | (104                                                | )          | (6 | ) |
| Gain loss on investments                                                           |       | —                                              |       | (18 | ) |
| Deferred income taxes                                                              |       | (117                                                | )          | (65 | ) |
| Other                                                                              |       | 7                                                   |       | 13 |   |
| Effect of statement of operations  adjustments                                     |       | 6,689                                               |       | 6,100 |   |
| Changes in operating assets and  liabilities:                                      |       |                                                |       |   |   |
| Accounts receivable                                                                |       | 2,933                                               |       | 6,030 |   |
| Prepaid and other assets                                                           |       | (1,382                                              | )          | (1,117 | ) |
| Accounts payable                                                                   |       | 290                                                 |       | (685 | ) |
| Accrued liabilities                                                                |       | (5,691                                              | )          | (2,505 | ) |
| Deferred revenues                                                                  |       | 2,626                                               |       | 5,819 |   |
| Income taxes payable                                                               |       | 1,164                                               |       | (284 | ) |
| Effect of changes in operating assets and  liabilities                             |       | (60                                                 | )          | 7,258 |   |
|                                                                               |       |                                                |       |   |   |
| Net cash provided by operating activities                                          |       | **9,264**                                           | ** ** | **13,797** | ** ** |
|                                                                               |       |                                                |       |   |   |
| **Cash flows from investing activities:**                                          |       |                                                |       |   |   |
| Net cash used in acquisitions                                                      |       | —                                              |       | (1,022 | ) |
| Purchases of property and equipment                                                |       | (2,496                                              | )          | (2,620 | ) |
| Capitalized software development costs                                             |       | (205                                                | )          | — |   |
| Sales and maturities of marketable  securities                                     |       | —                                              |       | 24,921 |   |
| Change in restricted cash                                                          |       | (248                                                | )          | — |   |
|                                                                               |       |                                                |       |   |   |
| Net cash provided by (used in) investing  activities                               |       | **(2,949**                                          | **)**      | **21,279** | ** ** |
|                                                                               |       |                                                |       |   |   |
| **Cash flows from financing activities:**                                          |       |                                                |       |   |   |
| Proceeds from issuance of common stock                                             |       | 1,787                                               |       | 7,806 |   |
| Repurchase of common stock                                                         |       | —                                              |       | (30,120 | ) |
|                                                                               |       | ** **                                          | ** ** | ** ** | ** ** |
| Net cash provided by (used in) financing  activities                               |       | **1,787**                                           | ** ** | **(22,314** | **)** |
|                                                                               |       | ** **                                          | ** ** | ** ** | ** ** |
| Effect of exchange rate changes on cash and  cash equivalents                      |       | **317**                                             | ** ** | **12** | ** ** |
|                                                                               |       | ** **                                          | ** ** | ** ** | ** ** |
| **Net change in cash and cash equivalents**                                        |       | **8,419**                                           | ** ** | **12,774** | ** ** |
| **Cash and cash equivalents at beginning of  period**                              |       | **49,589**                                          | ** ** | **30,187** | ** ** |
|                                                                               |       | ** **                                          | ** ** | ** ** | ** ** |
| **Cash and cash equivalents at end of period**                                     |       | **$**                                               | **58,008** | ** ** | **$** | **42,961** | ** ** |

 

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

 

5

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**ADVENTSOFTWARE, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note1—Basis of Presentation**

 

The condensed consolidated financialstatements include the accounts of Advent Software, Inc. (“Advent” or the “Company”)and its wholly owned subsidiaries. All inter-company balances and transactionshave been eliminated.

 

Advent has prepared these condensedconsolidated financial statements in accordance with the rules andregulations of the Securities and Exchange Commission (“SEC”) applicable tointerim financial information. Certain information and footnote disclosuresincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have been omittedin these interim statements pursuant to such SEC rules and regulations.These interim financial statements should be read in conjunction with theaudited financial statements and related notes included in Advent’s AnnualReport on Form 10-K for the year ended December 31, 2007. Interimresults are not necessarily indicative of the results to be expected for thefull year, and no representation is made thereto.

 

These condensed consolidated financialstatements include all adjustments necessary to state fairly the financialposition and results of operations for each interim period shown. All suchadjustments occur in the ordinary course of business and are of a normal,recurring nature.

 

**Note2—Recent Accounting Pronouncements**

 

No recent accounting pronouncements have been issued which wouldcurrently have a material effect on Advent’s condensed consolidated financialposition, results of operations, or cash flows.

 

**Note 3—Stock-Based Compensation**

 

**Equity Award Activity**

 

Asummary of the status of the Company’s stock option and stock appreciationright (“SAR”) activity for the period presented follows:

 
| ** **                            | ** ** | ** **              | ** ** | **Weighted** | ** ** | **Weighted**              | ** ** | ** **              | ** ** |
|---------------------------------------|------------|-------------------------|------------|--------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                            | ** ** | ** **              | ** ** | **Average**  | ** ** | **Average**               | ** ** | **Aggregate**           | ** ** |
| ** **                            | ** ** | **Number of**      | ** ** | **Exercise** | ** ** | **Remaining**             | ** ** | **Intrinsic**           | ** ** |
| ** **                            | ** ** | **Shares**              | ** ** | **Price**    | ** ** | **Contractual Life** | ** ** | **Value**               | ** ** |
| ** **                            | ** ** | **(in thousands)** | ** ** | ** **   | ** ** | **(in years)**       | ** ** | **(in thousands)** | ** ** |
| Outstanding at December 31, 2007 |       | 3,818                   |       | $            | 24.61      |                      |       |                    |       |   |
| Options & SARs granted       |       | 267                     |       | $            | 45.74      |                      |       |                    |       |   |
| Options & SARs exercised     |       | (148                    | )          | $            | 21.56      |                      |       |                    |       |   |
| Options & SARs canceled      |       | (8                      | )          | $            | 30.82      |                      |       |                    |       |   |
| Outstanding at March 31, 2008    |       | 3,929                   |       | $            | 26.15      |                      | 6.57       |                    | $          | 66,705 |   |
| Exercisable at March 31,2008     |       | 2,115                   |       | $            | 21.80      |                      | 5.20       |                    | $          | 44,340 |   |

 

Theaggregate intrinsic value is calculated as the difference between the exerciseprice of the underlying awards and the Company’s closing stock price of $42.62as of March 31, 2008 for options that were in-the-money as of that date.

 

Theweighted average grant date fair value of options and SARs granted during thefirst quarter of 2008 was $19.24 per share. The total intrinsic value ofoptions exercised during the first quarter of 2008 and 2007 was $3.9 millionand $14.2 million, respectively. The total cash received from employees as aresult of employee stock option exercises net of taxes paid for SARs exercisedand restricted stock units (“RSU”) vested during the first quarter of 2008 and2007 was approximately $1.8 million and $7.8 million, respectively.

 

TheCompany settles exercised employee stock options and SARs with newly issuedcommon shares.

 

6

----

 

Asummary of the status of the RSUs for the three months ended March 31,2008 is as follows:

 
| ** **                                          | ** ** | ** **              | ** ** | **Weighted**        | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                                          | ** ** | ** **              | ** ** | **Average**         | ** ** |
| ** **                                          | ** ** | **Number of**      | ** ** | **Grant Date** | ** ** |
| ** **                                          | ** ** | **Shares**              | ** ** | **Fair Value** | ** ** |
| ** **                                          | ** ** | **(in thousands)** | ** ** | ** **          | ** ** |
| Outstanding and unvested at  December 31, 2007 |       | 571                     |       | $                   | 34.62      |   |
| RSUs granted                                        |       | 20                      |       | $                   | 45.88      |   |
| RSUs vested                                         |       | (14                     | )          | $                   | 28.18      |   |
| RSUs canceled                                       |       | (6                      | )          | $                   | 34.67      |   |
| Outstanding and unvested at March 31,  2008    |       | 571                     |       | $                   | 35.17      |   |

 

Theweighted average grant date fair value was determined based on the closingmarket price of the Company’s common stock on the date of the award. Theaggregate intrinsic value of RSUs outstanding at March 31, 2008 was $24.3million, using the closing price of $42.62 per share as of March 31, 2008.

 

**Stock-BasedCompensation Expense**

 

Theeffect of stock-based employee compensation expense recognized on Advent’scondensed consolidated statement of operations for the first quarter of 2008and 2007 were as follows (in thousands, except per share data):

 
| ** **                                                      | ** ** | **Three Months Ended March 31** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                      | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| **Statement of operations classification**                      |       |                                                |       |   |   |
| Cost of term license, maintenance and other  recurring revenues |       | $                                                   | 290        |   | $ | 247 |   |
| Cost of professional services and other  revenues               |       | 237                                                 |       | 175 |   |
| Total cost of revenues                                          |       | 527                                                 |       | 422 |   |
|                                                            |       |                                                |       |   |   |
| Sales and marketing                                             |       | 1,038                                               |       | 969 |   |
| Product development                                             |       | 871                                                 |       | 737 |   |
| General and administrative                                      |       | 955                                                 |       | 1,118 |   |
| Total operating expenses                                        |       | 2,864                                               |       | 2,824 |   |
|                                                            |       |                                                |       |   |   |
| Total stock-based employee compensation  expense                |       | $                                                   | 3,391      |   | $ | 3,246 |   |
|                                                            |       |                                                |       |   |   |
| Tax effect on stock-based employee  compensation                |       | (1,300                                              | )          | (1,053 | ) |
|                                                            |       |                                                |       |   |   |
| Net effect on net income                                        |       | $                                                   | 2,091      |   | $ | 2,193 |   |

 

Adventcapitalized $21,000 and $3,000 during the first quarters of 2008 and 2007,respectively, associated with the Company’s software development, internal-usesoftware and professional services implementation projects.

 

Asof March 31, 2008, total unrecognized compensation cost related tounvested awards not yet recognized under all equity compensation plans,adjusted for estimated forfeitures, was $27.4 million and is expected to berecognized through the remaining vesting period of each grant, with a weightedaverage remaining period of 3.0 years.

 

7

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**Valuation Assumptions**

 

Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option valuation model and the straight-line attribution approachwith the following assumptions:

 
| ** **                                  | ** ** | **Three Months Ended March 31** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------|------------|
| **Stock Options & SARs** | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| Expected volatility                         |       | 41.8% - 42.8%                                       |       | 35.1% - 38.4% |   |
| Expected life (in years)                    |       | 5.27                                                |       | 4.58 |   |
| Risk-free interest rate                     |       | 2.6% - 3.2%                                         |       | 4.5% - 4.8% |   |
| Expected dividends                          |       | None                                                |       | None |   |

 

Theexpected stock price volatility was determined based on an equally weightedaverage of historical and implied volatility of the Company’s commonstock. Advent determined that a blend of implied volatility andhistorical volatility is more reflective of the market conditions and a betterindicator of expected volatility than using purely historical volatility. The expected life was determined based onhistorical experience of similar awards, giving consideration to thecontractual terms of the stock-based awards, vesting schedules and expectationsof future employee behavior. The risk-free interest rate is based on theU.S. Treasury yield curve in effect at the time of grant for periods correspondingwith the expected life of the option. The dividend yield assumption isbased on the Company’s history of not paying dividends and the resultant futureexpectation of dividend payouts.

 

**Note 4—Net Income Per Share**

 

Basic net income per share is computed by dividing net income by theweighted average number of common shares outstanding during the period. Dilutednet income per share is computed by dividing net income by the sum of weightedaverage number of common shares outstanding and the potential number ofdilutive common shares outstanding during the period, excluding the effect ofany anti-dilutive securities. Potential common shares consist of the sharesissuable upon the exercise of stock options and SARs, the vesting of restrictedstock awards and from withholdings associated with the Company’s employee stockpurchase plan. Potentialcommon shares are reflected in diluted earnings per share by application of thetreasury stock method, which in the current period includes consideration of unamortizedstock-based compensation and windfall tax benefits, as a result of theimplementation of SFAS 123R.

 

The following table sets forth the computation of basic and diluted netincome per share (in thousands, except per-share data):

 
| ** **                                                                                                                                | ** ** | **Three Months Ended March 31** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| **Numerator:**                                                                                                                            |       |                                                |       |   |   |
| Net income                                                                                                                                |       | $                                                   | 2,635      |   | $ | 439 |   |
|                                                                                                                                      |       |                                                |       |   |   |
| **Denominator:**                                                                                                                          |       |                                                |       |   |   |
| Denominator for basic net income per  share-weighted average shares outstanding                                                           |       | 26,570                                              |       | 27,389 |   |
|                                                                                                                                      |       |                                                |       |   |   |
| Dilutive common equivalent shares:                                                                                                        |       |                                                |       |   |   |
| Employee stock options and other                                                                                                          |       | 1,510                                               |       | 1,367 |   |
|                                                                                                                                      |       |                                                |       |   |   |
| Denominator for diluted net income per  share-weighted average shares outstanding, assuming exercise of potential  dilutive common shares |       | 28,080                                              |       | 28,756 |   |
|                                                                                                                                      |       |                                                |       |   |   |
| Basic net income per share                                                                                                                |       | $                                                   | 0.10       |   | $ | 0.02 |   |
| Diluted net income per share                                                                                                              |       | $                                                   | 0.09       |   | $ | 0.02 |   |

 

For the first quarters of 2008 and 2007, weighted average stock optionsand RSUs of approximately 0.8 million and 1.5 million, respectively, wereexcluded from the calculation of diluted net income per share because theirinclusion would have been anti-dilutive.

 

8

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**Note 5—Goodwill**

 

The changes in the carrying value of goodwillfor the three months ended March 31, 2008 were as follows (in thousands):

 
| ** **                   | ** ** | **Goodwill** | ** ** |
|------------------------------|------------|--------------|------------|
|                         |       |         |       |
| Balance at December 31, 2007 |       | $            | 106,520    |   |
| Translation adjustments      |       | 2,081        |       |
|                         |       |         |       |
| Balance at March 31, 2008    |       | $            | 108,601    |   |

 

Foreigncurrency translation adjustments totaling $2.1 million reflect the weakening ofthe U.S. dollar versus European currencies during the first quarter of 2008.

 

**Note6—Other Intangibles**

 

The following is a summary of otherintangibles as of March 31, 2008 (in thousands):

 
| ** **                     | ** ** | **Average**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                     | ** ** | **Amortization** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
| ** **                     | ** ** | **Period**       | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                     | ** ** | **(Years)**      | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                           |       |             |       |             |       |             |       |             |       |
| Purchased technologies         |       | 4.9              |       | $                | 16,526     |             | $          | (13,202          | )          | $ | 3,324 |   |
| Product development costs      |       | 3.0              |       | 6,509            |       | (2,603           | )          | 3,906            |       |
|                           |       |             |       |             |       |             |       |             |       |
| Developed technology sub-total |       |             |       | 23,035           |       | (15,805          | )          | 7,230            |       |
|                           |       |             |       |             |       |             |       |             |       |
| Customer relationships         |       | 5.5              |       | 22,971           |       | (21,902          | )          | 1,069            |       |
| Other intangibles              |       | 3.6              |       | 404              |       | (312             | )          | 92               |       |
|                           |       |             |       |             |       |             |       |             |       |
| Other intangibles sub-total    |       |             |       | 23,375           |       | (22,214          | )          | 1,161            |       |
|                           |       |             |       |             |       |             |       |             |       |
| Balance at March 31, 2008      |       |             |       | $                | 46,410     |             | $          | (38,019          | )          | $ | 8,391 |   |

 

The following is a summary of otherintangibles as of December 31, 2007 (in thousands):

 
| ** **                     | ** ** | **Average**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                     | ** ** | **Amortization** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
| ** **                     | ** ** | **Period**       | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                     | ** ** | **(Years)**      | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                           |       |             |       |             |       |             |       |             |       |
| Purchased technologies         |       | 4.9              |       | $                | 16,529     |             | $          | (13,001          | )          | $ | 3,528 |   |
| Product development costs      |       | 3.0              |       | 6,290            |       | (2,081           | )          | 4,209            |       |
|                           |       |             |       |             |       |             |       |             |       |
| Developed technology sub-total |       |             |       | 22,819           |       | (15,082          | )          | 7,737            |       |
|                           |       |             |       |             |       |             |       |             |       |
| Customer relationships         |       | 5.5              |       | 22,673           |       | (21,130          | )          | 1,543            |       |
| Other intangibles              |       | 3.6              |       | 404              |       | (308             | )          | 96               |       |
|                           |       |             |       |             |       |             |       |             |       |
| Other intangibles sub-total    |       |             |       | 23,077           |       | (21,438          | )          | 1,639            |       |
|                           |       |             |       |             |       |             |       |             |       |
| Balance at December 31, 2007   |       |             |       | $                | 45,896     |             | $          | (36,520          | )          | $ | 9,376 |   |

 

9

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The changes in the carrying value of otherintangibles during the three months ended March 31, 2008 were as follows(in thousands):

 
| ** **                         | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
|------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                         | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                         | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                               |       |             |       |             |       |             |       |
| Balance at December 31, 2007  |       | $                | 45,896     |             | $          | (36,520          | )          | $ | 9,376 |   |
| Additions                          |       | 205              |       | —           |       | 205              |       |
| Stock-based compensation additions |       | 15               |       | —           |       | 15               |       |
| Amortization                       |       | —           |       | (1,209           | )          | (1,209           | )          |
| Translation adjustments            |       | 294              |       | (290             | )          | 4                |       |
|                               |       |             |       |             |       |             |       |
| Balance at March 31, 2008     |       | $                | 46,410     |             | $          | (38,019          | )          | $ | 8,391 |   |

 

Based on the carrying amount of intangibleassets as of March 31, 2008, the estimated future amortization is asfollows (in thousands):

 
| ** **                        | ** ** | **Nine**              | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|-----------------------------------|------------|-----------------------|------------|--------------------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                        | ** ** | **Months Ended** | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **December 31**  | ** ** | **Years Ended December 31** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **2008**              | ** ** | **2009**                                   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Estimated future amortization of: | ** ** | ** **            | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Developed technology              |       | $                     | 2,094      |                                       | $          | 2,258      |       | $          | 1,725      |       | $          | 615            |       | $          | 538        |   | $ | — |   | $ | 7,230 |   |
| Other intangibles                 |       | 526                   |       | 478                                        |       | 37         |       | 31         |       | 31         |       | 58             |       | 1,161      |       |
|                              |       |                  |       |                                       |       |       |       |       |       |       |       |           |       |       |       |
| Total                             |       | $                     | 2,620      |                                       | $          | 2,736      |       | $          | 1,762      |       | $          | 646            |       | $          | 569        |   | $ | 58 |   | $ | 8,391 |   |

 

**Note 7—Balance Sheet Detail**

 

The following is a summary of prepaid expenses and other (inthousands):

 
| ** **                       | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|----------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                       | ** ** | **2008**          | ** ** | **2007**             | ** ** |
| ** **                       | ** ** | ** **        | ** ** | ** **           | ** ** |
| Prepaid commission               |       | $                 | 5,496      |                 | $          | 5,364 |   |
| Prepaid contract expense         |       | 5,352             |       | 5,353                |       |
| Prepaid royalty                  |       | 2,900             |       | 2,624                |       |
| Other                            |       | 6,716             |       | 6,236                |       |
|                             |       |              |       |                 |       |
| Total prepaid expenses and other |       | $                 | 20,464     |                 | $          | 19,577 |   |

 

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

 
| ** **                          | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                          | ** ** | **2008**          | ** ** | **2007**             | ** ** |
|                                |       |              |       |                 |       |
| Long-term investments, net          |       | $                 | 500        |                 | $          | 500 |   |
| Long-term prepaid commissions       |       | 5,077             |       | 5,368                |       |
| Deposits                            |       | 2,999             |       | 2,628                |       |
| Prepaid contract expense, long-term |       | 2,702             |       | 1,838                |       |
| Other                               |       | 118               |       | 311                  |       |
|                                |       |              |       |                 |       |
| Total other assets, net             |       | $                 | 11,396     |                 | $          | 10,645 |   |

 

Long-term investments include an equity investment in a privately heldcompany. This equity investment is carried at the lower of cost or fair valueat March 31, 2008 and December 31, 2007. Deposits include restrictedcash of $1.9 million to secure a bank letter of credit associated with theCompany’s definitive lease agreement, as amended, with Toda Development, Inc.(“Toda”) for its San Francisco headquarters facility.

 

10

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The following is a summary of accrued liabilities (in thousands):

 
| ** **                             | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|----------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                             | ** ** | **2008**          | ** ** | **2007**             | ** ** |
|                                   |       |              |       |                 |       |
| Salaries and benefits payable          |       | $                 | 11,411     |                 | $          | 18,696 |   |
| Accrued restructuring, current portion |       | 2,020             |       | 2,531                |       |
| Other                                  |       | 10,365            |       | 8,101                |       |
|                                   |       |              |       |                 |       |
| Total accrued liabilities              |       | $                 | 23,796     |                 | $          | 29,328 |   |

 

Accrued restructuring charges are discussed further in Note 9, “RestructuringCharges.” Other accrued liabilities include accruals for royalties, sales andbusiness taxes, acquisition related costs, and other miscellaneous items.

 

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

 
| ** **                               | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                               | ** ** | **2008**          | ** ** | **2007**             | ** ** |
|                                     |       |              |       |                 |       |
| Deferred rent                            |       | $                 | 8,866      |                 | $          | 8,902 |   |
| Accrued restructuring, long-term portion |       | 1,602             |       | 1,734                |       |
| Reserve for uncertain tax positions      |       | 4,789             |       | 4,746                |       |
| Other                                    |       | 978               |       | 970                  |       |
|                                     |       |              |       |                 |       |
| Total other long-term liabilities        |       | $                 | 16,235     |                 | $          | 16,352 |   |

 

**Note 8—Comprehensive Income**

 

The components of comprehensive income wereas follows for the periods presented (in thousands):

 
| ** **                               | ** ** | **Three Months Ended March 31** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
|                                     |       |                                                |       |   |   |
| Net income                               |       | $                                                   | 2,635      |   | $ | 439 |   |
| Unrealized gain on marketable securities |       | —                                              |       | 8 |   |
| Foreign currency translation adjustment  |       | 2,417                                               |       | 449 |   |
|                                     |       |                                                |       |   |   |
| Total comprehensive income               |       | $                                                   | 5,052      |   | $ | 896 |   |

 

**Note 9—Restructuring Charges**

 

Restructuringinitiatives have been implemented in the Company’s Advent Investment Managementand Other operating segments to reduce costs and improve operating efficienciesby better aligning the Company’s resources to its near-term revenueopportunities. These initiatives have resulted in restructuring chargescomprised primarily of costs related to properties abandoned in connection withfacilities consolidation, related write-down of leasehold improvements andseverance and associated employee termination costs related to headcountreductions. Advent’s restructuring charges included accruals for estimatedlosses on facility costs based on the Company’s contractual obligations net ofestimated sublease income. Advent reassesses this liability periodically basedon market conditions.

 

##### ***During the first quarter of 2008, Advent recorded a restructuringcharge of $56,000 which related to the present value amortization of facilityexit obligations. During the first quarter of March 31, 2007, Adventrecorded a net restructuring charge of $562,000 due to the update of certainsub-lease assumptions for Advent’s prior San Francisco headquarters facilitylocated at 301 Brannan Street, which the Company exited in October 2006.***

 

11

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The following table sets forth an analysis of the components of thepayments and restructuring charges made against the accrual during the firstquarter of 2008 (in thousands):

 
| ** **                                                  | ** ** | **Facility Exit** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **Costs**              | ** ** |
| ** **                                                  | ** ** | ** **             | ** ** |
| Balance of restructuring accrual at December 31,  2007 |       | $                      | 4,265      |   |
| Cash payments                                               |       | (699                   | )          |
| Restructuring charges                                       |       | 56                     |       |
|                                                        |       |                   |       |
| Balance of restructuring accrual at  March 31, 2008    |       | $                      | 3,622      |   |

 

Of the remainingrestructuring accrual of $3.6 million at March 31, 2008, $2.0 million and$1.6 million are included in accrued liabilities and other long-termliabilities, respectively, on the accompanying condensed consolidated balancesheet. The remaining excess facility costs of $3.6 million are stated atestimated fair value, net of estimated sublease income of approximately $5.2million. 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 and Contingencies**

#### ** **

*Lease Obligations*

 

Advent leases office space and equipmentunder non-cancelable operating lease agreements, which expire at various datesthrough December 2018. Some operating leases contain escalation provisionsfor adjustments in the consumer price index. Advent is responsible formaintenance, insurance, and property taxes. As of March 31, 2008, Advent’sremaining operating lease commitments through 2018 were approximately $51.1million, net of future minimum rental receipts of $6.2 million to be receivedunder non-cancelable sub-leases.

 

*Indemnifications*

 

As permitted or required under Delaware law and tothe maximum extent allowable under that law, Advent has certain obligations toindemnify its current and former officers and directors for certain events oroccurrences while the officer or director is, or was serving, at Advent’srequest in such capacity. These indemnification obligations are valid as longas the director or officer acted in good faith and in a manner the personreasonably believed to be in or not opposed to the best interests of thecorporation, and, with respect to any criminal action or proceeding, had noreasonable cause to believe his or her conduct was unlawful. The maximumpotential amount of future payments Advent could be required to make underthese indemnification obligations is unlimited; however, Advent has a directorand officer insurance policy that mitigates Advent’s exposure and enablesAdvent to recover a portion of any future amounts paid. The Company believesthe estimated fair value of these indemnification obligations is minimal.

 

*Legal Contingencies*

 

On March 8, 2005, certain of the formershareholders of Kinexus and the shareholders’ representative filed suit againstAdvent in the Delaware Chancery Court. The complaint alleges that Adventbreached the Agreement and Plan of Merger dated as of December 31, 2001pursuant to which Advent acquired all of the outstanding shares of Kinexus dueprincipally to the fact that no amount was paid by Advent on an earn-out of upto $115 million. The earn-out, which was payable in cash or stock at theelection of Advent, was based upon Kinexus meeting certain revenue targets inboth 2002 and 2003. The complaint seeks unspecified compensatory damages, anaccounting and restitution for unjust enrichment. Advent advised theshareholders’ representative in January 2003 that the earn-out terms hadnot been met in 2002 and accordingly no earn-out was payable for 2002 and wouldnot be payable for 2003. Discovery is continuing between the parties. Adventdisputes the plaintiffs’ claims and believes that it has meritorious defensesand intends to vigorously defend this action. Management believes that anypotential loss associated with this litigation is neither probable norreasonably estimable at this time and accordingly has not accrued any amountsfor any potential loss.

 

From time to time, Advent is involved in claims andlegal proceedings that arise in the ordinary course of business. Based oncurrently available information, management does not believe that the ultimateoutcome of these unresolved matters, individually and in the aggregate, islikely to have a material adverse effect on the Company’s financial position orresults of operations. However, litigation is subject to inherent uncertaintiesand our view of these matters may change in the future. Were an unfavorableoutcome to occur, there exists the possibility of a material adverse impact onour financial position and results of operations for the period in which theunfavorable outcome occurs, and potentially in future periods.

 

12

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**Note 11—Segment Information**

 

*Description of Segments*

 

Advent’s organizational structure is based ona number of factors that the chief operating decision maker (“CODM”) uses toevaluate, view and run its business operations which include, but are notlimited to, customer base, homogeneity of products and technology. Advent’soperating segments are based on this organizational structure and informationreviewed by Advent’s CODM to evaluate the operating segment results. Advent hasdetermined that its operations are organized into two reportable segments:Advent Investment Management and MicroEdge. Future changes to thisorganizational structure may result in changes to the business segmentsdisclosed. A description of the types of products and services provided by eachoperating segment follows.

 

Advent Investment Management is the Company’score business and derives revenues from the development, marketing and sale ofsoftware products, data, data interfaces and related maintenance and servicesthat automate, 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 grantmaking community.

 

*Segment Data*

 

The results of the operating segments arederived directly from Advent’s internal management reporting system. Theaccounting policies used to derive operating segment results are substantiallythe same as those used by the consolidated company. Management measures theperformance of each operating segment based on several metrics, includingincome (loss) from operations. These results are used, in part, to evaluate theperformance of, and to assign resources to, each of the operating segments.Certain operating expenses, including stock-based employee compensationexpense, and amortization of developed technology and other intangibles, whichAdvent manages separately at the corporate level, are not allocated to theoperating segments. Advent does not separately accumulate and review assetinformation by segment.

 

Segment information for the periods presentedis as follows (in thousands):

 
| ** **                                           | ** ** | **Three Months Ended March 31** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| Net revenues:                                        |       |                                                |       |   |   |
| Advent Investment Management                         |       | $                                                   | 55,264     |   | $ | 42,555 |   |
| MicroEdge                                            |       | 6,209                                               |       | 5,424 |   |
|                                                 |       |                                                |       |   |   |
| Total net revenues                                   |       | $                                                   | 61,473     |   | $ | 47,979 |   |
|                                                 |       |                                                |       |   |   |
| Income (loss) from operations:                       |       |                                                |       |   |   |
| Advent Investment Management                         |       | $                                                   | 7,936      |   | $ | 2,860 |   |
| MicroEdge                                            |       | 388                                                 |       | 1,174 |   |
| Unallocated corporate operating costs and  expenses: |       |                                                |       |   |   |
| Stock-based employee compensation                    |       | (3,391                                              | )          | (3,246 | ) |
| Amortization of developed technology                 |       | (722                                                | )          | (364 | ) |
| Amortization of other intangibles                    |       | (487                                                | )          | (474 | ) |
|                                                 |       |                                                |       |   |   |
| Total income (loss) from operations                  |       | $                                                   | 3,724      |   | $ | (50 | ) |

 

*Major Customers*

 

No single customer represented 10% or more ofAdvent’s total net revenues in any period presented.

 

**Note12—Related Party Transactions**

 

As of December 31, 2007 and March 31,2008, Clearbridge Advisors LLC (“Clearbridge”), a Legg Mason company, ownedapproximately 15% of the voting stock of Advent. No revenue was recorded fromsales to Clearbridge during the first quarter of 2008 or 2007 as Clearbridge isnot a customer of Advent.  However,Advent recognized approximately $140,000 and $107,000 of revenue from all LeggMason entities during the first quarter of fiscal 2008 and 2007, respectively.The Company’s accounts receivable from all Legg Mason entities were $0.5million and zero as of March 31, 2008 and December 31, 2007,respectively.

 

13

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Advent acts as trustee for the Company’s short-termdisability plan—Advent Software California Voluntary Disability Plan (“VDI”).Employee withholdings were $150,000 and $95,000 during the first quarters of2008 and 2007, respectively. Disbursements were $50,000 and $83,000 during thefirst quarters of 2008 and 2007, respectively. Cash held by Advent related tothe VDI was $0.3 million and $0.2 million as of March 31, 2008 and December 31,2007, respectively, and are included in “Other assets, net” on the condensedconsolidated balance sheets.

 

On November 6, 2007, Robert A. Ettl wasappointed to the Company’s Board. Mr. Ettl currently serves as managingdirector of Allianz Global Investors (“Allianz”). Advent recognized revenue of$0.2 million from Allianz during the first quarter of 2008. The Company’saccount receivable from Allianz was $1.1 million and $77,000 as of March 31,2008 and December 31, 2007.

 

**Note 13—Line of Credit**

 

On February 14, 2007,Advent and certain of its subsidiaries entered into a senior secured creditfacility 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 the Company’sproperty and assets and is subject to a financial covenant. The financialcovenant in the Facility is limited to a maximum ratio of senior debt toearnings 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.

 

As of March 31,2008 and December 31, 2007, the Company maintained a zero debt balance andwas in compliance with all associated covenants.

 

**Note 14—Income Taxes**

 

As of March 31, 2008, Advent had accrued$5.8 million of unrecognized tax benefits compared to $5.9 million at December 312007. During the first quarter of 2008, Advent recognized a tax benefit of $0.2million relating to accrued interest and penalties as a result of a lapse of astatute of limitations while increasing the amount of unrecognized tax benefitsby $0.1 million relating to California research credits. The Company’sliabilities for unrecognized tax benefits are included in “Other long-termliabilities” on the condensed consolidated balance sheet and relate to federalresearch credits, California research and enterprise zone tax credits andvarious state net operating losses that have been recorded as deferred taxassets but have yet to be utilized.

 

Advent is subject totaxation in the U.S. and various states and foreign jurisdictions. Advent isnot under examination in any income tax jurisdiction at the present time. The material jurisdictions that are subject to examination by tax authoritiesinclude California for tax years after fiscal 2002 and the U.S. and New Yorkfor tax years after 2003.

 

**Note 15—Fair Value Measurements**

 

Effective January 1, 2008, Advent implementedSFAS No. 157, “Fair Value Measurement”, for our financial assets andliabilities that are measured and reported at fair value at each reportingperiod, and non-financial assets and liabilities that are re-measured andreported at fair value at least annually. In accordance with the provisions ofFSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”, theCompany has elected to defer implementation of FAS 157 as it relates tonon-financial assets and non-financial liabilities that are recognized anddisclosed at fair value in the financial statements on a nonrecurring basisuntil January 1, 2009. Advent is evaluating the impact, if any, thisStandard will have on the Company’s non-financial assets and liabilities.

 

The adoption of SFAS 157 to the Advent’s financialassets and liabilities and non-financial assets and liabilities that aremeasured and reported at fair value at least annually did not have an impact onthe Company’s financial results.

 

SFAS No. 157 clarifies that fair value is anexit price, representing the amount that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between marketparticipants. As such, fair value is a market-based measurement that should bedetermined based on assumptions that market participants would use in pricingan asset or 

 

14

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liability.As a basis for considering such assumptions, SFAS No. 157 establishes athree-tier value hierarchy, which prioritizes the inputs used in measuring fairvalue as follows:

 
| **Level  Input** | ** ** | **Input  Definition**                                                                                                                                                |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                 |
| Level I          |       | Inputs are unadjusted,  quoted prices for identical assets or liabilities in active markets at the  measurement date.                                                |
|             |       |                                                                                                                                                                 |
| Level II         |       | Inputs other than quoted  prices included in Level I that are observable for the asset or liability  through corroboration with market data at the measurement date. |
|             |       |                                                                                                                                                                 |
| Level III        |       | Unobservable inputs that  reflect management’s best estimate of what market participants would use in  pricing the asset or liability at the measurement date.  |

 

This hierarchy requires us to use observable marketdata, when available, and to minimize the use of unobservable inputs whendetermining inputs when determining fair value. The Company measures certain financial assets and liabilities at fairvalue on a recurring basis, including available-for-sale securities and ourequity investment. The fair value of these certain financial assets wasdetermined using the following inputs as of March 31, 2008 (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                                          | ** ** | ** **                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fixed income available-for-sale securities  (1) |       | $                                                                                 | 48,283     |   | $ | 48,283 |   | $ | — |   | $ | — |   |
|                                                 |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)      Included in cash and cash equivalents on our condensedconsoldiated balance sheet

 

Fixed income available-for-sale securities consistof cash equivalents with remaining maturities of three months or less at thedate of purchase and are composed primarily of US Government and TreasuryObligation money market mutual funds. The fair value of these securities isdetermined through market, observable and corroborated sources.

 

Non-marketable investments which totaled $0.5million at March 31, 2008, represent the Company’s investment in aprivately held company. Non-marketable investments are priced at the lower ofcost or fair value due to an absence of market activity and market data, and isnot reported in the table of assets measured at fair value as of March 31,2008 above.

 

**Note 16—Subsequent Event**

** **

On April 4, 2008, the Company received theinitial deferred contingent consideration of $3.4 million as a result of theCompany’s sale of its ownership in LatentZero to royalblue group plc in April 2007.For fiscal 2007 and 2008, the payment of the deferred contingent considerationby royalblue plc is dependent on the achievement of performance objectivesrelated to revenue and operating profit. The Company will record the associatednon-operating gain in its second quarter of 2008 results.

 

On May 7, 2008, Advent’sBoard authorized the repurchase of up to 1.0 million shares of the Company’scommon stock. Stock repurchases under this authorization may be made throughopen market and privately negotiated transactions at times and in such amountsas management deems appropriate. The timing and actual number of sharesrepurchased will depend on a variety of factors, including price, Advent’s cashbalances, general business and market conditions, the dilutive effects ofshare-based incentive plans, alternative investment opportunities and workingcapital needs. The stock repurchase authorization does not have an expirationdate and may be limited or terminated at any time without prior notice. Thepurchases will be funded from available working capital or available liquidityunder the Credit Facility, and repurchased shares will be returned to thestatus of authorized but un-issued shares of common stock.

 

15

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**Item 2.****Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

**SPECIAL NOTE REGARDING FORWARD-LOOKINGSTATEMENTS**

 

You should readthe following discussion in conjunction with our consolidated financialstatements and related notes. The following discussion contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933as amended and Section 21E of the Securities Exchange Act of 1934 asamended, including, but not limited to statements referencing our expectationsrelating to future revenues, expenses and operating margins. Forward-lookingstatements can be identified by the use of terminology such as “may,” “will,” “should,”“expect,” “plan” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue”or other similar terms and the negative of such terms regarding beliefs, plans,expectations or intentions regarding the future. Forward-looking statementsinclude, among others, statements regarding growth in the investment managementmarket and opportunities for us related thereto, future expansion, acquisition,divestment of or investment in other businesses, projections of revenues,future cost and expense levels, expected timing and amount of amortizationexpenses related to past acquisitions, the adequacy of resources to meet futurecash requirements, 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.

 

Unless expressly stated or the contextotherwise requires, the terms “we”, “our”, “us”, the “Company” and “Advent”refer to Advent Software, Inc. and its subsidiaries.

 

**Overview**

 

Weoffer integrated software, products and services for automating and integratingdata and 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 reporting, and enable better decision-making. Eachsolution focuses on specific mission-critical functions of the front, middleand back offices of investment management organizations and is designed to meetthe needs of the particular client, as determined by size, assets under managementand complexity of the investment environment.

 

Thesoftware solutions offered through our MicroEdge segment support the grantmanagement, matching gifts and volunteer tracking processes for thegrant-making community.

 

*Operating Overview*

 

Financial highlights of our first quarter of 2008include:

 

·                  Expanded customer relationships andacceptance of our product offerings. We experienced continued demand for bothour newest and largest portfolio management and accounting platforms: AdventPortfolio Exchange (“APX”) and Geneva. We achieved a first quarter record inlicenses sold for APX and Geneva. We signed 19 APX contracts, bringing thetotal number of licenses sold globally to 212, and we added 7 new Genevaclients which brings the total number of Geneva licenses sold to 164 as of March 31,2008.

 

·                  Continued growth in term contract value.Total term contract value, including APX migrations, was $15.7 million, anincrease of 41% from $11.1 million in the first quarter of 2007. With anaverage term of 2.8 years, these contracts will add approximately $5.5 million,up 64% over the same period last year, in annual revenue (“annual contractvalue”) once they are fully implemented.

 

·                  Increased headcount. Total company headcountat March 31, 2008 was 982 which represented an increase of 36 newemployees from December 31, 2007. The majority of these new hires were inour sales and client services groups to support our new bookings.

 

16

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*Financial Overview*

 

We recognized revenue of $61.5 million during thefirst quarter of 2008, as compared to $48.0 million in the first quarter 2007.This year-over-year increase of 28% in 2008 reflects significant growth in termlicenses. Term license revenue increased 105% to $14.4 million in the firstquarter of 2008 from $7.0 million in the first quarter of 2007.  Maintenance revenue was up $2.0 million or10% year-over-year, other recurring revenue was also up $2.1 million or 20% andprofessional services posted strong gains of 55% to $6.7 million in the firstquarter of 2008. In addition, despite our ongoing transition from a perpetualmodel, perpetual license fees in the first quarter of 2008 were down only $0.3million or 5% compared to the first quarter of 2007. We have grown net revenueyear-over-year for several reasons, including the following:

 

·                  Our product innovation helped driveacquisition of new customers and created new revenue opportunities withexisting clients, resulting in incremental term license contract value andprofessional services billings.

 

·                  Our completion of term licenseimplementations resulted in incremental term license and professional servicesrevenues.

 

·                  We have a large installed base of customerswho have continued to upgrade and expand their usage of our products resultingin higher maintenance and recurring revenues.

 

·                  Our existing term licenses provide aconsistent, recurring revenue stream during the term of those licenses.

 

Total recurring revenues, which we define as termlicense, perpetual maintenance, and other recurring revenues, have increasedslightly to 80% of total net revenues during the first quarter of 2008, ascompared to 79% during the same period of 2007. In addition, international revenue increased to $8.3 million or 14% oftotal revenue during the first quarter of 2008, compared to $5.9 million or 12%of total revenue in the first quarter of 2007.

 

Totalexpenses, including cost of revenues, were $57.7 million in the first quarterof 2008, compared with $48.0 million in the first quarter of 2007. Our expensesincreased in 2008 from 2007 largely as a result of increased payroll, variablecompensation and benefit expenses resulting from increases in headcount.

 

During the first quarter of 2008, we incurred $0.1million of restructuring charges, compared to $0.6 million in the first quarterof 2007. In the first quarter of 2007, we incurred restructuring charges of$0.6 million to adjust our facility and exit costs related to our prior SanFrancisco headquarter facility.

 

Our income from operations in the first quarter of2008 was $3.7 million or 6% of revenue, compared to a loss from operations of$50,000 or 0% of revenue in the first quarter of 2007.

 

During the first quarter of 2008, we recognized $1.3million of income tax expense, compared to $29,000 in the first quarter of 2007.

 

We earned net income of $2.6 million, resulting indiluted earnings per share of $0.09 for the first quarter of 2008, compared to$0.4 million or $0.02 in the first quarter of 2007.

 

We generated $9.3 million in cash from operations inthe first quarter of 2008, which compares to $13.8 million in the first quarterof 2007. The decrease in operating cash flows was primarily due to the paymentduring the first quarter of more liabilities (primarily annual bonuses andcommissions) accrued from the previous year-end and less collections ofaccounts receivable. Our salary and benefit liabilities increased from $13.6million at December 31, 2006 to $18.7 million at December 31, 2007,primarily due to higher variable compensation accrued for our salesforce as aresult of more bookings. As a result, we paid approximately $5.1 million moreduring the first quarter of 2008 compared to the same period of 2007 associatedwith these liabilities. In addition, we experienced strong collections duringthe fourth quarter of 2007.  The fourthquarter experiences seasonally large billing activity and during the fourthquarter of 2007, we were able to collect more of these invoices within the samefourth quarter (DSO based on billings of 55 days). As a result, our accountsreceivable collections and operating cash flows for the first quarter of 2008reduced year-over-year (DSO based on billings of 63 days) as there wererelatively fewer dollars to be collected from fourth quarter invoices duringthe first quarter of 2008.

 

17

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*Term License and Term License Deferral*

 

We are continuing the process of converting theCompany’s license revenues from a perpetual model to a predominantly termmodel. Under a perpetual pricingmodel, customers purchase a license to use our software indefinitely andgenerally we recognize all license revenue at the time of sale; maintenance ispurchased under an annual renewable contract, and recognized ratably over thecontract period. Under a term pricing model, customers purchase a license touse our software and receive maintenance for a limited period of time and werecognize all of the revenue ratably over the length of the contract. This hasthe effect of lowering revenues in the early stages of the transition, butincreasing the total potential value of the customer relationship. Moving newcustomer sales in the Advent Investment Management (AIM) segment from aperpetual to a term licensing model has had the effect of lowering our reportedrevenue growth rates over the past three years and may, depending on our newterm license bookings, continue to have an impact through 2008. However,because our products are used by customers for an average of approximately tenyears, we believe this change to our business model is significant for thelong-term growth and value of the business as we expect total revenues from acustomer to increase over time. For example, over a ten-year period, a customermay enter into two or more contracts for the same software product and servicesunder a term license model.

 

When a customerpurchases a term license together with implementation services, we do notrecognize any revenue under the contract until the implementation services arecomplete and the remaining services are substantially complete. If theimplementation services are still in progress as of quarter-end, we will deferall 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.

 

During the firstquarter of 2008, we deferred net revenue of $1.9 million and directly-relatedexpenses of $0.9 million associated with our term licensing model. The impactof these deferrals on our operating income was approximately $1.1 million. The$1.9 million net deferral of revenue was primarily composed of a net deferralof $1.9 million of professional services revenue since the amount of previouslydeferred term license revenue recognized in the first quarter of 2008approximately equaled the amount deferred in the quarter for new projects. Wecontinue to defer professional services as the deferral for current projectsexceeded the amount recognized from completed past projects. We expect that theterm license component of the deferred revenue balance will increase ordecrease in the future depending on the amount of new bookings relative to thenumber of implementations that reach substantial completion in a particularquarter. We currently expect that the professional services component of thedeferred revenue balance will continue to increase through at least 2008.

 

Amounts ofrevenue and directly-related expenses deferred as of March 31, 2008 and December 31,2007 associated with our term licensing deferral were as follows (in millions):

 
| ** **                | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|---------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                | ** ** | **2008**          | ** ** | **2007**             | ** ** |
| Deferred revenues         | ** ** | ** **        | ** ** | ** **           | ** ** |
| Short-term                |       | $                 | 18.0       |                 | $          | 17.9 |   |
| Long-term                 |       | 5.1               |       | 3.3                  |       |
| Total                     |       | $                 | 23.1       |                 | $          | 21.2 |   |
|                      |       |              |       |                 |       |
| Directly-related expenses |       |              |       |                 |       |
| Short-term                |       | $                 | 5.7        |                 | $          | 5.7 |   |
| Long-term                 |       | 2.2               |       | 1.3                  |       |
| Total                     |       | $                 | 7.9        |                 | $          | 7.0 |   |

 

Deferred netrevenue 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 consolidated balance sheets.

 

The transition toa term model also has the effect of decreasing operating cash flows in theearly stages of the transition. Under perpetual pricing, the entire license feeand the first year of maintenance is generally billed and collected at thecommencement of the arrangement. Under term pricing, a typical contract term isthree years. We generally bill and collect term license fee installments inadvance of each annual period. The amount of the annual term billing is lessthan the perpetual billing, 

 

18

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resulting in lower cash flows in the initialannual term license period. Annual term billing results in an increase indeferred revenue and an increase in operating cash flows at the commencement ofeach annual billing period.

 

**Critical Accounting Policies and Estimates**

 

Management’s discussion and analysis of ourfinancial condition and results of operations are based on our condensedconsolidated financial statements and related notes, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America. We review the accounting policies used in reporting ourfinancial results on a regular basis. The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent liabilities.

 

On an ongoing basis, we evaluate the process we useto develop estimates. We base our estimates on historical experience and onother information that we believe are reasonable for making judgments at thetime they are made. Actual results may differ from these estimates due toactual outcomes being different from those on which we based our assumptions.

 

We believe the following accounting policies containthe more significant judgments and estimates used in the preparation of ourcondensed consolidated financial statements.

 

·                  Revenue recognition and deferred revenues;

 

·                  Income taxes;

 

·                  Stock-based compensation;

 

·                  Restructuring charges and related accruals;

 

·                  Business Combinations;

 

·                  Goodwill;

 

·                  Impairment of long-lived assets;

 

·                  Legal contingencies; and

 

·                  Sales returns and accounts receivableallowances

 

There have been no significant changes in ourcritical accounting policies and estimates during the first quarter of 2008 ascompared to the critical accounting policies and estimates disclosed in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”included in our Annual Report on Form 10-K for the year ended December 31,2007.

 

**Recent Accounting Pronouncements**

 

No recent accountingpronouncements have been issued which would currently have a material effect onour condensed consolidated financial position, results of operations, or cashflows.

 

**Recent Developments**

 

On April 4, 2008, we received the initialdeferred contingent consideration of $3.4 million as a result of the sale of ownershipin LatentZero to royalblue group plc in April 2007. We will record theassociated non-operating gain in our second quarter of 2008 results.

 

OnMay 7, 2008, our Board authorized the repurchase of up to 1.0 million shares ofthe Company’s common stock. 

 

See Note 16, “Subsequent Events”, to the condensedconsolidated financial statements for further information.  

 

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**RESULTS OF OPERATIONS FOR THETHREE MONTHS ENDED MARCH 31, 2008 AND 2007**

 

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

 
| ** **                                     | ** ** | **Three Months Ended March 31** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| **Net revenues:**                              |       |                                                |       |   |   |
| Term license, maintenance and other  recurring |       | 80                                                  | %          | 79 | % |
| Perpetual license fees                         |       | 9                                                   |       | 12 |   |
| Professional services and other                |       | 11                                                  |       | 9 |   |
|                                           |       |                                                |       |   |   |
| Total net revenues                             |       | 100                                                 |       | 100 |   |
|                                           |       |                                                |       |   |   |
| **Cost of revenues:**                          |       |                                                |       |   |   |
| Term license, maintenance and other  recurring |       | 18                                                  |       | 19 |   |
| Perpetual license fees                         |       | 1                                                   |       | 0 |   |
| Professional services and other                |       | 13                                                  |       | 12 |   |
| Amortization of developed technology           |       | 1                                                   |       | 1 |   |
|                                           |       |                                                |       |   |   |
| Total cost of revenues                         |       | 32                                                  |       | 32 |   |
|                                           |       |                                                |       |   |   |
| Gross margin                                   |       | 68                                                  |       | 68 |   |
|                                           |       |                                                |       |   |   |
| **Operating expenses:**                        |       |                                                |       |   |   |
| Sales and marketing                            |       | 25                                                  |       | 27 |   |
| Product development                            |       | 21                                                  |       | 21 |   |
| General and administrative                     |       | 15                                                  |       | 18 |   |
| Amortization of other intangibles              |       | 1                                                   |       | 1 |   |
| Restructuring charges                          |       | 0                                                   |       | 1 |   |
|                                           |       |                                                |       |   |   |
| Total operating expenses                       |       | 62                                                  |       | 68 |   |
|                                           |       |                                                |       |   |   |
| Income (loss) from operations                  |       | 6                                                   |       | (0 | ) |
| Interest and other income (expense), net       |       | 0                                                   |       | 1 |   |
|                                           |       |                                                |       |   |   |
| Income before income taxes                     |       | 6                                                   |       | 1 |   |
| Provision from income taxes                    |       | 2                                                   |       | 0 |   |
|                                           |       |                                                |       |   |   |
| **Net income**                                 |       | 4                                                   | %          | 1 | % |

 

# **NET REVENUES**

 
| ** **                        | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                        | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Total net revenues (in thousands) |       | $                                                   | 61,473     |       | $          | 47,979 |   | $ | 13,494 |   |
|                                   |            |                                                     |            |            |            |  |  |  |  |  |

 

Our net revenues are made up of three components: term license,maintenance and other recurring revenue; perpetual license fees; andprofessional services and other revenue. Term license fees include boththe software license fees and maintenance fees recorded under a time basedcontract. Maintenance revenues are derived from maintenance fees chargedfor perpetual license arrangements and recurring revenues are derived from oursubscription-based or transaction-based services.Perpetuallicense revenues are derived from the licensing of software products under aperpetual arrangement. Professionalservices and other revenues include fees for consulting, training services, andservices 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.

 

Each of the major revenue categories hashistorically varied as a percentage of net revenues, and we expect thisvariability to continue in the near term. This variability is primarily due tothe introduction of new products and subscription services, the relative sizeand timing of individual perpetual software license sales, as well as the sizeand timing of completion of term license implementations. As we continue totransition the substantial majority of our license agreements to term, weexpect our revenue from recurring sources to continue to increase as apercentage of net revenues. When the transition is 

 

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substantially complete, we expect less variability between our majorcategories of revenues because the variation from large perpetual license dealswill decrease.

 

Net revenues increased in the first quarter of 2008due to growing information technology spending by our customers, as well as ageneral increase in customer adoption for many of our products and services,including principally substantial increases in sales of our APX and Genevaproducts. During the first quarter of 2008, we sold 19 APX licenses and added 7new Geneva clients. The year-over-year growth in net revenues includedincreases in term license, maintenance and recurring revenues, as well as a 42%increase in revenue from international sales.

 

International sales, which are based on the locationto which the product is shipped, contributed to our growth in 2008 and were$8.3 million and $5.9 million in the first quarter of 2008 and 2007,respectively. We plan to continue expanding our international growth, both inour current markets and elsewhere, and we expect revenue growth in EMEA in 2008to be consistent with our overall revenue growth. The revenues from customersin any single international country did not exceed 10% of total net revenues.

 

We expect total net revenues for the secondquarter of 2008 to be between $61 million and $63 million.

 

***Term License, Maintenance and Other RecurringRevenues***

 
| **(in thousands, except percent of**      | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| **total net revenues)**                             | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
|                                                          |       |                                                |       |       |       |   |   |
| Term license revenues                                         |       | $                                                   | 14,372     |       | $          | 7,012 |   | $ | 7,360 |   |
| Maintenance revenues                                          |       | 22,499                                              |       | 20,504     |       | 1,995 |   |
| Other recurring revenues                                      |       | 12,268                                              |       | 10,208     |       | 2,060 |   |
| Total term license, maintenance and other recurring  revenues |       | $                                                   | 49,139     |       | $          | 37,724 |   | $ | 11,415 |   |
|                                                          |       |                                                |       |       |       |   |   |
| Percent of total net revenues                                 |       | 80                                                  | %          | 79         | %          |   |   |

 

Term license revenues, which includessoftware license and maintenance fees for term licenses, grew $7.4 million or105% during the first quarter of 2008 compared to the same quarter in 2007, andrepresented 29% of total term license, maintenance and other recurring revenuesas compared to 19% in the first quarter of 2007. We began our transition to aterm licensing model in 2004 and have experienced growth in our term bookingssince that time. The growth of term license revenues in the first quarter of2008 has primarily resulted from term license which have been implemented sincethe first quarter of 2007.  For example,we signed term contracts, including APX product migrations, worth $91.1 millionduring 2007. With an average weighted term of 3.3 years, the contracts signedin 2007 will add approximately $27.6 million in annual revenue once they arefully implemented.  The increase in termrevenues also reflected the continued market acceptance of our Geneva, APX,Partner and Moxy products.

 

Maintenance revenues increased by $2.0million or 10% during the first quarter of 2008 compared to the same quarter of2007. This increase was attributable to the impact of price increases on annualperpetual maintenance renewals purchased by our installed customer base,up-selling to higher value maintenance plans and, to a lesser extent, anincrease in new perpetual maintenance support contracts, partially offset by attritionfrom within our existing installed customer base. Effective with the third quarter of 2007, wedisclose a blended renewal rate that includes both perpetual maintenance andterm contracts but excludes the Axys clients that are migrating to APX from thecalculation. We disclose our renewal rate one quarter in arrears in order toinclude substantially all payments received against the invoices for thatquarter. Our renewal rate was 91% for the fourth quarter of 2007, which wasconsistent with the rate of 91% for the third quarter of 2007, and has been inthe range of 90% to 94% over the past six quarters.

 

Other recurring revenues increased $2.1million or 20% during the first quarter of 2008, as a result of growth in theamount of revenue we receive from transaction charges generated by a partnerusing our software, as well as growth in our subscription, data management andoutsourced services including Advent Back Office Service (ABOS) and AdventCustodial Data (ACD).

 

We expect that term license, maintenance andother recurring revenues will increase in the second quarter of 2008 comparedto the first quarter. We anticipate additional term license revenue aspreviously sold term contracts become fully implemented. We also anticipatehigher maintenance revenue resulting from expected ongoing price increases andfrom additional contracts in our MicroEdge subsidiary, which continues to sella majority of its products under a perpetual license model.

 

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***Perpetual License Fees***

 
| ** **                            | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Perpetual license fees (in thousands) |       | $                                                   | 5,625      |       | $          | 5,927 |   | $ | (302 | ) |
| Percent of total net revenues         |       | 9                                                   | %          | 12         | %          |   |   |
|                                       |            |                                                     |            |            |            |  |  |  |  |  |

 

Perpetual license fees decreased 5% in thefirst quarter of 2008 compared to 2007. As a percentage of total net revenues,perpetual license fees decreased to 9% in the first quarter of 2008 from 12% inthe same period of 2007. Consistent with our transition to term licensing,perpetual license fees continue to account for a smaller percentage of totalnet revenues. Offsetting the reduction in perpetual license fees, incrementalAUA fees from perpetual licenses included in the “Perpetual license fees”caption were $2.0 million and $1.8 million in the first quarters of 2008 and2007, respectively.

 

***Professional Services and Other Revenues***

 
| ** **                                               | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Professional services and other revenues (in  thousands) |       | $                                                   | 6,709      |       | $          | 4,328 |   | $ | 2,381 |   |
| Percent of total net revenues                            |       | 11                                                  | %          | 9          | %          |   |   |
|                                                          |            |                                                     |            |            |            |  |  |  |  |  |

 

Professional services and other revenuesprimarily include consulting, project management, custom integration, andtraining. Professional services projects related to Axys, Moxy and Partnerproducts generally can be completed in a two- to six-month time period, whileservices related to Geneva and APX products may require a four- to nine-monthimplementation period.

 

Professional services and other revenues were$6.7 million, an increase of $2.4 million or 55% over the first quarter of2007. The increase reflects growth in our consulting, project management, dataconversion and custom reporting revenues associated with implementations of ourAdvent Office and Geneva products.

 

We continue to defer professional servicesrevenue for services performed on term license implementations. When servicesare performed with term license implementations, service revenue is deferreduntil the implementation is complete. Then services revenues are recognizedover the remaining license term. We have experienced an increase inimplementation services after the launch of our APX product and the salessuccess of our Geneva product, which are both sold under a term license model.We deferred net professional services revenue of $1.9 million in the firstquarters of 2008 and 2007, respectively.

 

***Revenues by Segment***

 
| ** **                   | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| **(in thousands)**      | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| ** **                   | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Advent Investment Management |       | $                                                   | 55,264     |       | $          | 42,555 |   | $ | 12,709 |   |
| MicroEdge                    |       | 6,209                                               |       | 5,424      |       | 785 |   |
|                         |       |                                                |       |       |       |   |   |
| Total net revenues           |       | $                                                   | 61,473     |       | $          | 47,979 |   | $ | 13,494 |   |

 

We have two reportable segments: AdventInvestment Management (“AIM”) and MicroEdge. AIM derives revenues from thedevelopment, 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.

 

The 30% increase in AIM’s revenue during thefirst quarter of 2008 primarily reflected the continued market acceptance ofAxys, APX, Moxy, Partner and Geneva products as well as increased internationalsales. AIM’s revenue increases in the first quarter of 2008 alsoreflected an increase in new perpetual maintenance support contracts as aresult of new perpetual license deals, up-selling existing customers to highervalue maintenance plans and price increases for maintenance contracts from ourinstalled customer base, partially offset by attrition from within our existinginstalled customer base. International sales were $8.3 million in the firstquarter of 2008, an increase of $2.5 million or 42%, and they represented 14%of total revenues compared to 12% in the first quarter of 2007.

 

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The 14% increase in MicroEdge revenues in the firstquarter of 2008 primarily reflected an increase in perpetual license sales inMicroEdge’s core product Gifts and to a lesser extent 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.

 

### **COST OF REVENUES**

 
| ** **                            | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Total cost of revenues (in thousands) |       | $                                                   | 19,699     |       | $          | 15,464 |   | $ | 4,235 |   |
| Percent of total net revenues         |       | 32                                                  | %          | 32         | %          |   |   |
|                                       |            |                                                     |            |            |            |  |  |  |  |  |

 

Our cost of revenues is made up of fourcomponents: cost of term license, maintenance and other recurring; cost ofperpetual license fees; cost of professional services and other; andamortization of developed technology. The increase in total cost of revenues inabsolute dollars was due to new hires in our client support and servicesgroups to support our new bookings. We believe this investment will continue toimprove the services we provide to our clients in their day-to-day use of oursoftware and build a scalable organization to support our largest and mostcomplex customers.

 

***Cost of Term License, Maintenance and OtherRecurring***

 
| ** **                                                            | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                                            | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Cost of term license, maintenance and other  recurring (in thousands) |       | $                                                   | 10,934     |       | $          | 9,032 |   | $ | 1,902 |   |
| Percent of total term license, maintenance and  recurring revenue     |       | 22                                                  | %          | 24         | %          |   |   |
|                                                                       |            |                                                     |            |            |            |  |  |  |  |  |

 

Cost of term license fees consists primarilyof royalties and other fees paid to third parties, the fixed direct laborinvolved in producing and distributing our software, and cost of product mediaincluding duplication, manuals and packaging materials. Cost of maintenance andother recurring revenues is primarily comprised of the direct costs ofproviding technical support and other services for recurring revenues androyalties paid to third party subscription-based and transaction-based vendors.

 

Cost of term license, maintenance and otherrecurring fluctuated due to the following (in thousands):

 
| ** **                                 | ** ** | **Change From**       | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **2007 to 2008** | ** ** |
| ** **                                 | ** ** | **QTD**                    | ** ** |
| Increased payroll and related              |       | $                          | 1,166      |   |
| Increased depreciation                     |       | 147                        |       |
| Increased allocation of corporate expenses |       | 134                        |       |
| Increased outside services                 |       | 125                        |       |
| Increased recruiting                       |       | 95                         |       |
| Various other items                        |       | 235                        |       |
|                                       |       |                       |       |
| Total change                               |       | $                          | 1,902      |   |

 

The increases for the first quarter of 2008were due primarily to an increase in compensation and related costs resultingfrom increases in salary costs and headcount which enables us to deliver theservices we provide to our growing number of clients in their day-to-day use ofour software.

 

23

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We expect cost of term license, maintenanceand other recurring revenue in the second quarter of 2008 to increase slightlyin dollar amount, while remaining flat as a percentage of revenue, as comparedto the first quarter due to higher payroll expenses from annual merit increasesand the continued hiring of personnel to provide technical support to ourgrowing installed base of customers.

 

***Cost of Perpetual License Fees***

 
| ** **                                     | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                     | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Cost of perpetual license fees (in  thousands) |       | $                                                   | 317        |       | $          | 195 |   | $ | 122 |   |
| Percent of total perpetual license revenues    |       | 6                                                   | %          | 3          | %          |   |   |
|                                                |            |                                                     |            |            |            |  |  |  |  |  |

 

Cost of perpetual license fees consistsprimarily of royalties and other fees paid to third parties, the fixed directlabor involved in producing and distributing our software, and cost of productmedia including duplication, manuals and packaging materials. The cost ofperpetual license fees has increased by $0.1 million compared with the sameperiod in 2007 primarily due to additional royalty expense.

 

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

 
| ** **                                                 | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Cost of professional services and other (in  thousands)    |       | $                                                   | 7,726      |       | $          | 5,873 |   | $ | 1,853 |   |
| Percent of total professional services and other  revenues |       | 115                                                 | %          | 136        | %          |   |   |
|                                                            |            |                                                     |            |            |            |  |  |  |  |  |

 

Cost of professional services and otherrevenue consists primarily of personnel related costs associated with theclient services organization in providing consulting, custom report writing andconversions of data from clients’ previous systems. Also included are directcosts associated with third-party consultants and travel expenses.

 

Cost of professional services and otherfluctuated due to the following (in thousands):

 
| ** **                         | ** ** | **Change From**       | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **2007 to 2008** | ** ** |
| ** **                         | ** ** | **QTD**                    | ** ** |
| Increased payroll and related      |       | $                          | 1,722      |   |
| Increased outside services         |       | 197                        |       |
| Increased travel and entertainment |       | 148                        |       |
| Decreased recruiting               |       | (227                       | )          |
| Various other items                |       | 13                         |       |
|                               |       |                       |       |
| Total change                       |       | $                          | 1,853      |   |

 

The increase in the first quarter of 2008reflects increases in payroll related expenses, and to a lesser extent outsideservices and travel expenses, to address the general increase in demand forconsulting and training services as a result of higher license sales. As aresult of the increase in our license transactions and customer base in 2007,we have increased headcount in our client services and consulting groups to 137at March 31, 2008 from 119 at March 31, 2007.

 

We have experienced an increase inimplementation services with the launch of our APX product and sales of ourGeneva product, which are both sold under the term license model. As there weremore term license implementation projects, primarily Geneva-related, inprogress as of March 31, 2008 compared to March 31, 2007, we haveexperienced an increase in the deferral of professional service costs. Wedeferred net professional service costs of $0.8 million during the three monthsended March 31, 2008, compared to $0.7 million in the comparable period of2007.

 

Professional services’ gross margins for thefirst quarter of 2008 continue to be negative as a result of the significantdeferral of professional services revenues and costs associated with our termlicense implementation. We defer only the direct costs associated with servicesperformed on these arrangements. Indirect costs such as management and otheroverhead expenses are recognized in the period in which they are incurred, withno revenue to offset them. In addition, we have added 

 

24

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headcount in our consulting group. Since these new employees undergo atraining period, typically of six months, before becoming fully billable, theirassociated costs have a near-term negative impact on gross margins.

 

We expect cost of professional services andother in the second quarter of 2008 to increase in dollar amount, whileremaining flat as a percentage of revenue, as compared to the first quarter dueto higher payroll expenses from annual merit increases and the continued hiringof consultants to support product implementations.

 

***Amortization of Developed Technology***

 
| ** **                                          | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                          | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Amortization of developed techology (in  thousands) |       | $                                                   | 722        |       | $          | 364 |   | $ | 358 |   |
| Percent of total net revenues                       |       | 1                                                   | %          | 1          | %          |   |   |
|                                                     |            |                                                     |            |            |            |  |  |  |  |  |

 

Amortization of developed technologyrepresents amortization of acquisition-related intangible assets andcapitalized software development costs. The increase in amortization of developed technology reflected increasedamortization from software development costs capitalized under SFAS 86 andamortization from technology-related intangible assets associated with VividOrange Limited which we acquired in November 2007.

 

### **OPERATING EXPENSES**

### ** **

***Sales and Marketing***

 
| ** **                         | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                         | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Sales and marketing (in thousands) |       | $                                                   | 15,390     |       | $          | 12,889 |   | $ | 2,501 |   |
| Percent of total net revenues      |       | 25                                                  | %          | 27         | %          |   |   |
|                                    |            |                                                     |            |            |            |  |  |  |  |  |

 

Sales and marketing expenses consistprimarily of the costs of personnel involved in the sales and marketingprocess, sales commissions, advertising and promotional materials, salesfacilities expense, trade shows, and seminars.

 

Sales and marketing expenses fluctuated dueto the following (in thousands):

 
| ** **                         | ** ** | **Change From**       | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **2007 to 2008** | ** ** |
| ** **                         | ** ** | **QTD**                    | ** ** |
| Increased payroll and related      |       | $                          | 1,350      |   |
| Increased travel and entertainment |       | 579                        |       |
| Increased marketing                |       | 205                        |       |
| Increased bad debt                 |       | 116                        |       |
| Various other items                |       | 251                        |       |
|                               |       |                       |       |
| Total change                       |       | $                          | 2,501      |   |

 

The increase in expense in absolute dollarsin the first quarter of 2008 reflected the growth of our business, while thedecrease of expense as a percentage of revenue during 2008 reflected ourachievement of improved efficiency. The increase in payroll and related expensewas due to an increase in headcount to 185 at March 31, 2008 from 169 at March 31,2007. The increase in travel and entertainment costs resulted from the higherheadcount, price increases in travel and additional costs from our sales group’soffsite meetings and annual sales recognition event in the first quarter of2008.

 

We expect sales and marketing expenses to beup slightly in the second quarter of 2008 relative to the first quarter due toincreased marketing spending, and payroll costs from additional headcount andannual merit increases.

 

***Product Development***

 
| ** **                         | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                         | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
|                               |       |                                                |       |       |       |   |   |
| Product development (in thousands) |       | $                                                   | 12,890     |       | $          | 9,856 |   | $ | 3,034 |   |
| Percent of total net revenues      |       | 21                                                  | %          | 21         | %          |   |   |
|                                    |            |                                                     |            |            |            |  |  |  |  |  |

 

25

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Product development expenses consistprimarily of salary and benefits for our development staff as well ascontractors’ fees and other costs associated with the enhancements of existingproducts and services and development of new products and services. Weaccount for product development costs in accordance with SFAS 2, “Accountingfor Research and Development Costs”, and SFAS 86, “Accounting for Costs ofComputer Software to be Sold, Leased, or Otherwise Marketed”, which specifiesthat costs incurred to develop computer software products should be charged toexpense as incurred until technological feasibility is reached for theproducts. Once technological feasibility is reached, all software costs shouldbe capitalized until the product is made available for general release tocustomers. The capitalized costs will be amortized using the greater of theratio of the product’s current gross revenues to the total of current expectedgross revenues or on a straight-line basis over the software’s estimatedeconomic life of approximately three years.

 

Product development expenses fluctuated dueto the following (in thousands):

 
| ** **                         | ** ** | **Change From**       | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **2007 to 2008** | ** ** |
| ** **                         | ** ** | **QTD**                    | ** ** |
| Increased payroll and related      |       | $                          | 1,808      |   |
| Increased outside services         |       | 937                        |       |
| Increased travel and entertainment |       | 115                        |       |
| Various other items                |       | 174                        |       |
|                               |       |                       |       |
| Total change                       |       | $                          | 3,034      |   |

 

The increase in product development expense duringthe first quarter of 2008 was primarily due to increases in payroll relatedcosts as a result of an increase in headcount and utilization of outsideservices to help us strengthen our existing product suite including newversions of Geneva, APX, Moxy, Advent Partner and Advent Revenue Center. Wecontinued to invest 21% of our revenues in product development during the firstquarter of 2008.

 

***General and Administrative***

 
| ** **                                | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| General and administrative (in thousands) |       | $                                                   | 9,227      |       | $          | 8,784 |   | $ | 443 |   |
| Percent of total net revenues             |       | 15                                                  | %          | 18         | %          |   |   |
|                                           |            |                                                     |            |            |            |  |  |  |  |  |

 

General and administrative expenses consistprimarily of personnel costs for information technology, finance,administration, operations and general management, as well as legal andaccounting expenses.

 

General and administrative expensesfluctuated due to the following (in thousands):

 
| ** **                       | ** ** | **Change From**       | ** ** |
|----------------------------------|------------|----------------------------|------------|
| ** **                       | ** ** | **2007 to 2008** | ** ** |
| ** **                       | ** ** | **QTD**                    | ** ** |
| Increased payroll and related    |       | $                          | 536        |   |
| Increased facilities             |       | 480                        |       |
| Decreased computer and telecom   |       | (284                       | )          |
| Decreased legal and professional |       | (154                       | )          |
| Various other items              |       | (135                       | )          |
|                             |       |                       |       |
| Total change                     |       | $                          | 443        |   |

 

The increase in expenses in the first quarterof 2008 is primarily due to the increases in payroll and other relatedcosts as a result of an increase in headcount and due to an increase in facility expense aswe have leased additional facility space of 50,000 square feet at our currentSan Francisco headquarters as compared to the first quarter of 2007. Thesecosts increases were partially offset by lower computer and telecommunicationsas a result of less expense from laptop purchases during 2008. Additionally,legal and professional fees were lower due to decreased services provided bySarbanes-Oxley compliance consultants, and external legal and accounting firms.As a percentage of revenue, the three-point decrease in general andadministrative expense to 15% during the first quarter of 2008 from 18% duringthe comparable quarter of 2007 reflects our achievement of improved efficiency.

 

26

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***Amortization of Other Intangibles***

 
| ** **                                        | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                        | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Amortization of other intangibles (in  thousands) |       | $                                                   | 487        |       | $          | 474 |   | $ | 13 |   |
| Percent of total net revenues                     |       | 1                                                   | %          | 1          | %          |   |   |
|                                                   |            |                                                     |            |            |            |  |  |  |  |  |

 

Amortization of other intangibles representsamortization of non-technology related intangible assets. The slight increaseduring 2008 resulted from additional amortization from non-technology relatedintangible assets associated with Vivid Orange Limited which we acquired in November 2007,partially offset by assets from prior acquisitions becoming fully amortizedduring 2007.

 

***Restructuring Charges***

 
| ** **                           | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                           | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
|                                 |       |                                                |       |       |       |   |   |
| Restructuring charges (in thousands) |       | $                                                   | 56         |       | $          | 562 |   | $ | (506 | ) |
| Percent of total net revenues        |       | 0                                                   | %          | 1          | %          |   |   |
|                                      |            |                                                     |            |            |            |  |  |  |  |  |

 

Restructuring initiatives have been implemented inour AIM operating segment to reduce costs and improve operating efficiencies bybetter aligning our resources to near-term revenue opportunities. Theseinitiatives have resulted in restructuring charges comprised primarily of costsrelated to properties abandoned in connection with facilities consolidation,related write-down of leasehold improvements and severance and associatedemployee termination costs related to headcount reductions. Our restructuringcharges included accruals for estimated losses on facility costs based on ourcontractual obligations net of estimated sublease income. We reassess thisliability periodically based on market conditions.

 

##### ***During the firstquarter of 2008, we recorded a restructuring charge of $56,000 which related tothe present value amortization of facility exit obligations. During the firstquarter of 2007, we recorded a restructuring charge of $562,000 due to theupdate of certain sub-lease assumptions for our prior San Franciscoheadquarters facility located at 301 Brannan Street, which the Company exitedin October 2006.***

##### *** ***

For additional analysis of the components ofthe payments and charges made against the restructuring accrual during thefirst quarter of 2008, see Note 9, “Restructuring Charges” to our condensedconsolidated financial statements.

 

***Operating Income (Loss) by Segment***

 
| ** **                                          | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| **(in thousands)**                             | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| ** **                                          | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Advent Investment Management                        |       | $                                                   | 7,936      |       | $          | 2,860 |   | $ | 5,076 |   |
| MicroEdge                                           |       | 388                                                 |       | 1,174      |       | (786 | ) |
| Unallocated corporate operating costs and  expenses |       |                                                |       |       |       |   |   |
| Stock-based employee compensation                   |       | (3,391                                              | )          | (3,246     | )          | (145 | ) |
| Amortization of developed technology                |       | (722                                                | )          | (364       | )          | (358 | ) |
| Amortization of other intangibles                   |       | (487                                                | )          | (474       | )          | (13 | ) |
|                                                |       |                                                |       |       |       |   |   |
| Total income (loss) from operations                 |       | $                                                   | 3,724      |       | $          | (50 | ) | $ | 3,774 |   |

 

Operating incomefor the AIM segment increased by approximately $5.1 million in the firstquarter of 2008 compared with the first quarter of 2007 primarily as a resultof an increase in AIM revenue of $12.7 million or 30%.  This increase in AIM’s revenue was partiallyoffset by increased expenses of $7.6 million or 19% primarily due to payrolland other relatedcosts from higher headcount of 870 employees at March 31, 2008 from 753 atMarch 31, 2007, as the AIM segment has added personnel primarily in theclient support, product development, professional services and sales andmarketing groups.

 

MicroEdge’soperating income decreased by $786,000 from the first quarter of 2007 due to anincrease in total costs of $1.6 million. This increase primarily resulted fromhigher payroll and related costs as MicroEdge added more headcount from theacquisition of Vivid Orange Limited in December 2007 and used contractorsto support its offering of the SmartChange product. The increase in MicroEdge’scosts was partially offset by revenue growth of $0.8 million in the firstquarter of 2008.

 

27

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

 
| ** **                                               | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Interest and other income (expense), net  (in thousands) |       | $                                                   | 227        |       | $          | 518 |   | $ | (291 | ) |
| Percent of total net revenues                            |       | 0                                                   | %          | 1          | %          |   |   |
|                                                          |            |                                                     |            |            |            |  |  |  |  |  |

 

Interest andother income (expense), net consists of interest expense and income, realizedgains and losses on investments and foreign currency gains and losses.

 

Interest andother income (expense), net fluctuated due to the following (in thousands):

 
| ** **                   | ** ** | **Change From**       | ** ** |
|------------------------------|------------|----------------------------|------------|
| ** **                   | ** ** | **2007 to 2008** | ** ** |
| ** **                   | ** ** | **QTD**                    | ** ** |
| Decrease in interest income  |       | $                          | (197       | ) |
| Increase in interest expense |       | (66                        | )          |
| Various other items          |       | (28                        | )          |
|                         |       |                       |       |
| Total change                 |       | $                          | (291       | ) |

 

The decrease ininterest income was due to lower average interest rates during the firstquarter of 2008, while the increase in interest expense resulted from a fullquarter of fees incurred associated with our credit facility agreement executedin February 2007.

 

In April 2008, we received the initial deferredcontingent consideration of $3.4 million as a result of the Company’s sale ofits ownership in LatentZero to royalblue group plc in April 2007. We willrecord the associated non-operating gain of $3.4 million in our second quarterof 2008 results.

 

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

 
| ** **                                | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Provision for income taxes (in thousands) |       | $                                                   | 1,316      |       | $          | 29 |   | $ | 1,287 |   |
| Effective tax rate                        |       | 33                                                  | %          | 6          | %          |   |   |
|                                           |            |                                                     |            |            |            |  |  |  |  |  |

 

During the first quarter of 2008, we recorded aprovision of $1.3 million resulting in a 33% effective tax rate for the firstquarter of 2008.  During the first quarter of 2007, we recorded aprovision of $29,000 reflecting a 6% effective tax rate. The increase ineffective tax rate over the prior year period primarily reflects the differingpercentage impact of each quarter’s discrete tax benefits in relation to thequarter’s pre-tax income.

 

We currently expect an annual effective tax rate for2008 between 30% and 35%. Our expectation is based on a projected fiscal 2008effective tax rate of 44%, adjusted for discrete tax benefits for taxdeductions due to disqualifying dispositions of incentive stock options andemployee stock purchase plan shares.

 

### **LIQUIDITY ANDCAPITAL RESOURCES**

### ** **

Our aggregate cash and cash equivalents were$58.0 million at March 31, 2008, compared with $49.6 million at December 31,2007. Cash equivalents are comprised of highly liquid investments purchasedwith an original or remaining maturity of 90 days or less at the date ofpurchase.

 

28

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

 
| ** **                                           | ** ** | **Three Months Ended March 31** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
|                                                 |       |                                                |       |   |   |
| Net cash provided by operating activities            |       | $                                                   | 9,264      |   | $ | 13,797 |   |
| Net cash provided by (used in) investing  activities |       | $                                                   | (2,949     | ) | $ | 21,279 |   |
| Net cash provided by (used in) financing  activities |       | $                                                   | 1,787      |   | $ | (22,314 | ) |

 

***Cash Flows from Operating Activities***

 

Our cash flowsfrom operating activities represent the most significant source of funding forour operations. The major uses of our operating cash include funding payroll(salaries, commissions, bonuses and benefits), general operating expenses(marketing, travel, computer and telecommunications, legal and professionalexpenses, and office rent) and cost of revenues. Our cash provided by operatingactivities generally follows the trend in our net revenues, operating resultsand the increase in deferred revenues resulting from term license bookings.

 

Our cash providedby operating activities of $9.3 million during the three months ended March 31,2008 was primarily the result of our net income and non-cash charges includingstock-based compensation and depreciation and amortization during the quarter.Cash flows resulting from changes in assets and liabilities included decreasesin accounts receivable and increases in deferred revenue. The decrease inaccounts receivable primarily reflected collections during the quarter. Days’sales outstanding based on billings were 63 days during the first quarter of2008, compared to 55 days in the fourth quarter of 2007 and 59 days in thefirst quarter of 2007. The increase in deferred revenue primarily reflected ourcontinued 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 license revenueis deferred. See further discussion of the effects of our transition to a termmodel in the “Overview” section. Other changes in assets and liabilitiesincluded an increase in our prepaid and other assets and decreases in accruedliabilities. The decrease in accrued liabilities reflected cash payments offiscal 2007 liabilities including year-end payables and bonuses, commissionsand payroll taxes.

 

Our cash providedby operating activities of $13.8 million during the three months ended March 31,2007 was primarily the result of our net income and non-cash charges includingstock-based compensation and depreciation and amortization during the quarter.Cash flows resulting from changes in assets and liabilities included decreasesin accounts receivable and increases in deferred revenue. The decrease inaccounts receivable primarily reflected improved collections during thequarter. Days’ sales outstanding based on billings decreased to 59 days duringthe first quarter of 2007 from 61 days in the fourth quarter of 2006. Theincrease in deferred revenue primarily reflected our continued transition tothe term license model. Other changes in assets and liabilities included anincrease in our prepaid and other assets and decreases in accounts payable andaccrued liabilities. The decreases in accounts payable and accrued liabilitiesreflected cash payments of fiscal 2006 liabilities including year-end payablesand bonuses, commissions and payroll taxes.

 

We expect thatcash provided by operating activities may fluctuate in future periods as aresult of a number of factors including fluctuations in our net revenues andoperating results, the amount of revenue deferred resulting from our shift to aterm license model, collection of accounts receivable, and timing of payments.

 

***Cash Flowsfrom Investing Activities***

 

Net cash used ininvesting activities of $2.9 million for the first quarter of 2008 reflectscapital expenditures of $2.5 million primarily related to the build-out ofadditional space at our San Francisco headquarters facility, capitalizedsoftware development costs of $0.2 million and change in restricted cash of$0.2 million.

 

Net cash providedby investing activities of $21.3 million for the first quarter of 2007 isprimarily from the sale of short term investments of $24.9 million, partiallyoffset by capital expenditures of $2.6 million and an installment paymenttotaling $1.0 million related to the acquisition of East Circle Solutions, Inc.

 

In April 2008, we received the initial deferredcontingent consideration of $3.4 million as a result of the sale of ourownership in LatentZero to royalblue group plc in April 2007. This cashinflow will be reflected in our cash from investing activities for the secondquarter of 2008.

 

29

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***Cash Flows from Financing Activities***

 

Net cash providedby financing activities for the first quarter of 2008 reflected proceeds of$1.8 million received from the exercise of employee stock options, net of taxespaid associated with the exercise of stock-settled stock appreciation rightsand vesting of restricted stock units. Net cash used in financing activitiesfor the first quarter of 2007 of $22.3 million reflected the repurchase of 0.8million shares of our common stock for $30.1 million, partially offset byproceeds received from the exercise of stock options of $7.8 million.

 

Our liquidity andcapital resources in any period could be affected by the exercise ofoutstanding stock options and issuance of common stock under our employee stockpurchase plan. Theresulting increase in the number of outstanding shares from this and from theissuance of common stock from our other outstanding equity awards (RSUs andSARs) could also affect our per share results of operations. However, we cannotpredict the timing or amount of proceeds from the exercise of stock options orSARs, or whether they will be exercised at all.

 

At March 31,2008, we had negative working capital of $(14.0) million, compared to negativeworking capital of $(23.2) million at December 31, 2007. Our negativeworking capital is primarily due to our recent common stock repurchases,totaling $91.2 million and $148.6 million during fiscal 2007 and 2006,respectively, and to a lesser extent deferred revenue growth as we continue totransition the substantial majority of our license agreements to term.Excluding deferred revenues and deferred taxes, we had working capital of $92.2million at March 31, 2008, compared to $81.9 million at December 31,2007.

 

In February 2007, Advent Software, Inc.and certain of our domestic subsidiaries entered into a senior secured creditfacility agreement (the “Credit Facility”) with Wells Fargo Foothill, Inc.(the “Lender”). Under the Credit Facility, the Lender will provide the Company witha revolving line of credit up to an aggregate amount of $75 million, subject toa borrowing base formula, to provide backup liquidity for general corporatepurposes, including stock repurchases, or investment opportunities for a periodof three years. As of March 31,2008 and December 31, 2007, the Company maintained a zero debt balance andwas in compliance with all associated covenants.

 

On May 7, 2008, our Board authorized the repurchase ofup to 1.0 million shares of the Company’s common stock. The purchases will befunded from available working capital or available liquidity under our Credit Facility,and repurchased shares will be returned to the status of authorized butun-issued shares of common stock. See Note 16, “Subsequent Events”, to the condensedconsolidated financial statements for further information.

 

We expect that for the next year, our operatingexpenses will continue to constitute a significant use of cash flow. Inaddition, we may use cash to fund acquisitions, repurchase common stock, orinvest in other businesses, when opportunities arise. Based upon thepredominance of our revenues from recurring sources, bookings performance andcurrent expectations, we believe that our cash and cash equivalents, cashgenerated from operations and availability under our Credit Facility will besufficient to satisfy our working capital needs, capital expenditures,investment requirements, stock repurchases and financing activities for thenext year. However, if we identify an investment or stock repurchaseopportunity that exceeds our current expectation, we may choose to seekadditional capital resources.

 

**Off-Balance Sheet Arrangements and ContractualObligations**

 

We currently haveno significant capital commitments other than commitments under our operatingleases, which decreased from $52.7 million at December 31, 2007 to $51.1million at March 31, 2008.

 

The followingtable summarizes our contractual cash obligations as of March 31, 2008 (inthousands):

 
| ** **                                            | ** ** | **Nine**              | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|--------------------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                            | ** ** | **Months Ended** | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **December 31**  | ** ** | **Years Ended December 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **2008**              | ** ** | **2009**                                   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Operating lease obligations, net of  sub-lease income |       | $                     | 6,008      |                                       | $          | 6,284      |       | $          | 5,840      |       | $          | 5,450          |       | $          | 4,978      |   | $ | 22,536 |   | $ | 51,096 |   |
|                                                       |            |                       |            |                                            |            |            |            |            |            |            |            |                |            |            |            |  |  |  |  |  |  |  |

 

At March 31, 2008 and December 31,2007, we had a gross liability of $5.8 million and $5.9 million for uncertaintax positions associated with the adoption of FIN 48. Since almost all of thisliability relates to reserves against deferred tax assets that we do not expectto utilize in the short term, we cannot estimate the timing of potential futurecash settlements and have not included any estimates in the table ofcontractual cash obligations above. Additionally, our cash payments for income taxes will continue to benominal over the next few years as we have significant net operating losses,capital losses and tax credit carryforwards to utilize.

 

At March 31, 2008 and December 31, 2007,we did not have any relationships with unconsolidated entities or financialpartnerships, such as entities often referred to as structured finance orspecial purpose entities, which would have been established for the purpose offacilitating off-balance sheet arrangements or other contractually narrow orlimited purposes. As 

 

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such,we are not materially exposed to any financing, liquidity, market or creditrisk that could arise if we had engaged in such relationships.

 

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

 

We are exposed to financial market risks, includingchanges in foreign currency exchange rates and interest rates. Historically,much of our revenues and capital spending was transacted in U.S. dollars.However, since the acquisitions of Advent Denmark, Advent Norway, AdventSweden, Advent Netherlands, Vivid Orange Ltd. 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 March 31, 2008, $49.4 million of goodwill and $3.1million 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 $5 million. We donot believe that a hypothetical 10% change in foreign currency exchange rateswould have a material adverse effect on our condensed consolidated results of operationsor cash flows.

 

Our interest rate risk related primarily to ourinvestment portfolio which consisted of $37.3 million in cash equivalents as ofDecember 31, 2007 and $48.3 million in cash equivalents as of March 31,2008. These cash equivalent securities were comprised of US government debtsecurities which would not be materially affected by an immediate sharpincrease or decrease in interest rates. As of March 31, 2008 and December 31,2007, Advent did not hold any auction rate securities and does not plan to holdthem in the near future.

 

Effective February 2007, we also have interestrate risk relating to debt under our line of credit facility which is indexedto LIBOR or a Wells Fargo prime rate. However, as of March 31, 2008, weessentially have no exposure for market risk for changes in interest ratesassociated with our Facility, as we have a zero balance of debt.

 

We have also invested in several privately-heldcompanies. These non-marketable investments are classified as other assets onour consolidated balance sheets. Our investments in privately-held companiescould be affected by an adverse movement in the financial markets forpublicly-traded equity securities, although the impact cannot be directlyquantified. These investments are inherently risky as the market for thetechnologies or products these privately-held companies have under developmentare typically in the early stages and may never materialize. It is our policyto review investments in privately held companies on a regular basis toevaluate the carrying amount and economic viability of these companies. Thispolicy includes, but is not limited to, reviewing each of the companies’ cashposition, financing needs, earnings/revenue outlook, operational performance,management/ownership changes and competition. The evaluation process is basedon information that we request from these privately held companies. Thisinformation is not subject to the same disclosure regulations as US publiclytraded companies, and as such, the basis for these evaluations is subject totiming and the accuracy of the data received from these companies.

 

Our investments in privately held companies areassessed for impairment when a review of the investee’s operations indicatesthat a decline in value of the investment is other than temporary. Suchindicators include, but are not limited to, limited capital resources, limitedprospects of receiving additional financing, and prospects for liquidity of therelated securities. Impaired investments in privately held companies arewritten down to estimated fair value. We estimate fair value using a variety ofvaluation 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. Wecould lose our entire investment in these companies. At March 31, 2008 andDecember 31, 2007, our net investments in privately-held companies totaled$0.5 million.

 

**Item4. Controls and Procedures**

 

**Evaluationof disclosure controls and procedures.**

 

TheCompany’s management evaluated, with the participation of the Chief ExecutiveOfficer and Chief Financial Officer, the effectiveness of the Company’sdisclosure controls and procedures, as such term is defined under Rule 13a-15(f) ofthe Securities and Exchange Act of 1934, as of the end of the period covered bythis Quarterly Report on Form 10-Q. Based on this evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded our disclosurecontrols and procedures were effective as of March 31, 2008 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 Chief Executive Officer and our ChiefFinancial Officer, as appropriate to allow timely decisions regarding requireddisclosure.

 

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**Changes in internal control overfinancial reporting.**

 

There were no changes in ourinternal control over financial reporting which were identified in connectionwith the evaluation required by Rule 13a-15(e) of the Exchange Act thatoccurred during the first quarter ended March 31, 2008 that has materiallyaffected, or is reasonably likely to materially affect, Advent’s internalcontrol over financial reporting.

 

**PART II. OTHER INFORMATION**

 

**Item1.   Legal Proceedings**

 

On March 8, 2005, certain of the formershareholders of Kinexus and the shareholders’ representative filed suit againstAdvent in the Delaware Chancery Court. The complaint alleges that Adventbreached the Agreement and Plan of Merger dated as of December 31, 2001pursuant to which Advent acquired all of the outstanding shares of Kinexus dueprincipally to the fact that no amount was paid by Advent on an earn-out of upto $115 million. The earn-out, which was payable in cash or stock at theelection of Advent, was based upon Kinexus meeting certain revenue targets inboth 2002 and 2003. The complaint seeks unspecified compensatory damages, anaccounting and restitution for unjust enrichment. Advent advised theshareholders’ representative in January 2003 that the earn-out terms hadnot been met in 2002 and accordingly no earn-out was payable for 2002 and wouldnot be payable for 2003. Discovery is continuing between the parties. Adventdisputes the plaintiffs’ claims and believes that it has meritorious defensesand intends to vigorously defend this action. Management believes that anypotential loss associated with this litigation is neither probable norreasonably estimable at this time and accordingly has not accrued any amountsfor any potential loss.

 

Fromtime to time, we are involved in claims and legal proceedings that arise in theordinary course of business. Based on currently available information,management does not believe that the ultimate outcome of these unresolvedmatters, individually and in the aggregate, is likely to have a materialadverse effect on the Company’s financial position or results of operations.However, litigation is subject to inherent uncertainties and our view of thesematters may change in the future. Were an unfavorable outcome to occur, thereexists the possibility of a material adverse impact on our financial positionand results of operations for the period in which the unfavorable outcomeoccurs, and potentially in future periods.

 

**Item 1A. RiskFactors**

 

*Investors should carefullyconsider the risks described below before making an investment decision. Thetrading price of our common stock could decline due to any of, but are notlimited to, these risks. In assessing these risks, investors should also referto the other information contained or incorporated by reference in thisQuarterly Report on Form 10-Q filed with the SEC, including our condensedconsolidated financial statements and related notes thereto.*

 

**Our Sales Cycle is Long and WeHave Limited Ability to Forecast the Timing and Amount of Specific Sales andthe Timing of Specific Implementations**

 

The purchase of our software products oftenrequires prospective customers to provide significant executive-levelsponsorship and to make major systems architecture decisions. As a result, wemust generally engage in relatively lengthy sales and contracting efforts.Sales transactions may therefore be delayed during the customer decisionprocess because we must provide a significant level of education to prospectivecustomers regarding the use and benefit of our products. The outlook for 2008is subject to uncertainties in the financial markets and customers are cautiousabout capital and information technology expenditures. As a result, the salescycle associated with the purchase of our solutions is typically between twoand twelve months depending upon the size of the client, and is subject to anumber of significant risks over which we have little or no control, includingbroader financial market volatility, customers’ budgeting constraints, internalselection procedures, and changes in customer personnel, among others.

 

As a result of a lengthy and unpredictablesales cycle, we have limited ability to forecast the timing and amount ofspecific license sales. The timing of large individual license sales is especiallydifficult to forecast, and we may not be successful in closing large licensetransactions on a timely basis or at all. Customers may postpone theirpurchases of our existing products or product enhancements in advance of theanticipated introduction of new products or product enhancements by us or ourcompetitors.

 

When a customer purchases a term licensetogether with implementation services we do not recognize any revenue under thecontract until the implementation services are substantially complete. Inaddition, the timing of large implementations is difficult to forecast.Customers may delay or postpone the timing of their particular projects due tothe availability of resources or other customer specific priorities. If we arenot able to complete an implementation project for a term license in a quarter,it will cause us to defer all of the proportionate contract revenues to asubsequent quarter. Because our expenses are relatively fixed in 

 

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the nearterm, any shortfall from anticipated revenues could result in a significantvariation in our operating results from quarter to quarter.

 

**We Depend Heavily on Our Axys®,Geneva and APX Products**

 

We derive over half of our net revenues fromthe licensing of Axys, Geneva and APX products. In addition, many of our otherapplications, such as Moxy, Partner and various data services have beendesigned to provide an integrated solution with each of these products. As aresult, we believe that for the next several years a majority of our netrevenues will depend upon continued market acceptance of Axys, Geneva and APX,and upgrades to those products. In addition, APX, our newest portfolioaccounting and reporting product, is of critical importance in providing amigration path for many of our Axys customers. Our long-term growth would beharmed if we are unable to establish APX as a leading product in the market. Asa result, we may not be able to successfully migrate existing Axys clients toAPX, or to attract new customers to buy APX.

 

**Uncertain Economic andFinancial Market Conditions May Continue to Affect Our Revenues**

 

We believe that the market for largeinvestment management software systems may be affected by a number of factors,including reductions in capital expenditures by large customers and poorperformance of major financial markets. The target clients for our productsinclude a range of financial services organizations that manage investmentportfolios. In addition, in our MicroEdge business segment, we targetcorporations, public funds, universities and non-profit organizations, whichalso manage investment portfolios and have many of the same needs. The successof many of our clients is intrinsically linked to the health of the financial markets.We believe that demand for our solutions has been, and could continue to be,disproportionately affected by fluctuations, disruptions, instability ordownturns in the economy and financial services industry which may causeclients and potential clients to exit the industry or delay, cancel or reduceany planned expenditures for investment management systems and softwareproducts. For example, beginning in the second half of 2007, difficulties inthe mortgage and broader credit markets in the United States and elsewhereresulted in a relatively sudden and substantial decrease in the availability ofcredit and a corresponding increase in funding costs. The current volatilityand uncertainty in the financial markets generally has also caused large lossesand layoffs announced by financial institutions and could result in reducedexpenditures for software and related services. Additionally, an economicdownturn would also cause a decline in our clients’ assets under managementwhich would in turn cause our revenues to decrease since pricing is based onassets under management. Furthermore, competitors may respond to marketconditions by lowering prices and attempting to lure away our customers andprospects to lower cost solutions.  Inaddition, a slowdown in the formation of new investment firms, especially hedgefunds, or a decline in the growth of assets under management would cause adecline in demand for our solutions. Also, consolidation of financial servicesfirms can result in reduced technology expenditures or acquired customers usingthe acquirer’s own proprietary software and services solutions or the solutionsof another vendor.  In some circumstanceswhere both acquisition parties are customers of Advent, the combined entity mayrequire fewer Advent products and services than each individually licensed,thus reducing our revenue.

 

Thetechnology spending patterns of organizations in MicroEdge’s primary markets(independent foundations, community foundations and corporations) are directlyaffected by economic fluctuations as foundation budgets are largely driven byendowment income. Given that endowments often contain market-exposedcomponents, they are significantly affected by the economy and foundationspending typically decreases in an economic downturn. Community foundations aresubject to similar influences, compounded by the fact that in many cases muchof their ongoing funding and endowment comes from active donors who mayincrease or reduce their giving depending on the economic climate and therelated effect on their income and wealth. Corporations typically fundcharitable activities from operating budgets, and the allocation to charitabledonations and supporting company charitable operations is often closely tied toa company’s performance. Thus, corporate philanthropy and spending on relatedtechnology are correlated with company and overall economic performance.

 

We have, in the past, experienced a number ofmarket downturns in the financial services industry and resulting declines in informationtechnology spending, which has caused longer sales and contracting cycles,deferral or delay of information technology projects and generally reducedexpenditures for software and related services, and we believe that the currentvolatility and uncertainty in the financial markets and the financial servicessector could have a material adverse effect on our revenues and results ofoperations.

 

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**If Our Existing Customers DoNot Renew Their Term License, Perpetual Maintenance or Other RecurringContracts, Our Business Will Suffer**

 

In 2007, revenuesrecognized from recurring contracts represented 77% of total net revenues. Weexpect to continue to derive a significant portion of our revenue from ourclients’ renewal of term license, perpetual maintenance and other recurringcontracts and such renewals are critical to our future success. Some factorsthat may affect the renewal rate of our contracts include:

 

·                  The price, performance and functionality of oursolutions;

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

·                  The effectiveness of our maintenance and supportservices; and

·                  Our ability to develop complementary products andservices.

 

Most of our perpetual license customers renew their annual maintenancealthough our customers have no obligation to renew such maintenance after thefirst year of their license agreements. In addition, our customers may selectmaintenance levels less advantageous to us upon renewal, which may reducerecurring revenue from these customers.

 

During the third quarter of 2007, we commenced renewing term contractssigned in the third quarter of 2004. These are the first three-year term contracts to be renewed by Adventsince our transition to a term pricing model began. Our customers have noobligation to renew their term contracts and given the small number ofcontracts renewed in the second half of 2007, we cannot yet conclude whethercustomers will renew in a manner consistent with our perpetual maintenancecustomers.  Additionally, we cannotpredict whether the renewals will be less advantageous to us than the originalterm contract. For example, the renewal periods for our term contracts aretypically shorter than our original term contract and customers may request areduction in the number of users or products licensed, resulting in a lowerannual term license fee.  Further,customers may elect to not renew their term license contracts at all.Additionally, we may incur significantly more costs in securing our termlicense contract renewals than we incur for our perpetual maintenance renewals.If our term contract customers renew under terms less favorable to us or choosenot to renew their contracts, or if it costs significantly more to secure arenewal for us, our operating results may be harmed.

 

**We Face Competition**

 

The market for investment management softwareis competitive and highly fragmented, is subject to rapid change and issensitive to new product introductions and marketing efforts by industryparticipants. Our largest single source of competition is from proprietarysystems used by existing and potential clients, many of whom develop their ownsoftware for their particular needs and therefore may be reluctant to licensesoftware products offered by third party vendors such as Advent. We also facesignificant competition from other providers of software and related servicesas well as providers of outsourced services. Many of our competitors havelonger operating histories and greater financial, technical, sales andmarketing resources than we do. In addition, consolidation has occurred amongsome of the competitors in our markets. Competitors vary in size, scope of servicesoffered and platforms supported. In2005, 2006 and 2007, many of our competitors were acquired, and it is possiblethat even larger companies will emerge through additional acquisitions ofcompanies and technologies.Anyfurther consolidation among our competitors may result in stronger competitorsin our markets and may therefore either result in a loss of market share orharm our results of operations. In addition, we also face competition frompotential new entrants into our market that may develop innovative technologiesor business models. We cannot guarantee that we will be able to competesuccessfully 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 Must Continue to IntroduceNew Products and Product Enhancements**

 

The market for our products is characterizedby rapid technological change, changes in customer demands, evolving industrystandards and new regulatory requirements. New products based on newtechnologies or new industry standards can render existing products obsoleteand unmarketable. As a result, our future success will continue to depend uponour ability to develop new products or product enhancements that address thefuture needs of our target markets and respond to their changing standards andpractices. For example, in 2007, we released more new products and productupgrades than any other year in our history, but it is too early to knowwhether these products will meet anticipated sales or that they will be broadlyaccepted in the market or that we will continue to introduce more products.Additionally, in 2008, we plan to release product upgrades for Geneva, APX,Moxy, Advent Partner and Advent Revenue Center.

 

We may not be successful in developing,introducing, marketing and licensing our new products or product enhancementson a timely and cost effective basis, or at all, and our new products andproduct enhancements may not adequately meet the requirements of themarketplace or achieve market acceptance. Delays in the commencement ofcommercial shipments of new products or enhancements or delays in clientimplementations or migrations may result in client dissatisfaction and delay orloss of product revenues. Additionally, existing clients may be reluctant to gothrough the sometimes complex and time consuming process of migrating from ourAxys to APX product, which may slow the migration of our customer base to APX.In addition, clients may delay purchases in anticipation of new products orproduct enhancements. Our ability to develop new products and productenhancements is also dependent upon the products of other software vendors,including certain system software vendors, such as Microsoft Corporation, SunMicrosystems, database vendors and development tool vendors. If the 

 

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productsof such vendors have design defects or flaws, are unexpectedly delayed in theirintroduction, or are unavailable on acceptable terms, our business could beseriously harmed.

 

**Our Current Operating Results May NotBe Reflective of Our Future Financial Performance**

 

During 2007, werecognized 77% of total net revenues from recurring sources, which we define asrevenues from term license, maintenance on perpetual licenses and otherrecurring revenue. We generally recognize revenue from these sources ratablyover the terms of these agreements, which typically range from one to threeyears. As a result, almost all of our revenues in any quarter are generatedfrom contracts entered into during previous periods.

 

Consequently, asignificant decline in new business generated in any quarter may not affect ourresults of operations in that quarter but will have an impact on our revenuegrowth rate in future quarters. Additionally, a decline in renewals of termagreements, maintenance or data 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, solelyrelying on our historical operating results on a generally accepted accountingprinciples (GAAP) basis may not be useful in predicting our future operatingresults. Non-GAAP information that we report, such as our quarterly bookingsand maintenance renewal rates, may assist investors in evaluating our futurefinancial position. 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.

 

**Our Operating Results May FluctuateSignificantly**

 

We are well over halfway through ourtransition to a predominantly term license model. Until we substantiallycomplete our transition to a term license model, our net revenues will beaffected by the reduction in perpetual license revenue and by the relativelyslower revenue recognition associated with the term license model, which is typically over a three-year period.Under a perpetual model, customers purchase licenses to use our softwareindefinitely and generally we recognize all license revenue at the time ofsale; maintenance is purchased under an annual renewable contract, andrecognized ratably over the contract period. Under a term model, customerspurchase a license to use our software and receive maintenance for a limitedperiod of time and we recognize the revenue ratably over the length of thecontract.

 

During2007, term license revenues comprised approximately 22% of term license,maintenance and other recurring revenues as compared to approximately 14% in2006. Term license contracts are comprisedof both software licenses and maintenance services. Individual perpetualsoftware licenses vary significantly in value, and the value and timing ofthese transactions can therefore cause our quarterly perpetual license revenuesto fluctuate.

 

When a customer purchases a term licensetogether with implementation services we do not recognize any revenue under thecontract until the implementation services are substantially completed. If theimplementation services are still in progress as of quarter-end, we will deferall of the contract revenues to a subsequent quarter. As a result of these andother factors, our quarterly net revenues may fluctuate significantly. Ourexpense levels are relatively fixed in the short-term. Due to the fixed natureof these expenses, combined with the relatively high gross margin historicallyachieved on our products, an unanticipated decline in net revenues in anyparticular quarter may adversely affect our operating results. For example,during 2007, we deferred net revenues of $11.8 million and deferred directlyrelated expenses of $4.1 million. The impact of these deferrals on ouroperating income for 2007 was approximately $7.7 million.

 

In addition, we experience seasonality in ourlicensing. We believe that this seasonality results primarily from customerbudgeting cycles and the annual nature of some AUA contracts, and expect thisseasonality to continue in the future. The fourth quarter of the year typically has more licensingactivity.  That can result in perpetuallicense fee revenue being the highest in the fourth quarter, followed by lowerperpetual license revenue in the first quarter of the following year. 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 see commission and bonus expenses in the periodin which we enter into a license, but not recognize the associated revenueuntil later periods.

 

Because of the above factors, we believe thatquarter-to-quarter comparisons of our operating results are not necessarilymeaningful and that these comparisons cannot be relied upon as indicators offuture performance.

 

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**We Must Retain and Recruit KeyEmployees**

 

We believe that our futuresuccess is dependent on the continued employment of our senior managementand our ability to identify, attract, motivate and retain qualifiedtechnical, sales and other personnel. Members of our executive managementteam have acquired specialized knowledge and skills with respect to Advent. Weneed technical resources such as our product development engineers to developnew products and enhance existing products; we rely upon sales personnel tosell our products and services and maintain healthy businessrelationships; we must recruit professional service consultants to supportthe anticipated increase in product implementations; we must hire clientservices personnel to provide technical support to our growing installed baseof customers; and we must attract and retain financial and accounting personnelto comply with the requirements of Section 404 of the Sarbanes-Oxley Actof 2002. Therefore, we need to identify, attract, motivate and retain suchemployees with the requisite education, backgrounds and industryexperience.  However, experienced personnel in the information technologyindustry are in high demand and competition for their talents is intense,especially in the San Francisco Bay Area where the majority of our employeesare located.

 

We have relied on our ability to grant equitycompensation as one mechanism for recruiting and retaining such highly skilledpersonnel. Accounting regulations requiring the expensing of equity compensationimpair our ability to provide these incentives without reporting significantcompensation costs.

 

We may also choose to create additionalperformance and retention incentives in order to retain our employees,including the granting of additional stock options, restricted stock,restricted stock units, stock appreciation rights, performance shares orperformance units to employees or issuing incentive cash bonuses. Suchincentives may either dilute our existing stockholder base or result inunforeseen operating expenses which may have a material adverse effect on ouroperating results, which may result in our stock price falling; or may not bevalued as highly by our employees which may create retention issues.

 

**We Face Challenges in ExpandingOur International Operations**

 

We market and sell our products in the UnitedStates and, to a lesser extent, internationally. From 2001 through 2005, weacquired the subsidiaries of our independent distributor and in 2006 we openeda branch office of Advent Europe Ltd. in the United Arab Emirates.  In addition, we have begun to expand oursales in relatively new jurisdictions for Advent, such as the Middle East,Eastern Europe, and continue to explore other market regions, such as Asia. Tofurther expand our international operations, we would need to establishadditional locations, continue to localize our software and acquire otherbusinesses or enter into additional distribution relationships in other partsof the world. International operations, including further expansion and entryinto new international markets, would require significant management attentionand financial resources. We cannot be certain that establishing businesses inother countries will produce the desired levels of revenues, such as in the caseof our Greek subsidiary, Advent Hellas, which produced less than satisfactoryrevenues and profitability before its sale by Advent in 2005. We currently havelimited experience in developing localized versions of our products andmarketing and distributing our products internationally. In addition,international operations are subject to other inherent risks, including:

 

·                  The impact of recessions in economies outside theUnited States;

·                  Greater difficulty in accounts receivablecollection and longer collection periods;

·                  Difficulty of enforcement of contractualprovisions in local jurisdictions;

·                  Unexpected changes in foreign laws and regulatoryrequirements;

·                  US and foreign trade-protection measures andexport and import requirements;

·                  Difficulties in successfully adapting our productsto the language, regulatory and technology standards of other countries;

·                  Resistance of local cultures to foreign-basedcompanies and difficulties establishing local partnerships or engaging localresources;

·                  Difficulties in and costs of staffing and managingforeign operations;

·                  Reduced protection for intellectual propertyrights in some countries;

·                  Foreign tax structures and potentially adverse taxconsequences;

·                  Adverse changes in foreign currency exchangerates; and

·                  Political and economic instability.

 

The revenues, expenses, assets andliabilities of our international subsidiaries are primarily denominated inlocal foreign currencies. We have not historically undertaken foreign exchangehedging transactions to cover potential foreign currency exposure. Futurefluctuations in currency exchange rates may adversely affect revenues andaccounts receivable from international sales and the US dollar value of ourforeign subsidiaries’ revenues, expenses, assets and liabilities. Ourinternational service revenues and certain license revenues from our Europeansubsidiaries are generally denominated in local foreign currencies.

 

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**Difficulties in Integrating Our Acquisitionsand Expanding Into New Business Areas Have Impacted and Could Continue toAdversely Impact Our Business and We Face Risks Associated with PotentialAcquisitions, Investments, Divestitures and Expansion**

 

Periodically we seek to grow through theacquisition of additional complementary businesses. From 2001 through themiddle of 2003, we made five major acquisitions, including Kinexus Corporation,Techfi Corporation and Advent Outsource Data Management LLC, and also acquiredall of the common stock of five of our European distributor’s subsidiaries. Inaddition, we purchased our European distributor’s remaining two subsidiaries inthe United Kingdom and Switzerland in May 2004. More recently, in December 2006,we acquired East Circle Solutions, Inc., a developer of investmentmanagement billing solutions to integrate their product into our softwareofferings; and in November 2007, our MicroEdge subsidiary acquired VividOrange Limited, a United Kingdom company providing corporate communityinvolvement and employee charitable giving technology.

 

The process of integrating our acquisitionshas required and will continue to require significant resources, particularlyin light of our relative inexperience in integrating acquisitions, potentialregulatory requirements and operational demands. Integrating these acquisitionsin the past has been time-consuming, expensive and disruptive to our business.This integration process has strained our managerial resources, resulting inthe diversion of these resources from our core business objectives and may doso in the future. Failure to achieve the anticipated benefits of theseacquisitions or to successfully integrate the operations of these entities hasharmed and could potentially harm our business, results of operations and cashflows in future periods. For example, in the first quarter of 2003, we closedour Australian subsidiary because it failed to perform at a satisfactory profitlevel and similarly in the fourth quarter of 2005, we disposed of our AdventHellas subsidiary because of less than satisfactory profitability. In addition,as we have expanded into new business areas and built new offerings throughstrategic alliances and internal development, as well as acquisitions, some ofthis expansion has required significant management time and resources withoutgenerating required revenues. We have had difficulty and may continue to havedifficulty creating demand for such offerings. Furthermore, we may face otherunanticipated costs from our acquisitions, such as disputes involving earn-outand incentive compensation amounts, similar to those we have experienced withour Kinexus and Advent Outsource acquisitions.

 

We may make additional acquisitions ofcomplementary companies, products or technologies in the future. In addition,we periodically evaluate the performance of all our products and services andmay sell or discontinue current products and services. 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.

 

**Impairment of Investments CouldHarm Our Results of Operations**

 

We have made and may make future investmentsin privately held companies, many of which are considered in the start-up ordevelopment stages. These investments, which we classify as other assets on ourconsolidated balance sheets, are inherently risky, as the market for thetechnologies or products these companies have under development is typically inthe early stages and may never materialize. The value of the investment inthese companies is influenced by many factors, including the operatingeffectiveness of these companies, the overall health of these companies’industries, the strength of the private equity markets and general marketconditions. Due to these and other factors, we have previously determined, andmay in the future determine, that the value of these investments is impaired,which has caused and would cause us to write down the carrying value of theseinvestments, such as the $0.6 million write-down of one of our investmentsduring the second quarter of 2007. Furthermore, we cannot be sure that futureinvestment, license, fixed asset or other asset write-downs will not occur. Iffuture write-downs do occur, they could harm our business and results ofoperations.

 

**Our Stock Price May FluctuateSignificantly**

 

Like many companies in the technology andemerging growth sector, our stock price may be subject to wide fluctuations,particularly during times of 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. In addition, our stock price is affected by trends in the financialservices sector and by broader market trends unrelated to our performance.Unfavorable or uncertain economic and market conditions, which can be causedby: outbreaks of hostilities or other geopolitical instability; declines ineconomic growth, business activity or investor or business confidence;limitation on the availability or increases in the cost of credit or capital;increases in inflation, interest rates, exchange rate volatility, default ratesor the price of basic commodities; corporate, political or other scandals thatreduce investor confidence in capital markets; natural disasters or pandemics;or a combination of these or other factors, have adversely affected, and may inthe future adversely affect, our business, profitability and stock price.

 

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**If Our Relationship withFinancial Times/Interactive Data Is Terminated, Our Business May Be Harmed**

 

Many of our clients use our proprietaryinterface to electronically retrieve pricing and other data from FinancialTimes/Interactive Data (“FTID”). FTID pays us a commission based on theirrevenues from providing this data to our clients. Our software products havebeen customized to be compatible with their system and this software would needto be redesigned if their services were unavailable for any reason. Terminationof our current agreement with FTID would require at least one year’s notice byeither us or them, or 90 days in the case of material breach. Our operatingresults would be adversely impacted if our relationship with FTID wasterminated or their services were unavailable to our clients for any reason.

 

**If We Are Unable to Protect Our IntellectualProperty We May Be Subject to Increased Competition that Could SeriouslyHarm Our Business**

 

Our success depends significantly upon ourproprietary technology. We currently rely on a combination of copyright,trademark, patent and trade secret law, as well confidentiality procedures andcontractual provisions to protect our proprietary rights. We have registeredtrademarks and copyrights for many of our products and services and willcontinue to evaluate the registration of additional trademarks and copyrightsas appropriate. We generally enter into confidentiality agreements with ouremployees, customers, resellers, vendors and others. We seek to protect oursoftware, documentation and other written materials under trade secret andcopyright laws. Despite these efforts, existing intellectual property laws may affordonly limited protection, In addition, it may be possible for unauthorized thirdparties to copy certain portions of our products or to reverse engineer orotherwise obtain and use our proprietary information. In addition, we cannot becertain that others will not develop or acquire substantially equivalent orsuperseding proprietary technology, equivalent or better products will not bemarketed in competition with our products, or others may not design around anypatent that may be issued to us or other intellectual property rights of ours,thereby substantially reducing the value of our proprietary rights. We cannotbe sure that we will develop proprietary products or technologies that arepatentable, that any patent, if issued, would provide us with any competitiveadvantages or would not be challenged by third parties, or that the patents ofothers will not adversely affect our ability to do business. Despite ourefforts to protect our proprietary rights, unauthorized parties may attempt tocopy aspects of our products or to obtain and use information that we regard asproprietary. In addition, the laws of some foreign countries do not protectproprietary rights to as great an extent as do the laws of the United States.Litigation may be necessary to protect our proprietary technology which may betime-consuming and expensive, with no assurance of success.  As a result, we cannot be sure that our meansof protecting our proprietary rights will be adequate.

 

**If We Infringe the Intellectual Property Rightsof Others, We May Incur Additional Costs or Be Prevented from Selling OurProducts and Services**

 

We cannot be certain that our products orservices do not infringe the intellectual property rights of others. As aresult, we may be subject to litigation and claims, including claims ofmisappropriation of trade secrets or infringement of patents, copyrights andother intellectual property rights of third parties that would betime-consuming and costly to resolve and may lead to unfavorable judgments or settlements.If we discovered that our products or services violated the intellectualproperty rights of third parties, we may have to make substantial changes toour products or services or obtain licenses from such third parties. We mightnot be able to obtain such licenses on favorable terms or at all, and we may beunable to change our products successfully or in a timely or cost-effectivemanner. Failure to resolve an infringement matter successfully or in a timelymanner would damage our reputation and force us to incur significant costs,including payment of damages, redevelopment costs, diversion of management’sattention and satisfaction of indemnification obligations that we have with ourclients, as well as prevent us from selling certain products or services.

 

**Information We Provide toInvestors Is Accurate Only as of the Date We Disseminate It**

 

From time to time, we may publiclydisseminate forward-looking information or guidance in compliance withRegulation FD. This information or guidance represents our outlook only as ofthe date we disseminate it, and we do not undertake to update such informationor guidance.

 

**Catastrophic Events CouldAdversely Affect Our Business**

 

Our operations are exposed to potentialdisruption by fire, earthquake, flood, power loss, telecommunications failure,security breaches, criminal acts and other events. Additionally, we arevulnerable to interruption caused by terrorist incidents. For example, ourfacilities in New York were temporarily closed due to the September 11,2001 terrorist attacks. Immediately after the terrorist attacks, our clientswho were located in the World Trade Center area were concentrating on disasterrecovery rather than licensing additional software components, while thegrounding of transportation impeded our professional services employees’ability to travel to client sites. Additionally, during the temporary closureof the US stock markets, our clients did not use our market data services. Ourcorporate headquarters are located in the San Francisco Bay Area, which is aregion with significant 

 

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seismicactivity. Earthquakes such as that experienced in 1989 could disrupt ourbusiness. Such disruptions could affect our ability to sell and deliverproducts and services and other critical functions of our business. Further,such disruptions could cause instability in the financial markets or thespending of our clients and prospects upon which we depend.

 

Further, abrupt political change, terroristacts, conflicts or wars may cause damage or disruption to the economy,financial markets and our customers. The potential for future attacks, thenational and international responses to attacks or perceived threats tonational security and other actual or potential conflicts or wars, includingthe ongoing crisis in the Middle East, have created many economic and politicaluncertainties. Although it is impossible to predict the occurrences orconsequences of any such events, they could unsettle the financial markets orresult in a decline in information technology spending, which could have amaterial adverse effect on our revenues.

 

**Undetected Software Errors or Failures Foundin New Products May Result in Loss of or Delay in Market Acceptance of OurProducts that Could Seriously Harm Our Business**

 

Our products may contain undetected softwareerrors or scalability limitations at any point in their lives, but particularlywhen first introduced or as new versions are released. Despite testing by usand by current and potential customers, errors may not be found in new productsuntil after commencement of commercial shipments, resulting in a loss of or adelay in market acceptance, damage to our reputation, customer dissatisfactionand reductions in revenues and margins, any of which could seriously harm ourbusiness. Additionally, our agreements with customers that attempt to limit ourexposure to liability claims may not be enforceable in jurisdictions where weoperate.

 

**Two of Our Principal StockholdersHave an Influence Over our Business Affairs and May Make BusinessDecisions with Which You Disagree and Which May Adversely Affect the Valueof Your Investment**

 

OurChief Executive Officer and the Chairman of our board of directors beneficiallyown or control, indirectly or directly, a substantial number of shares of ourcommon stock (approximately 38% as of March 14, 2008). As a result, ifthese persons act together, they will have the ability to exert significantinfluence on matters submitted to our stockholders for approval, such as theelection or removal of directors, amendments to our certificate ofincorporation or the approval of a business combination. These actions may betaken even if they are opposed by other stockholders or it may be difficult to approvethese actions without their consent. This concentration of ownership may alsohave the effect of delaying or preventing a change of control of our company ordiscouraging others from making tender offers for our shares, which couldprevent our stockholders from receiving a premium for their shares.

 

**Changes in Securities Laws andRegulations May Increase Our Costs**

 

The Sarbanes-Oxley Act (“the Act”) of 2002required changes in some of our corporate governance and securities disclosureand/or compliance practices. As part of the Act’s requirements, the SEC hasenacted new rules on a variety of subjects, and the Nasdaq Stock Markethas enacted new corporate governance listing requirements. These developmentshave increased and may in the future increase our accounting and legalcompliance costs and could also expose us to additional liability if we fail tocomply with these new rules and reporting requirements. In fiscal 2007,2006 and 2005, we incurred approximately $0.9 million, $1.3 million and $1.8 million,respectively, in Sarbanes-Oxley related expenses consisting of externalconsulting costs and auditor fees, and the Company anticipates similarlyspending a significant amount for its 2008 compliance activities. In addition,such developments may make retention and recruitment of qualified persons toserve on our board of directors, or as executive officers, more difficult. Wecontinue to evaluate and monitor regulatory and legislative developments andcannot reliably estimate the timing or magnitude of all costs we may incur as aresult of the Act or other related legislation or regulation.

 

**Changes in, or Interpretationsof, Accounting Principles Could Result in Unfavorable Accounting Charges**

 

We prepare ourconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America. These principles aresubject to interpretation by us, the SEC and various bodies formed to interpretand create accounting principles. A change in these principles or a change inthe interpretations of these principles can have a significant effect on ourreported results and may even retroactively affect previously reportedtransactions. Some of our accounting principles that recently have been or maybe affected include:

 

·                  Software revenue recognition

·                  Accounting for stock-based compensation

·                  Accounting for income taxes

·                  Accounting for business combinations and relatedgoodwill

 

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In particular, inthe first quarter of 2006, we adopted SFAS 123R which requires the measurementof all stock-based compensation to employees, including grants of employeestock options, restricted stock units and stock appreciation rights, using afair-value-based method and the recording of such expense in our consolidatedstatements of operations. The adoption of SFAS 123R had a significant adverseeffect on our results of operations. It will continue to significantlyadversely affect our results of operations and has resulted in changes to ourcompensation practices, such as an increased reliance on using equity vehiclessuch as stock-settled stock appreciation rights (SAR) and restricted stockunits (RSU).

 

Iffactors change and we employ different assumptions for estimating stock-basedcompensation expense in future periods or if we decide to use a differentvaluation model, the future periods may differ significantly from what we haverecorded in the current period and could materially affect our operatingincome, net income and net income per share.

 

Wecurrently use the Black-Scholes option pricing model to determine the fairvalue of stock-based compensation awards and employee stock purchase planshares. The Black-Scholes option pricing model was developed for use inestimating the fair value of traded options that have no vesting restrictionsand are fully transferable, characteristics not present in our option grantsand employee stock purchase plan shares. Existing valuation models, includingthe Black-Scholes and lattice binomial models, may not provide reliablemeasures of the fair values of our stock-based compensation. Consequently,there is a risk that our estimates of the fair values of our stock-basedcompensation awards on the grant dates may bear little resemblance to the actualvalues realized upon the exercise, expiration, early termination or forfeitureof those stock-based payments in the future. Certain stock-based payments, suchas employee stock options, restricted stock units and stock appreciationrights, may expire worthless or otherwise result in zero intrinsic value ascompared to the fair values originally estimated on the grant date and reportedin our consolidated financial statements. Alternatively, value may be realizedfrom these instruments that are significantly higher than the fair valuesoriginally estimated on the grant date and reported in our financialstatements. There currently is no market-based mechanism or other practicalapplication to verify the reliability and accuracy of the estimates stemming fromthese valuation models, nor is there a means to compare and adjust theestimates to actual values.

 

Additionally, in December 2007, the FASB issued SFAS No. 141(revised 2007) (“SFAS 141R”), “Business Combinations”. SFAS 141R establishesprinciples and requirements for how the acquirer of a business recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, and any non-controlling interest in the acquiree. SFAS141R is effective for financial statements issued for fiscal years beginningafter December 15, 2008. Accordingly, any business combinations we engagein will be recorded and disclosed following existing generally acceptedaccounting principles (GAAP) until January 1, 2009. The Company expectsSFAS 141R will have an impact on its consolidated financial statements wheneffective, but the nature and magnitude of the specific effects will dependupon the nature, terms and size of the acquisitions the Company consummatesafter the effective date.

 

**Security Risks May HarmOur Business**

 

Maintaining the security of computers,computer networks, hosted solutions and the transmission of confidentialinformation over public networks is essential to commerce and communications,particularly in the market in which Advent operates. Efforts of others to seekunauthorized access to Advent’s or its clients’ computers and networks orintroduce viruses, worms and other malicious software programs that disable orimpair computers into our systems or those of our customers or other thirdparties, could disrupt or make our systems inaccessible or allow access toproprietary information and data of Advent or its clients.  Advances in computer capabilities, newdiscoveries in the field of cryptography or other events or developments, alsocould result in compromises or breaches of our security systems. Our securitymeasures may be inadequate to prevent security breaches, exposing us to a riskof data loss, financial loss, harm to reputation, business interruption,litigation and other possible liabilities, as well as possibly requiring us toexpend significant capital and other resources to protect against the threat ofsecurity breaches or to alleviate problems caused by such breaches.

 

**Potential Changes in Securities Laws andRegulation Governing the Investment Industry’s Use of Soft Dollars May ReduceOur Revenues**

 

As of December 31, 2007, approximately360 or 8% of our clients utilized trading commissions (“soft dollararrangements”) to pay for software products and services. During fiscal 2007and 2006, the total value of Advent products and services paid with softdollars was approximately 4% and 5% of our total billings. Such soft dollararrangements could be impacted by changes in the regulations governing thosearrangements.

 

Duringthe fourth quarter of 2006, we completed the wind down of the “soft dollar”business of our SEC-registered broker/dealer subsidiary, Second StreetSecurities, as it no longer fits with our corporate strategy. Second StreetSecurities’ soft dollar business offered our customers the ability to pay forAdvent products and other third party products and services through 

 

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brokerage commissions and other fee-basedarrangements. We will continue to allow clients to utilize soft dollararrangements to pay for Advent software products and services through otherindependent broker/dealers.

 

InJuly 2006, the SEC published an Interpretive Release that providesguidance on money managers’ use of client commissions to pay for brokerage andresearch services under the safe harbor set forth in Section 28(e) ofthe Securities Exchange Act of 1934. The Interpretive Release clarifies thatmoney managers may use client commissions (“soft dollars”) to pay only foreligible brokerage and research services. Among other matters, the InterpretiveRelease states that eligible brokerage includes those products and servicesthat relate to the execution of the trade from the point at which the moneymanager communicates with the broker-dealer for the purpose of transmitting anorder for execution, through the point at which funds or securities aredelivered or credited to the advised account. In addition, for potentially “mixed-use” items (such as trade ordermanagement systems) that are partly eligible and partly ineligible, theInterpretive Release states that money managers must make a reasonableallocation of client commissions in accordance with the eligible and ineligibleuses of the items. Based on this new guidance, our customers may change theirmethod of paying all or a portion of certain Advent products or services fromsoft to hard dollars, and as a result reduce their usage of these products orservices in order to avoid increasing expenses, which could cause our revenuesto decrease.

 

**Covenants in Our CreditFacility Agreement Could Adversely Affect our Financial Condition**

 

In February 2007, we entered into a seniorsecured facility agreement which provides us with a revolving line of credit upto an aggregate amount of $75.0 million. Our continued ability to borrow underour credit facility is subject to compliance with certain financial andnon-financial covenants. The financial covenant is limited to a maximum ratioof senior debt to earnings before interest, taxes, depreciation, andamortization (EBITDA), adjusted for cost capitalizations, extraordinary gains(losses) and non-cash stock compensation. Our failure to comply with suchcovenants could cause default under the agreement, and we may then be required torepay such debt with capital from other sources. Under those circumstances,other sources of capital may not be available to us, or be available only onunfavorable terms. In the event of default which is not remedied within theprescribed timeframe, the assets of the Company (subject to the amountborrowed) may be attached or seized by the lender. As of March 31, 2008and December 31, 2007, we had no outstanding borrowings under this creditfacility and were in compliance with all covenants.

 

**If We Fail to Maintain an Effective System of Internal Control, We May Notbe Able to Accurately Report Our Financial Results or Our Filings May Notbe Timely. As a Result, Current and Potential Stockholders Could LoseConfidence in Our Financial Reporting, Which Would Harm Our Business and theTrading Price of Our Stock**

 

Effectiveinternal control is necessary for us to provide reliable financial reports. Ifwe cannot provide reliable financial reports, our business and operatingresults could be harmed. We have in the past discovered, and may in the futurediscover, areas of our internal control that need improvement including controldeficiencies that may constitute material weaknesses. For example, as of December 31,2005, the Company did not maintain effective controls over the accounting forincome taxes, including the determination of deferred income tax liabilitiesand the related income tax provision. This control deficiency resulted inadjustments to the fourth quarter of 2004 and 2005 financial statements and arestatement of the Company’s financial statements for each of the first threequarters of fiscal 2004 and 2005.

 

The Company also did notmaintain effective controls over the accuracy, presentation and disclosure ofthe pro forma stock-based compensation expense in conformity with generallyaccepted accounting principles as of December 31, 2005. As a result ofthis control deficiency, the Company’s disclosures of stock-based compensationexpense for fiscal 2003 and 2004 and the first three quarters of 2004 and 2005were revised.

 

During 2006, we implementedcontrols and procedures to improve our internal control over financialreporting and address the material weaknesses identified in fiscal 2004 and2005. Management has concluded that the Company’s internal control overfinancial reporting was effective as of December 31, 2006 and 2007.

 

We do not expect that ourinternal control over financial reporting will prevent all errors or fraud. Acontrol system, no matter how well designed and operated, can provide onlyreasonable, not absolute, assurance that the control system’s objectives willbe met. Further, the design of a control system must reflect the fact thatthere are resource constraints, and the benefits of controls must be consideredrelative to their costs. Controls can be circumvented by individual acts ofsome persons, by collusion of two or more people, or by management override ofthe controls. Over time, controls may become inadequate because changes inconditions or deterioration in the degree of compliance with policies orprocedures may occur. Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected.

 

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Any failure to implement ormaintain improvements in our internal control over financial reporting, ordifficulties encountered in the implementation of these improvements in ourcontrols, could cause significant deficiencies or material weaknesses in ourinternal controls and consequently cause us to fail to meet our reportingobligations. Any failure to implement or maintain required new or improvedinternal controls could also cause investors to lose confidence in our reportedfinancial information, which could have a negative impact on the trading priceof our stock.

 

**OurAbility to Conclude that a Control Deficiency is Not a Material Weakness orthat an Accounting Error Does Not Require a Restatement Can be Affected By aNumber of Factors Including Our Level of Pre-Tax Income**

 

Underthe Sarbanes-Oxley Act of 2002, our management is required to assess the impactof control deficiencies based upon both quantitative and qualitative factors,and depending upon that analysis we classify such identified deficiencies aseither a control deficiency, significant deficiency or a material weakness.

 

Oneelement of our quantitative analysis of any control deficiency is its actual orpotential financial impact, and any impact that is greater than 5% of ourpre-tax income in any quarter may be more likely to result in that deficiencybeing determined to be a significant deficiency or a material weakness. Forexample, our assessment of a control deficiency as a significant deficiency ormaterial weakness remains dependent in part on our level of profitabilityduring a particular quarter. If our quarterly or fiscal year pre-tax incomewere to decrease, this will make it statistically less likely for us and ourindependent registered public accounting firm to determine that a controldeficiency is not a material weakness.

 

Inaddition, if management or our independent registered public accountantsidentify errors in our interim or annual financial statements, it isstatistically more likely that such errors may meet the quantitative thresholdestablished under Staff Accounting Bulletin No. 99, “Materiality”, thatcould, depending upon the complete qualitative and quantitative analysis,result in our having to restate previously issued financial statements.

 

**Item2.****   Unregistered Sales of Equity Securities and Use of Proceeds**

 

**Issuer Purchases of EquitySecurities**

 

Our Board of Directors (the “Board”) hasapproved common stock repurchase programs authorizing management to repurchaseshares of the Company’s common stock in the open market. The timing and actualnumber of shares subject to repurchase are at the discretion of management andare contingent on a number of factors, including the price of our stock,general market conditions and alternative investment opportunities. The purchasesare funded from available working capital or debt.

 

There were no repurchase activities during the first quarter of 2008.As of March 31, 2008 and December 31, 2007, there were no sharesavailable to be repurchased under Board approved common stock repurchaseprograms.

 

On May 7, 2008, Advent’s Board authorized therepurchase of up to 1.0 million shares of the Company’s outstanding commonstock. See Note 16, “Subsequent Events”, to the condensed consolidatedfinancial statements for further information. As of the date of this filing, noshares have been repurchased under this repurchase authorization. 

 

**Item3.****   Defaults Upon Senior Securities**

 

None.

 

**Item4.****   Submission of Matters to a Vote of Security Holders**

** **

The Annual Meeting of Stockholders (the “AnnualMeeting”) of Advent Software, Inc. was held at the principal office of theCompany at 600 Townsend Street, San Francisco, California 94103 on May 7, 2008.Stockholders of record at the close of business on March 14, 2008 (the “RecordDate”) were entitled to notice of and to vote at the meeting. As of the RecordDate, 26,616,600 shares of the Company’s common stock were issued andoutstanding, and a quorum of 24,997,389 shares of common stock was representedin person or by proxy at the Annual Meeting.

 

At the Annual Meeting, three items were votedupon:

 

1.             Toelect seven directors to serve for the ensuing year and until their successorsare duly elected and qualified.

 
| ** **           | ** ** | **Number of Shares** | ** ** |
|----------------------|------------|--------------------------------|------------|
|                 |       | **Voted For**                  | ** ** | **Withheld** |   |
|                 |       |                           |       |   |   |
| John H. Scully       |       | 24,548,821                     |       | 448,568 |   |
| Stephanie G. DiMarco |       | 24,877,851                     |       | 119,538 |   |
| A. George Battle     |       | 22,480,955                     |       | 2,516,434 |   |
| Robert A. Ettl       |       | 24,867,151                     |       | 130,238 |   |
| James D. Kirsner     |       | 24,339,280                     |       | 658,109 |   |
| James P. Roemer      |       | 24,340,281                     |       | 657,108 |   |
| Wendell G. Van Auken |       | 23,012,476                     |       | 1,984,913 |   |

 

2.             To ratify the appointment ofPricewaterhouseCoopers LLP as the independent registered public accounting firmof the Company for the year ending December 31, 2008. 

 
|                                                       |   | **Number of Shares** |       |
|------------------------------------------------------------|--------|----------------------|------------|
|                                                       |   | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** |   |
|                                                       |   | **For**              | ** ** | **Against** | ** ** | **Abstained** | ** ** | **Non-Votes** |   |
| Ratification of appointment of PricewaterhouseCoopers  LLP |   | 24,924,779           |       | 60,511 |   | 12,099 |   |  — |   |

 

3.             To approve the amended and restated 2002 StockPlan, and add and reserve 900,000 shares thereunder. 

 
|                                 |   | **Number of Shares** |       |
|--------------------------------------|--------|----------------------|------------|
|                                 |   | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** |   |
|                                 |   | **For**              | ** ** | **Against** | ** ** | **Abstained** | ** ** | **Non-Votes** |   |
| Amended and restated 2002 Stock Plan |   | 20,845,166           |       | 2,568,548 |   | 49,723 |   | 1,533,952 |   |

 

**Item5.****   Other Information**

** **

None.

 

**Item6.****   Exhibits**

 

31.1                           Certificationof Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2                           Certificationof Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of2002

 

32.1                           Certificationof Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of2002

 

32.2                           Certificationof Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of2002

 

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**SIGNATURES**

 

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

 

 
|                    | ADVENT SOFTWARE, INC. |
|-------------------------|-----------------------|
|                    |                  |   |
| Dated: May 8, 2008 |                  | By: | /s/ Craig B. Collins |
|                    |                  | Craig B. Collins |
|                    |                  | *Executive Vice  President and**Chief Financial  Officer**(Principal Financial  and Accounting Officer)* |
|                         |                       |  |  |

 

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