Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**x****      Quarterly report pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934 for the quarterly periodended March 31, 2010**

** **

**or**

** **

**o****         Transition report pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

 

**Commission file number:  0-26994**

 

**ADVENTSOFTWARE, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                   | ** ** | **94-2901952**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (IRS Employer Identification Number) |

 

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

(Address of principal executive offices and zip code)

 

**(415) 543-7696**

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

Thenumber of shares of the registrant’s Common Stock outstanding as of April 30,2010 was 25,772,552.

 

 

 

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**INDEX**

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

 

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**PART I.FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**ADVENT SOFTWARE, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                        | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|---------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **2010**          | ** ** | **2009**             | ** ** |
| **ASSETS**                                        |       |              |       |                 |       |
| Current  assets:                                  |       |              |       |                 |       |
| Cash  and cash equivalents                        |       | $                 | 52,015     |                 | $          | 57,877 |   |
| Short-term  marketable securities                 |       | 50,952            |       | 31,273               |       |
| Accounts  receivable, net                         |       | 42,473            |       | 44,246               |       |
| Deferred  taxes, current                          |       | 15,155            |       | 15,081               |       |
| Prepaid  expenses and other                       |       | 21,262            |       | 22,350               |       |
| Current  assets of discontinued operation         |       | 97                |       | 494                  |       |
| Total  current assets                             |       | 181,954           |       | 171,321              |       |
| Property  and equipment, net                      |       | 35,712            |       | 33,945               |       |
| Goodwill                                          |       | 145,635           |       | 144,827              |       |
| Other  intangibles, net                           |       | 24,596            |       | 22,965               |       |
| Long-term  marketable securities                  |       | 9,070             |       | 28,495               |       |
| Deferred  taxes, long-term                        |       | 40,503            |       | 40,502               |       |
| Other  assets                                     |       | 9,396             |       | 10,142               |       |
| Noncurrent  assets of discontinued operation      |       | 2,095             |       | 2,095                |       |
|                                              |       |              |       |                 |       |
| Total  assets                                     |       | $                 | 448,961    |                 | $          | 454,292 |   |
|                                              |       |              |       |                 |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**     |       |              |       |                 |       |
| Current  liabilities:                             |       |              |       |                 |       |
| Accounts  payable                                 |       | $                 | 9,175      |                 | $          | 4,708 |   |
| Accrued  liabilities                              |       | 24,673            |       | 31,066               |       |
| Deferred  revenues                                |       | 136,563           |       | 140,186              |       |
| Income  taxes payable                             |       | 3,580             |       | 1,616                |       |
| Current  liabilities of discontinued operation    |       | 281               |       | 719                  |       |
| Total  current liabilities                        |       | 174,272           |       | 178,295              |       |
| Deferred  revenue, long-term                      |       | 5,626             |       | 5,879                |       |
| Other  long-term liabilities                      |       | 13,779            |       | 12,969               |       |
| Noncurrent  liabilities of discontinued operation |       | 5,149             |       | 5,115                |       |
|                                              |       |              |       |                 |       |
| Total  liabilities                                |       | 198,826           |       | 202,258              |       |
|                                              |       |              |       |                 |       |
| Commitments  and contingencies (See Note 12)      |       |              |       |                 |       |
|                                              |       |              |       |                 |       |
| Stockholders’  equity:                       |       |              |       |                 |       |
| Common  stock                                     |       | 258               |       | 259                  |       |
| Additional  paid-in capital                       |       | 390,427           |       | 386,623              |       |
| Accumulated  deficit                              |       | (148,823          | )          | (145,584             | )          |
| Accumulated  other comprehensive income           |       | 8,273             |       | 10,736               |       |
| Total  stockholders’ equity                  |       | 250,135           |       | 252,034              |       |
|                                              |       |              |       |                 |       |
| Total  liabilities and stockholders’ equity  |       | $                 | 448,961    |                 | $          | 454,292 |   |

 

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

 

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**ADVENT SOFTWARE, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(Unaudited)**

 
| ** **                                                                                                | ** ** | **Three Months Ended March 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| ** **                                                                                                | ** ** | ** **                           | ** ** | ** ** | ** ** |
| **Net revenues:**                                                                                         |       |                                 |       |   |   |
| Term  license, maintenance and other recurring                                                            |       | $                                    | 58,851     |   | $ | 56,307 |   |
| Perpetual  license fees                                                                                   |       | 2,302                                |       | 2,685 |   |
| Professional  services and other                                                                          |       | 5,535                                |       | 7,333 |   |
|                                                                                                      |       |                                 |       |   |   |
| Total  net revenues                                                                                       |       | 66,688                               |       | 66,325 |   |
|                                                                                                      |       |                                 |       |   |   |
| **Cost of revenues:**                                                                                     |       |                                 |       |   |   |
| Term  license, maintenance and other recurring                                                            |       | 12,427                               |       | 11,345 |   |
| Perpetual  license fees                                                                                   |       | 73                                   |       | 112 |   |
| Professional  services and other                                                                          |       | 6,584                                |       | 8,055 |   |
| Amortization  of developed technology                                                                     |       | 1,516                                |       | 1,405 |   |
|                                                                                                      |       |                                 |       |   |   |
| Total  cost of revenues                                                                                   |       | 20,600                               |       | 20,917 |   |
|                                                                                                      |       |                                 |       |   |   |
| Gross  margin                                                                                             |       | 46,088                               |       | 45,408 |   |
|                                                                                                      |       |                                 |       |   |   |
| **Operating expenses:**                                                                                   |       |                                 |       |   |   |
| Sales  and marketing                                                                                      |       | 16,860                               |       | 15,779 |   |
| Product  development                                                                                      |       | 12,061                               |       | 12,119 |   |
| General  and administrative                                                                               |       | 9,551                                |       | 8,639 |   |
| Amortization  of other intangibles                                                                        |       | 315                                  |       | 439 |   |
| Restructuring  charges                                                                                    |       | 29                                   |       | 44 |   |
|                                                                                                      |       |                                 |       |   |   |
| Total  operating expenses                                                                                 |       | 38,816                               |       | 37,020 |   |
|                                                                                                      |       |                                 |       |   |   |
| Income  from continuing operations                                                                        |       | 7,272                                |       | 8,388 |   |
|                                                                                                      |       |                                 |       |   |   |
| Interest  and other income (expense), net                                                                 |       | (706                                 | )          | (372 | ) |
|                                                                                                      |       |                                 |       |   |   |
| Income  from continuing operations before income taxes                                                    |       | 6,566                                |       | 8,016 |   |
| Provision  for income taxes                                                                               |       | 2,323                                |       | 2,653 |   |
|                                                                                                      |       |                                 |       |   |   |
| Net  income from continuing operations                                                                    |       | $                                    | 4,243      |   | $ | 5,363 |   |
|                                                                                                      |       |                                 |       |   |   |
| **Discontinued operation:**                                                                               |       |                                 |       |   |   |
| Net  income (loss) from discontinued operation (net of applicable taxes of $(33)  and $594, respectively) |       | (48                                  | )          | 866 |   |
|                                                                                                      |       |                                 |       |   |   |
| Net  income                                                                                               |       | $                                    | 4,195      |   | $ | 6,229 |   |
|                                                                                                      |       |                                 |       |   |   |
| Basic  net income (loss) per share:                                                                       |       |                                 |       |   |   |
| Continuing  operations                                                                                    |       | $                                    | 0.16       |   | $ | 0.21 |   |
| Discontinued  operation                                                                                   |       | (0.00                                | )          | 0.03 |   |
| Total  operations                                                                                         |       | $                                    | 0.16       |   | $ | 0.25 |   |
|                                                                                                      |       |                                 |       |   |   |
| Diluted  net income (loss) per share:                                                                     |       |                                 |       |   |   |
| Continuing  operations                                                                                    |       | $                                    | 0.16       |   | $ | 0.21 |   |
| Discontinued  operation                                                                                   |       | (0.00                                | )          | 0.03 |   |
| Total  operations                                                                                         |       | $                                    | 0.15       |   | $ | 0.24 |   |
|                                                                                                      |       |                                 |       |   |   |
| Weighted  average shares used to compute net income per share:                                            |       |                                 |       |   |   |
| Basic                                                                                                     |       | 25,874                               |       | 25,249 |   |
| Diluted                                                                                                   |       | 27,138                               |       | 25,844 |   |

 

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

 

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** **

**ADVENTSOFTWARE, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

** **
| ** **                                                                                                     | ** ** | **Three Months Ended March 31** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| **Cash flows from operating activities:**                                                                      |       |                                 |       |   |   |
| Net  income                                                                                                    |       | $                                    | 4,195      |   | $ | 6,229 |   |
| Adjustment  to net income for discontinued operation                                                           |       | 48                                   |       | (866 | ) |
| Net  income from continuing operations                                                                         |       | 4,243                                |       | 5,363 |   |
|                                                                                                           |       |                                 |       |   |   |
| Adjustments  to reconcile net income to net cash provided by operating activities from  continuing operations: |       |                                 |       |   |   |
| Stock-based  compensation                                                                                      |       | 4,285                                |       | 3,893 |   |
| Depreciation  and amortization                                                                                 |       | 4,331                                |       | 4,149 |   |
| Loss  on dispositions of fixed assets                                                                          |       | —                               |       | 28 |   |
| Provision  for doubtful accounts                                                                               |       | 25                                   |       | 187 |   |
| Provision  for (reduction of) sales returns                                                                    |       | (168                                 | )          | 809 |   |
| Deferred  income taxes                                                                                         |       | (9                                   | )          | (34 | ) |
| Other                                                                                                          |       | 111                                  |       | 95 |   |
| Effect  of statement of operations adjustments                                                                 |       | 8,575                                |       | 9,127 |   |
| Changes  in operating assets and liabilities:                                                                  |       |                                 |       |   |   |
| Accounts  receivable                                                                                           |       | 2,031                                |       | 748 |   |
| Prepaid  and other assets                                                                                      |       | 1,692                                |       | 2,197 |   |
| Accounts  payable                                                                                              |       | 4,435                                |       | 627 |   |
| Accrued  liabilities                                                                                           |       | (6,404                               | )          | (3,156 | ) |
| Deferred  revenues                                                                                             |       | (3,974                               | )          | (6,379 | ) |
| Income  taxes payable                                                                                          |       | 1,938                                |       | 2,300 |   |
| Effect  of changes in operating assets and liabilities                                                         |       | (282                                 | )          | (3,663 | ) |
|                                                                                                           |       |                                 |       |   |   |
| Net  cash provided by operating activities from continuing operations                                          | ** ** | **12,536**                           | ** ** | **10,827** | ** ** |
|                                                                                                           |       |                                 |       |   |   |
| **Cash flows from investing activities:**                                                                      |       |                                 |       |   |   |
| Cash  used in acquisitions, net of cash acquired                                                               |       | (4,719                               | )          | — |   |
| Purchases  of property and equipment                                                                           |       | (4,308                               | )          | (793 | ) |
| Capitalized  software development costs                                                                        |       | (1,197                               | )          | — |   |
| Purchases  of marketable securities                                                                            |       | (3,000                               | )          | — |   |
| Sales  and maturities of marketable securities                                                                 |       | 3,000                                |       | — |   |
|                                                                                                           |       |                                 |       |   |   |
| Net  cash used in investing activities from continuing operations                                              | ** ** | **(10,224**                          | **)**      | **(793** | **)** |
|                                                                                                           |       |                                 |       |   |   |
| **Cash flows from financing activities:**                                                                      |       |                                 |       |   |   |
| Proceeds  from common stock issued from exercises of stock options                                             |       | 3,113                                |       | 1,339 |   |
| Withholding  taxes related to equity award net share settlement                                                |       | (534                                 | )          | (1,473 | ) |
| Repurchase  of common stock                                                                                    |       | (10,542                              | )          | (14,578 | ) |
| Repayment  of long-term borrowing                                                                              |       | —                               |       | (10,000 | ) |
|                                                                                                           |       |                                 |       |   |   |
| Net  cash used in financing activities from continuing operations                                              | ** ** | **(7,963**                           | **)**      | **(24,712** | **)** |
| ** **                                                                                                     | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net  cash transferred (to) from discontinued operation                                                         | ** ** | **(54**                              | **)**      | **3,874** | ** ** |
|                                                                                                           |       |                                 |       |   |   |
| Effect  of exchange rate changes on cash and cash equivalents                                                  | ** ** | **(157**                             | **)**      | **(118** | **)** |
|                                                                                                           |       |                                 |       |   |   |
| **Net change in cash and cash equivalents from continuing  operations**                                        | ** ** | **(5,862**                           | **)**      | **(10,922** | **)** |
| **Cash and cash equivalents of continuing operations at  beginning of period**                                 | ** ** | **57,877**                           | ** ** | **45,098** | ** ** |
|                                                                                                           |       |                                 |       |   |   |
| **Cash and cash equivalents of continuing operations at end  of period**                                       | ** ** | **$**                                | **52,015** | ** ** | **$** | **34,176** | ** ** |
| ** **                                                                                                     | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Supplemental disclosure of cash flow information**                                                           |       |                                 |       |   |   |
| Cash  flow from discontiued operation:                                                                         |       |                                 |       |   |   |
| Net  cash provided by (used in) operating activities                                                           |       | $                                    | (319       | ) | $ | 3,122 |   |
| Net  cash provided used in investing activities                                                                |       | —                               |       | (336 | ) |
| Net  cash transferred from (to) continuing operations                                                          |       | 54                                   |       | (3,874 | ) |
| Effect  of exchange rates on cash and cash equivalents                                                         |       | (1                                   | )          | (2 | ) |
| Net  change in cash and cash equivalents from discontinued operations                                          |       | (266                                 | )          | (1,090 | ) |
| Cash  and cash equivalents of discontinued operation at beginning of period                                    |       | 266                                  |       | 3,253 |   |
| Cash  and cash equivalents of discontinued operation at end of period                                          |       | $                                    | —     |   | $ | 2,163 |   |

 

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

 

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

 

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**ADVENT SOFTWARE, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1—Basis of Presentation**

 

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

 

Adventhas prepared these condensed consolidated financial statements in accordancewith the rules and regulations of the Securities and Exchange Commission (“SEC”)applicable to interim financial information. Certain information and footnotedisclosures included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen omitted in these interim statements pursuant to such SEC rules andregulations. These interim financial statements should be read in conjunctionwith the audited financial statements and related notes included in Advent’sAnnual Report on Form 10-K for the year ended December 31, 2009.Interim results are not necessarily indicative of the results to be expectedfor the full year, and no representation is made thereto.

 

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

 

**Note 2—Recent AccountingPronouncements**

 

Withthe exception of those discussed below, there have been no recent accountingpronouncements or changes in accounting pronouncements during the three monthsended March 31, 2010, as compared to the recent accounting pronouncementsdescribed in Advent’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2009, that are of significance, or potential significance, tothe Company.

 

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

 

In January 2010, theFASB issued guidance to amend the disclosure requirements related to recurringand nonrecurring fair value measurements. The guidance requires newdisclosures on the transfers of assets and liabilities between Level 1 (quotedprices in active market for identical assets or liabilities) and Level 2 (significantother observable inputs) of the fair value measurement hierarchy, including thereasons and the timing of the transfers. Additionally, the guidancerequires a roll forward of activities on purchases, sales, issuance, andsettlements of the assets and liabilities measured using significantunobservable inputs (Level 3 fair value measurements). The guidance becameeffective for entities with a reporting period beginning January 1, 2010,except for the disclosure on the roll forward activities for Level 3 fair valuemeasurements, which will become effective for the reporting period beginning April 1,2011. The adoption of these changes had no material impact on the Company’scondensed consolidated financial statements.

 

**Note 3 —Cash Equivalents and Marketable Securities**

 

At March 31, 2010,cash and cash equivalents, short-term and long-term marketable securitiesprimarily consisted of money market mutual funds, US government and USGovernment Sponsored Entities (GSE’s) and high credit quality corporate debtsecurities. The Company’s short-term and long-term marketable securities areclassified as available-for-sale, with long-term investments having a maturitydate greater than one year from the end of the period.

 

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At March 31, 2010,marketable securities were summarized as follows (in thousands):

 
| ** **                     | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Aggregate  Fair Value** | ** ** |
|--------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------------|------------|
|                           |       |                |       |                         |       |                          |       |                      |       |
| Corporate  debt securities     |       | $                   | 23,528     |                         | $          | 3                             |       | $                         | (8         | ) | $ | 23,523 |   |
| US  government debt securities |       | 36,497              |       | 8                            |       | (6                            | )          | 36,499                    |       |
| Total                          |       | $                   | 60,025     |                         | $          | 11                            |       | $                         | (14        | ) | $ | 60,022 |   |

 

The following tablesummarizes marketable securities with unrealized gains and losses bycontractual maturity dates at March 31, 2010 (in thousands):

 
| ** **                     | ** ** | **Less than 12 months** | ** ** | **Greater than 12 months**  | ** ** | **Total**           | ** ** |
|--------------------------------|------------|-------------------------|------------|-----------------------------|------------|---------------------|------------|
| ** **                     | ** ** | **Amortized  Cost**     | ** ** | **Net  Unrealized  Losses** | ** ** | **Amortized  Cost** | ** ** | **Net  Unrealized  (Losses)/Gains** | ** ** | **Amortized  Cost** | ** ** | **Net  Unrealized  (Losses)/Gains** | ** ** |
|                           |       |                    |       |                        |       |                |       |   |   |   |   |   |   |
| Commercial  debt securities    |       | $                       | 20,503     |                        | $          | (5                  | )          | $ | 3,025 |   | $ | (1 | ) | $ | 23,528 |   | $ | (6 | ) |
| US  government debt securities |       | 30,455                  |       | (1                          | )          | 6,042               |       | 4 |   | 36,497 |   | 3 |   |
| Total                          |       | $                       | 50,958     |                        | $          | (6                  | )          | $ | 9,067 |   | $ | 3 |   | $ | 60,025 |   | $ | (3 | ) |

 

Advent regularly reviewsits investment portfolio to identify and evaluate investments that haveindications of possible impairment. Factors considered in determining whether aloss is temporary include the length of time and extent to which fair value hasbeen less than the cost basis, the financial condition, credit quality andnear-term prospects of the investee, and Advent’s ability to hold theinvestment for a period of time sufficient to allow for any anticipatedrecovery in market value.

 

The gross unrealizedlosses related to investments are primarily due to a decrease in the fair valueof debt securities as a result of an increase in interest rates during thefirst quarter of 2010. For fixed income securities that have unrealized lossesas of March 31, 2010,  the Companyhas determined that (i) it does not have the intent to sell any of theseinvestments and (ii) it is not more likely than not that it will berequired to sell any of these investments before recovery of the entireamortized cost basis. In addition, the Company has evaluated these fixed incomesecurities and has determined that no credit losses exist. As of March 31,2010, all securities in an unrealizedloss position have been in an unrealizedloss position for less thanone year. The Company’smanagement has determined that the unrealized losses on its fixed incomesecurities as of March 31, 2010 were temporary in nature.

 

During the three monthsended March 31, 2010, the Company received proceeds of $3 millionassociated with the sale of marketable securities and did not have any grossrealized gains or losses.

 

**Note4—Discontinued Operation**

 

During 2009, the Company decided to discontinue itsfocus in the not-for-profit business community and to concentrate on its corebusiness. In connection with this decision, the Company explored divesting theMicroEdge subsidiary and on October 1, 2009, it completed the sale ofMicroEdge to an affiliate of Vista Equity Partners III, LLC (“Purchaser”). TheCompany sold net assets in MicroEdge totaling $3.0 million.  The total consideration received by theCompany in connection with the divestiture was approximately $30 million incash, of which $27 million in cash was paid on the closing date. The remaining$3 million of the Purchase Price has been placed in escrow for eighteen (18)months following the close to be held as security for losses incurred by thePurchaser in the event of certain breaches of the representations andwarranties contained in the Agreement or certain other events. Any gain on saleassociated with the $3.0 million held in escrow will be recorded when realized.In connection with the sale of MicroEdge, the Company recorded an associatedgain of $13.6 million in ‘‘net income from discontinued operation, net ofapplicable taxes’’ in its fourth quarter of 2009 results. Pursuant to theAgreement and Plan of Merger, the purchase price was subject to certainadjustments for working capital. During the first quarter of 2010, the finalworking capital adjustment was settled, resulting in a downward adjustment of$30,000, net of taxes, to the gain on sale of MicroEdge.

 

As part of thedisposition, certain assets and obligations of MicroEdge were excluded from thesale and are reflected on the discontinued operation’s balance sheet as of March 31,2010 and December 31, 2009. Assets excluded from the sale include cash anddeferred tax assets.  Liabilitiesexcluded from the sale include sales tax and other tax-related obligations,future payments related to a two year service and maintenance agreement,certain legal costs and employee related compensation payments incurred as ofthe period ended September 30, 2009, and continuing lease obligationsincluded as part of the restructuring noted below. Legal costs and liabilitiesrelated to employee compensation were all paid as of December 31, 2009.

 

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In connection with thesale of MicroEdge, the Company vacated its MicroEdge facilities in New York andentered into a sub-lease agreement with the Purchaser whereby the Purchaserwill sub-lease the premises for two years with the option to extend thesub-lease term through the end of the lease term in 2018.

 

The following table setsforth an analysis of the components of the restructuring charges related to theCompany’s discontinued operation and the payments and non-cash charges madeagainst the accrual during the first quarter of 2010 (in thousands):

 
| ** **                                                  | ** ** | **Facility Exit  Costs** | ** ** | **Severance and  Benefits** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|-----------|------------|
|                                                        |       |                     |       |                        |       |      |       |
| Balance  of restructuring accrual at December 31, 2009 |       | $                        | 5,115      |                        | $          | —    |       | $ | 5,115 |   |
|                                                        |       |                     |       |                        |       |      |       |
| Restructuring  charges                                      |       | 4                        |       | 8                           |       | 12        |       |
| Cash  payments                                              |       | (11                      | )          | (8                          | )          | (19       | )          |
| Adjustment  of prior restructuring costs                    |       | 41                       |       | —                      |       | 41        |       |
|                                                        |       |                     |       |                        |       |      |       |
| Balance  of restructuring accrual at March 31, 2010    |       | $                        | 5,149      |                        | $          | —    |       | $ | 5,149 |   |

 

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

 
| ** **                                                                                                         | ** ** | **Three Months Ended March 31** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2010**                             | ** ** | **2009** | ** ** |
|                                                                                                               |       |                                 |       |   |   |
| Net  revenues                                                                                                      |       | $                                    | —     |   | $ | 6,461 |   |
|                                                                                                               |       |                                 |       |   |   |
| Income  (loss) from operation of discontinued operation (net of applicable taxes of  $(13) and $594, respectively) |       | (18                                  | )          | 866 |   |
|                                                                                                               |       |                                 |       |   |   |
| Loss  on disposal of discontinued operation (net of applicable taxes of $(20) and  $0, respectively)               |       | (30                                  | )          | — |   |
| Net  income (loss) from discontinued operation                                                                     |       | $                                    | (48        | ) | $ | 866 |   |

 

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

 
| ** **                                              | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|---------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **2010**          | ** ** | **2009**             | ** ** |
| ** **                                              | ** ** | ** **        | ** ** | ** **           | ** ** |
| Assets:                                                 | ** ** | ** **        | ** ** | ** **           | ** ** |
| Cash  and cash equivalents                              |       | $                 | —     |                 | $          | 266 |   |
| Prepaid  expenses and other                             |       | 97                |       | 228                  |       |
| Total  current assets of discontinued operation         |       | $                 | 97         |                 | $          | 494 |   |
|                                                    |       |              |       |                 |       |
| Deferred  taxes, long-term                              |       | $                 | 2,095      |                 | $          | 2,095 |   |
| Total  noncurrent assets of discontinued operation      |       | $                 | 2,095      |                 | $          | 2,095 |   |
|                                                    |       |              |       |                 |       |
| Liabilities:                                            |       |              |       |                 |       |
| Accrued  liabilities                                    |       | $                 | 281        |                 | $          | 519 |   |
| Income  taxes payable                                   |       | —            |       | 200                  |       |
| Total  current liabilities of discontinued operation    |       | $                 | 281        |                 | $          | 719 |   |
|                                                    |       |              |       |                 |       |
| Accrued  restructuring, long-term portion               |       | $                 | 5,149      |                 | $          | 5,115 |   |
| Total  noncurrent liabilities of discontinued operation |       | $                 | 5,149      |                 | $          | 5,115 |   |

 

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**Note5—Stock-Based**Compensation**

 

**Equity Award Activity**

 

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

 
| ** **                             | ** ** | **Number of  Shares  (in thousands)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual Life  (in years)** | ** ** | **Aggregate  Intrinsic  Value  (in thousands)** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                             | ** ** | ** **                            | ** ** | ** **                             | ** ** | ** **                                                     | ** ** | ** **                                      | ** ** |
| Outstanding  at December 31, 2009 |       | 3,945                                 |       | $                                      | 29.14      |                                                           |       |                                            |       |   |
| Options &  SARs granted       |       | 20                                    |       | $                                      | 42.49      |                                                           |       |                                            |       |   |
| Options &  SARs exercised     |       | (205                                  | )          | $                                      | 23.75      |                                                           |       |                                            |       |   |
| Options &  SARs canceled      |       | (51                                   | )          | $                                      | 34.93      |                                                           |       |                                            |       |   |
| Outstanding  at March 31, 2010    |       | 3,709                                 |       | $                                      | 29.43      |                                                           | 6.19       |                                            | $          | 57,528 |   |
| Exercisable  at March 31, 2010    |       | 2,351                                 |       | $                                      | 26.13      |                                                           | 5.03       |                                            | $          | 44,199 |   |

 

The aggregate intrinsicvalue is calculated as the difference between the exercise price of theunderlying awards and the Company’s closing stock price of $44.75 as of March 31,2010 for options and SARs that were in-the-money as of that date.

 

The weighted averagegrant date fair value of options and SARs granted (as determined under ASC718), total intrinsic value of options and SARs exercised and cash receivedfrom option exercises during the first quarter of 2010 and 2009 were as follows(in thousands, except weighted average grant date fair value):

 
| ** **                                 | ** ** | **Three Months Ended March 31** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|
| ** **                                 | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| *Options and SARs*                         |       |                                 |       |   |   |
| Weighted  average grant date fair value    |       | $                                    | 15.36      |   | $ | 12.71 |   |
| Total  intrinsic value of awards exercised |       | $                                    | 3,594      |   | $ | 900 |   |
|                                       |       |                                 |       |   |   |
| *Options*                                  |       |                                 |       |   |   |
| Cash  received from exercises              |       | $                                    | 3,113      |   | $ | 1,339 |   |

 

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

 

A summary of the statusof the Company’s restricted stock unit (“RSU”) activity for the three monthsended March 31, 2010 is as follows:

 
| ** **                                          | ** ** | **Number of  Shares  (in thousands)** | ** ** | **Weighted   Average  Grant Date  Fair Value** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                                          | ** ** | ** **                            | ** ** | ** **                                     | ** ** |
| Outstanding  and unvested at December 31, 2009 |       | 685                                   |       | $                                              | 36.33      |   |
|                                                |       |                                  |       |                                           |       |
| RSUs  granted                                       |       | 6                                     |       | $                                              | 40.54      |   |
|                                                |       |                                  |       |                                           |       |
| RSUs  vested                                        |       | (24                                   | )          | $                                              | 44.99      |   |
|                                                |       |                                  |       |                                           |       |
| RSUs  canceled                                      |       | (8                                    | )          | $                                              | 35.86      |   |
|                                                |       |                                  |       |                                           |       |
| Outstanding  and unvested at March 31, 2010    |       | 659                                   |       | $                                              | 36.07      |   |

 

The weighted averagegrant date fair value was determined based on the closing market price of theCompany’s common stock on the date of the award. The aggregate intrinsic valueof RSUs outstanding at March 31, 2010 was $29.5 million, using the closingprice of $44.75 per share as of March 31, 2010.

 

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**Stock-Based Compensation Expense**

 

Stock-based employeecompensation expense recognized on Advent’s condensed consolidated statement ofoperations for the first quarter of 2010 and 2009 was as follows (inthousands):

 
| ** **                                                      | ** ** | **Three Months Ended March 31** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                      | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| **Statement of operations classification**                      | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Cost  of term license, maintenance and other recurring revenues |       | $                                    | 414        |   | $ | 352 |   |
| Cost  of professional services and other revenues               |       | 290                                  |       | 295 |   |
| Total  cost of revenues                                         |       | 704                                  |       | 647 |   |
|                                                            |       |                                 |       |   |   |
| Sales  and marketing                                            |       | 1,298                                |       | 1,146 |   |
| Product  development                                            |       | 1,209                                |       | 1,041 |   |
| General  and administrative                                     |       | 1,074                                |       | 1,059 |   |
| Total  operating expenses                                       |       | 3,581                                |       | 3,246 |   |
|                                                            |       |                                 |       |   |   |
| Total  stock-based compensation expense                         |       | 4,285                                |       | 3,893 |   |
|                                                            |       |                                 |       |   |   |
| Tax  effect on stock-based employee compensation                |       | (1,926                               | )          | (1,795 | ) |
|                                                            |       |                                 |       |   |   |
| Effect  on net income from continuing operations, net of tax    |       | 2,359                                |       | 2,098 |   |
|                                                            |       |                                 |       |   |   |
| Effect  on net income from discontinued operation, net of tax   |       | —                               |       | 150 |   |
|                                                            |       |                                 |       |   |   |
| Effect  on net income, net of tax                               |       | $                                    | 2,359      |   | $ | 2,248 |   |

 

Advent capitalizedstock-based employee compensation expense of $71,000 and $26,000 during thefirst quarter of 2010 and 2009, respectively, associated with the Company’ssoftware development, internal-use software and professional servicesimplementation projects.

 

As of March 31,2010, total unrecognized compensation cost related to unvested awards not yetrecognized under all equity compensation plans, adjusted for estimatedforfeitures, was $23.9 million and is expected to be recognized through theremaining vesting period of each grant, with a weighted average remainingperiod of 2.3 years.

 

**ValuationAssumptions**

 

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

 
| ** **                        | ** ** | **Three Months Ended March 31** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|
| **Stock Options & SARs** | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| Expected volatility               |       | 36.1% - 37.8%                        |       | 51.4% - 57.7% |   |
| Expected life (in  years)         |       | 4.96                                 |       | 5.10 - 5.47 |   |
| Risk-free interest rate           |       | 2.5% - 2.7%                          |       | 1.9% - 2.3% |   |
| Expected dividends                |       | None                                 |       | None |   |

 

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

 

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**Note 6—Net Income Per Share**

 

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

 

Thefollowing table sets forth the computation of basic and diluted net income(loss) per share for continuing operations and the Company’s discontinuedoperation (in thousands, except per-share data):

 
| ** **                                                                                                                                       | ** ** | **Three Months Ended March 31** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| **Numerator:**                                                                                                                                   |       |                                 |       |   |   |
| Net  income (loss):                                                                                                                              |       |                                 |       |   |   |
| Continuing  operations                                                                                                                           |       | $                                    | 4,243      |   | $ | 5,363 |   |
| Discontinued  operation                                                                                                                          |       | (48                                  | )          | 866 |   |
| Total  operations                                                                                                                                |       | $                                    | 4,195      |   | $ | 6,229 |   |
|                                                                                                                                             |       |                                 |       |   |   |
|                                                                                                                                             |       |                                 |       |   |   |
| **Denominator:**                                                                                                                                 |       |                                 |       |   |   |
| Denominator  for basic net income (loss) per share-weighted average shares outstanding                                                           |       | 25,874                               |       | 25,249 |   |
|                                                                                                                                             |       |                                 |       |   |   |
| Dilutive  common equivalent shares:                                                                                                              |       |                                 |       |   |   |
| Employee  stock options and other                                                                                                                |       | 1,264                                |       | 595 |   |
|                                                                                                                                             |       |                                 |       |   |   |
| Denominator  for diluted net income (loss) per share-weighted average shares outstanding,  assuming exercise of potential dilutive common shares |       | 27,138                               |       | 25,844 |   |
|                                                                                                                                             |       |                                 |       |   |   |
| **Net income (loss) per share:**                                                                                                                 |       |                                 |       |   |   |
| Basic:                                                                                                                                           |       |                                 |       |   |   |
| Continuing  operations                                                                                                                           |       | $                                    | 0.16       |   | $ | 0.21 |   |
| Discontinued  operation                                                                                                                          |       | (0.00                                | )          | 0.03 |   |
| Total  operations                                                                                                                                |       | $                                    | 0.16       |   | $ | 0.25 |   |
|                                                                                                                                             |       |                                 |       |   |   |
| Diluted:                                                                                                                                         |       |                                 |       |   |   |
| Continuing  operations                                                                                                                           |       | $                                    | 0.16       |   | $ | 0.21 |   |
| Discontinued  operation                                                                                                                          |       | (0.00                                | )          | 0.03 |   |
| Total  operations                                                                                                                                |       | $                                    | 0.15       |   | $ | 0.24 |   |

 

For the first quarters of2010 and 2009, weighted average stock options/SARs and RSUs of approximately1.5 million and 2.5 million, respectively, were excluded from the calculationof diluted net income (loss) per share because their inclusion would have beenanti-dilutive.

 

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**Note7—Goodwill**

 

Thechanges in the carrying value of goodwill for the three months ended March 31,2010 were as follows (in thousands):

 
| ** **                         | ** ** | **Goodwill** | ** ** |
|------------------------------------|------------|--------------|------------|
| ** **                         | ** ** | ** **   | ** ** |
| Balance  at December 31, 2009 |       | $            | 144,827    |   |
| Additions                          |       | 3,175        |       |
| Translation  adjustments           |       | (2,367       | )          |
|                               |       |         |       |
| Balance  at March 31, 2010    |       | $            | 145,635    |   |

 

Additions to goodwill of $3.2 million relate to theacquisition of Goya AS. In March 2010, the Company’s wholly-ownedNorwegian subsidiary, Advent Norway AS, acquired the entire share capital ofGoya AS, a Norwegian software company that provides transfer agency-relatedsolutions to mutual fund managers and mutual fund distributors. Cashconsideration of $4.7 million, net of cash acquired, was paid upon closing in March 2010.

 

Foreign currency translationadjustments totaling $2.4 million reflect the general strengthening of the USdollar versus European currencies during the first quarter of 2010.

 

**Note 8—Other Intangibles**

 

Thefollowing is a summary of other intangibles as of March 31, 2010 (inthousands):

 
| ** **                      | ** ** | **Weighted  Average  Amortization  Period  (Years)** | ** ** | **Other  Intangibles,  Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Other  Intangibles,  Net** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|------------------------------|------------|
| ** **                      | ** ** | ** **                                           | ** ** | ** **                     | ** ** | ** **                    | ** ** | ** **                   | ** ** |
| Purchased  technologies         |       | 5.0                                                  |       | $                              | 28,123     |                          | $          | (16,220                      | )          | $ | 11,903 |   |
| Product  development costs      |       | 3.0                                                  |       | 12,732                         |       | (7,140                        | )          | 5,592                        |       |
|                            |       |                                                 |       |                           |       |                          |       |                         |       |
| Developed  technology sub-total |       |                                                 |       | 40,855                         |       | (23,360                       | )          | 17,495                       |       |
|                            |       |                                                 |       |                           |       |                          |       |                         |       |
| Customer  relationships         |       | 6.0                                                  |       | 27,590                         |       | (21,272                       | )          | 6,318                        |       |
| Other  intangibles              |       | 4.1                                                  |       | 1,586                          |       | (803                          | )          | 783                          |       |
|                            |       |                                                 |       |                           |       |                          |       |                         |       |
| Other  intangibles sub-total    |       |                                                 |       | 29,176                         |       | (22,075                       | )          | 7,101                        |       |
|                            |       |                                                 |       |                           |       |                          |       |                         |       |
| Balance  at March 31, 2010 |       |                                                 |       | $                              | 70,031     |                          | $          | (45,435                      | )          | $ | 24,596 |   |

 

Thefollowing is a summary of other intangibles as of December 31, 2009 (inthousands):

 
| ** **                         | ** ** | **Weighted  Average  Amortization  Period  (Years)** | ** ** | **Other  Intangibles,  Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Other  Intangibles,  Net** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|------------------------------|------------|
|                               |       |                                                 |       |                           |       |                          |       |                         |       |
| Purchased  technologies            |       | 4.9                                                  |       | $                              | 26,556     |                          | $          | (15,416                      | )          | $ | 11,140 |   |
| Product  development costs         |       | 3.0                                                  |       | 11,468                         |       | (6,428                        | )          | 5,040                        |       |
|                               |       |                                                 |       |                           |       |                          |       |                         |       |
| Developed  technology sub-total    |       |                                                 |       | 38,024                         |       | (21,844                       | )          | 16,180                       |       |
|                               |       |                                                 |       |                           |       |                          |       |                         |       |
| Customer  relationships            |       | 6.0                                                  |       | 27,038                         |       | (21,040                       | )          | 5,998                        |       |
| Other  intangibles                 |       | 3.9                                                  |       | 1,507                          |       | (720                          | )          | 787                          |       |
|                               |       |                                                 |       |                           |       |                          |       |                         |       |
| Other  intangibles sub-total       |       |                                                 |       | 28,545                         |       | (21,760                       | )          | 6,785                        |       |
|                               |       |                                                 |       |                           |       |                          |       |                         |       |
| Balance  at December 31, 2009 |       |                                                 |       | $                              | 66,569     |                          | $          | (43,604                      | )          | $ | 22,965 |   |

 

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Thechanges in the carrying value of other intangibles during the three monthsended March 31, 2010 were as follows (in thousands):

 
|                               |   |   |   | **Other**        | ** ** | ** **       | ** ** | **Other**        |   |
|------------------------------------|--------|--------|--------|------------------|------------|------------------|------------|------------------|--------|
|                               |   |   |   | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** |   |
|                               |   |   |   | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          |   |
|                               |   |   |   |             |       |             |       |             |   |
| Balance  at December 31, 2009 |   |   |   | $                | 66,569     |             | $          | (43,604          | )      | $ | 22,965 |   |
| Additions                          |   |   |   | 3,489            |       | —           |       | 3,489            |   |
| Amortization                       |   |   |   | —           |       | (1,831           | )          | (1,831           | )      |
| Translation  adjustments           |   |   |   | (27              | )          | —           |       | (27              | )      |
|                               |   |   |   |             |       |             |       |             |   |
| Balance  at March 31, 2010    |   |   |   | $                | 70,031     |             | $          | (45,435          | )      | $ | 24,596 |   |

 

Basedon the carrying amount of intangible assets as of March 31, 2010, theestimated future amortization is as follows (in thousands):

 
| ** **                         | ** ** | **Nine**             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|------------------------------------|------------|----------------------|------------|----------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                         | ** ** | **Months Ended**     | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **December 31** | ** ** | **Years Ended December 31** | ** ** |
| ** **                         | ** ** | **2010**             | ** ** | **2011**                         | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Estimated  future amortization of: | ** ** | ** **           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Developed  technology              |       | $                    | 4,811      |                             | $          | 5,219      |       | $          | 4,332      |       | $          | 2,580          |       | $          | 264        |   | $ | 289 |   | $ | 17,495 |   |
| Other  intangibles                 |       | 959                  |       | 1,172                            |       | 1,172      |       | 1,127      |       | 992        |       | 1,679          |       | 7,101      |       |
|                               |       |                 |       |                             |       |       |       |       |       |       |       |           |       |       |       |
| Total                              |       | $                    | 5,770      |                             | $          | 6,391      |       | $          | 5,504      |       | $          | 3,707          |       | $          | 1,256      |   | $ | 1,968 |   | $ | 24,596 |   |

 

**Note 9—Balance Sheet Detail**

 

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

 
| ** **                        | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-----------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                        | ** ** | **2010**          | ** ** | **2009**             | ** ** |
| ** **                        | ** ** | ** **        | ** ** | ** **           | ** ** |
| Prepaid  commission               |       | $                 | 5,321      |                 | $          | 5,483 |   |
| Prepaid  contract expense         |       | 5,832             |       | 5,815                |       |
| Prepaid  royalty                  |       | 1,040             |       | 1,138                |       |
| Tenant  improvement allowance     |       | 3,863             |       | 3,863                |       |
| Other                             |       | 5,206             |       | 6,051                |       |
|                              |       |              |       |                 |       |
| Total  prepaid expenses and other |       | $                 | 21,262     |                 | $          | 22,350 |   |

 

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

 
| ** **                           | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|--------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2010**          | ** ** | **2009**             | ** ** |
|                                 |       |              |       |                 |       |
| Long-term  investments               |       | $                 | 500        |                 | $          | 500 |   |
| Long-term  prepaid commissions       |       | 3,141             |       | 3,204                |       |
| Deposits                             |       | 2,877             |       | 2,821                |       |
| Prepaid  contract expense, long-term |       | 2,878             |       | 3,617                |       |
|                                 |       |              |       |                 |       |
| Total  other assets                  |       | $                 | 9,396      |                 | $          | 10,142 |   |

 

Long-term investmentsinclude an equity investment in a privately held company. This equityinvestment is carried at the lower of cost or fair value at March 31, 2010and December 31, 2009.  Deposits include restricted cash balanceof $1.4

 

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million and $1.4 millionat March 31, 2010 and December 31, 2009, respectively, related to theCompany’s San Francisco headquarters and facilities in Boston and New York.

 

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

 
| ** **                              | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-----------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                              | ** ** | **2010**          | ** ** | **2009**             | ** ** |
|                                    |       |              |       |                 |       |
| Salaries  and benefits payable          |       | $                 | 13,018     |                 | $          | 21,273 |   |
| Accrued  restructuring, current portion |       | 495               |       | 518                  |       |
| Other                                   |       | 11,160            |       | 9,275                |       |
|                                    |       |              |       |                 |       |
| Total  accrued liabilities              |       | $                 | 24,673     |                 | $          | 31,066 |   |

 

Accrued restructuringcharges are discussed further in Note 11, “Restructuring Charges”. Otheraccrued liabilities include accruals for royalties, sales and business taxes,acquisition related costs, and other miscellaneous items.

 

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

 
| ** **                                | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                | ** ** | **2010**          | ** ** | **2009**             | ** ** |
|                                      |       |              |       |                 |       |
| Deferred  rent                            |       | $                 | 10,901     |                 | $          | 10,595 |   |
| Accrued  restructuring, long-term portion |       | 600               |       | 716                  |       |
| Other                                     |       | 2,278             |       | 1,658                |       |
|                                      |       |              |       |                 |       |
| Total  other long-term liabilities        |       | $                 | 13,779     |                 | $          | 12,969 |   |

 

**Note 10—Comprehensive Income**

 

The components ofcomprehensive income (loss) were as follows for the periods presented (inthousands):

 
|                                                     |   | **Three Months Ended March 31** |       |
|----------------------------------------------------------|--------|--------------------------------------|------------|
|                                                     |   | **2010**                             | ** ** | **2009** |   |
|                                                     |   |                                 |       |   |   |
| Net  income from continuing operations                   |   | $                                    | 4,243      |   | $ | 5,363 |   |
| Unrealized  gain on marketable securities                |   | 60                                   |       | — |   |
| Foreign  currency translation adjustment                 |   | (2,523                               | )          | (1,766 | ) |
| Comprehensive  income (loss) from continuing operations  |   | 1,780                                |       | 3,597 |   |
| Comprehensive  income (loss) from discontinued operation |   | (48                                  | )          | 777 |   |
|                                                     |   |                                 |       |   |   |
| Total  comprehensive income (loss)                       |   | $                                    | 1,732      |   | $ | 4,373 |   |

 

The Company recordedtaxes of $41,000 and $0 during the first quarter of 2010 and 2009,respectively, related to the marketable securities component of othercomprehensive income.

 

Thecomponents of accumulated other comprehensive income, net of related taxes,were as follows (in thousands):

 
| ** **                                                | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-----------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                                | ** ** | **2010**          | ** ** | **2009**             | ** ** |
| ** **                                                | ** ** | ** **        | ** ** | ** **           | ** ** |
| Accumulated  net unrealized loss on marketable securities |       | $                 | (2         | )                    | $          | (62 | ) |
| Accumulated  foreign currency translation adjustments     |       | 8,275             |       | 10,798               |       |
| Accumulated  other comprehensive income, net of taxes     |       | $                 | 8,273      |                 | $          | 10,736 |   |

 

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**Note11—Restructuring Charges**

 

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

 

##### ***During thefirst quarter of 2010 and 2009, Advent recorded restructuring charges of$29,000 and $44,000, respectively, which related to the present valueamortization of facility exit obligations,***partially offset by adjustments to other facility exitassumptions.

##### *** ***

Thefollowing table sets forth an analysis of the components of the payments andrestructuring charges made against the accrual during the first quarter of 2010(in thousands):

 
| ** **                                                  | ** ** | **Facility Exit** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                  | ** ** | **Costs**         | ** ** |
| ** **                                                  | ** ** | ** **        | ** ** |
| Balance  of restructuring accrual at December 31, 2009 |       | $                 | 1,234      |   |
| Restructuring  charges                                      |       | 15                |       |
| Cash  payments                                              |       | (168              | )          |
| Adjustment  of prior restructuring costs                    |       | 14                |       |
|                                                        |       |              |       |
| Balance  of restructuring accrual at March 31, 2010    |       | $                 | 1,095      |   |

 

Ofthe remaining restructuring accrual of $1.1 million at March 31, 2010,$0.5 million and $0.6 million are included in accrued liabilities and otherlong-term liabilities, respectively, on the accompanying condensed consolidatedbalance sheet. The remaining excess facility costs of $1.1 million are statedat estimated fair value, net of estimated sublease income of approximately $1.7million. Advent expects to pay the remaining obligations associated with thevacated facilities over the remaining lease terms, which expire on variousdates through 2012.

 

#### **Note 12—Commitments andContingencies**

#### ** **

*LeaseObligations*

 

Adventleases office space and equipment under non-cancelable operating leaseagreements, which expire at various dates through June 2025. Some operatingleases contain escalation provisions for adjustments in the consumer priceindex. Advent is responsible for maintenance, insurance, and property taxes.Excluding leases and associated sub-leases for MicroEdge facilities, as of March 31,2010, Advent’s remaining operating lease commitments through 2025 wereapproximately $68.0 million, net of future minimum rental receipts of $1.9million to be received under non-cancelable sub-leases.

 

In connection with thesale of MicroEdge, the Company entered into a sub-lease agreement with thePurchaser, whereby Purchaser will sub-lease approximately 24,000 square feet ofthe 29,000 square feet of office space located at 619 West 54th Street in NewYork, New York from the Company. The Purchaser will sub-lease the premises fortwo years with the option to extend the sub-lease term through the end of thelease term in 2018. The sub-lease agreement became effective upon the close ofsale of MicroEdge on October 1, 2009. The operating lease commitmentrelated to this discontinued operation facility is approximately $8.7 million,less estimated sub-lease income for two years of $1.5 million. With theexception of the MicroEdge facilities in New York City, the leases related toMicroEdge have been transferred to the Purchaser.

 

*Indemnifications*

 

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

 

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*Legal Contingencies*

 

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

 

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

 

**Note 13—Segment Information**

 

*Descriptionof Segments*

 

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

 

*MajorCustomers*

 

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

 

**Note14—Debt**

 

On February 14,2007, Advent and certain of its subsidiaries entered into a senior secured $75million credit facility agreement (the “Credit Facility”) with Wells FargoFoothill, Inc. (the “Lender”) for a term of three years. As of December 31,2009, there were no outstanding borrowings under the Credit Facility and theCompany was in compliance with all associated covenants.

 

In February 2010,Advent’s Credit Facility expired in accordance with the terms of the seniorsecured facility agreement with the Lender. Advent elected not to renew theCredit Facility as the Company determined its existing cash, cash equivalents,short-term and long-term marketable securities, together with cash expected tobe generated from operations, would be sufficient to fund its operatingactivities, anticipated capital expenditures and authorized stock repurchases.

 

**Note15—Income Taxes**

 

The following tablesummarizes the activity relating to the Company’s unrecognized tax benefitsduring the first quarter of 2010 (in thousands):

 
| ** **                                               | ** ** | **Total**  | ** ** |
|----------------------------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | ** ** | ** ** |
| Balance  at December 31, 2009                       |       | $          | 7,467      |   |
|                                                     |       |       |       |
| Gross  increases related to current period tax positions |       | 87         |       |
| Balance  at March 31, 2010                          |       | $          | 7,554      |   |

 

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At March 31, 2010and December 31, 2009, Advent had $7.6 million and $7.5 million ofgross unrecognized tax benefits, respectively. During the first three months of2010, Advent increased the amount of unrecognized tax benefits by approximately$90,000 relating to California research and enterprise zone credits. Ifrecognized, the total unrecognized tax benefits would decrease Advent’s taxprovision and increase net income $6.3 million. The impact on net incomereflects the liabilities for unrecognized tax benefits net of the federal taxbenefit of state income tax items. The Company’s liabilities for unrecognizedtax benefits relate to federal research credits, California research andenterprise zone tax credits and various state net operating losses.

 

Advent is subjectto taxation in the US and various state and foreign jurisdictions. Advent doesnot anticipate the total amount of its unrecognized tax benefits tosignificantly change over the next 12 months. The material jurisdictionsthat are subject to examination by tax authorities include federal for taxyears after 2005 and California for tax years after 2004. During the year, NewYork concluded an income tax audit for tax years up through 2007 and there wereno material income tax assessments. In March 2010, Advent was notified bythe State of California that it will be undergoing a franchise tax examinationfor the 2006 and 2007 tax years.

 

**Note 16—Fair Value Measurements**

 

The Company measurescertain financial assets and liabilities at fair value on a recurring basis,including available-for-sale securities. The fair value of these certainfinancial assets was determined using the following inputs as of March 31,2010 (in thousands):

 
| ** **                         | ** ** | **Fair Value Measurements at Reporting Date Using** | ** ** |
|------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | ** **                                          | ** ** | ** ** | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | ** **                                          | ** ** | **Quoted Prices in** | ** ** | **Other** | ** ** | **Significant** | ** ** |
| ** **                         | ** ** | ** **                                          | ** ** | **Active Markets for** | ** ** | **Observable** | ** ** | **Unobservable** | ** ** |
| ** **                         | ** ** | ** **                                          | ** ** | **Identical Assets** | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| ** **                         | ** ** | **Total**                                           | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| **Assets**                         | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Money  Market Funds (1)            |       | $                                                   | 34,553     |   | $ | 34,553 |   | $ | — |   | $ | — |   |
| US  government debt securities (2) |       | 36,500                                              |       | 36,500 |   | — |   | — |   |
| Corporate  debt securities (2)     |       | 23,522                                              |       | — |   | 23,522 |   | — |   |
| Total                              |       | $                                                   | 94,575     |   | $ | 71,053 |   | $ | 23,522 |   | $ | — |   |

 

----

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

(2)       Included in marketable securities (shortor long-term) on the Company’s condensed consolidated balance sheets

 

Money market fundsconsist of cash equivalents with remaining maturities of three months or lessat the date of purchase and are composed primarily of US government debtsecurities and treasury obligation money market mutual funds. Advent’s USgovernment debt securities are securities sponsored by the federal government.In general, and where applicable, the Company uses quoted prices in activemarkets for identical assets or liabilities to determine fair value. Thispricing methodology applies to the Company’s Level 1 investments, such as US governmentdebt securities and treasury obligation money market mutual funds. Ifquoted prices in active markets for identical assets or liabilities are notavailable to determine fair value, then the Company uses quoted prices forsimilar assets and liabilities or inputs other than the quoted prices that areobservable either directly or indirectly. This pricing methodology applies toall Level 2 investments such as corporate debt securities. The fair value ofthe corporate debt securities are determined using observable inputs, includinginterest rate curves, credit spreads and volatilities.

 

There were no materialtransfers between Level 1 and Level 2 assets during the first quarter of 2010and the Company does not have any significant assets that utilize unobservableor Level 3 inputs.

 

The carrying amounts ofcash and cash equivalents, accounts receivable, accounts payable and accruedliabilities approximate fair value based on the short-term maturities of theseinstruments.

 

The Company also has adirect investment in a privately-held company accounted for under the costmethod which is not reported in the table of assets measured at fair valueabove. This investment, that has a carrying value of $0.5 million at March 31,2010, is periodically assessed for other-than-temporary impairment. If Adventdetermines that an other-than-temporary impairment has occurred, the Companywrites down the investment to its fair value. Advent estimates fair value usinga variety of valuation methodologies. Such methodologies include comparing theprivate company with publicly traded companies in similar lines of business,applying revenue and price/earnings multiples to estimated future operatingresults for the private company and estimating discounted cash flows for that company.

 

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**Note17**—Common Stock RepurchaseProgram

 

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

 

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

 

During the first quarter of 2010, the Company repurchased 0.2 millionshares of its common stock under the stock repurchase program approved by theBoard in October 2008 for an average price per share of $42.41. At March 31,2010, there remained approximately 0.7 million shares authorized by the Boardfor repurchase.

 

**Note18—Subsequent Events**

** **

From April 1, 2010through May 10, 2010, the Company repurchased approximately 79,000 sharesof stock, under the repurchase program that was approved by the Board ofDirectors on October 30, 2008, at an average price of $44.50.

 

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

 

**SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

Youshould read the following discussion in conjunction with our consolidatedfinancial statements and related notes. The following discussion containsforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 as amended and Section 21E of the SecuritiesExchange Act of 1934 as amended, including, but not limited to statementsreferencing our expectations relating to future revenues, expenses andoperating margins. Forward-looking statements can be identified by the use ofterminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,”“estimate,” “predict,” “potential,” “continue” or other similar terms and thenegative of such terms regarding beliefs, plans, expectations or intentionsregarding the future. Forward-looking statements include, among others,statements regarding the future of the investment management market andopportunities for us related thereto, future expansion, acquisition, divestmentof or investment in other businesses, and the impact of our divestment ofMicroEdge, projections of revenues, future cost and expense levels, expectedtiming and amount of amortization expenses related to past acquisitions, theadequacy of resources to meet future cash requirements, estimates orpredictions of actions by customers, suppliers, competitors or regulatoryauthorities, future client wins, future hiring and future product introductionsand acceptance. Such forward-looking statements are based on our current plansand expectations and involve known and unknown risks and uncertainties whichmay cause our actual results or performance to be materially different from anyresults or performance expressed or implied by such forward-looking statements.Such factors include, but are not limited to the “Risk Factors” set forth in “Item1A. Risk Factors” in this Form 10-Q, as well as other risks identifiedfrom time to time in other Securities and Exchange Commission (“SEC”) reports.You should not place undue reliance on our forward-looking statements, as theyare not guarantees of future results, levels of activity or performance andrepresent our expectations only as of the date they are made.

 

Wereport or otherwise provide to investors certain non-GAAP and operationalinformation, including non-GAAP operating income and earnings per share, andour bookings metrics (expressed as annual contract value, “ACV”) andmaintenance renewal rates, that is intended to provide investors with certainof the information that management uses as a basis for planning and forecastingof future periods. The presentation of this information is not intended to beconsidered in isolation or as a substitute for the financial informationpresented in accordance with GAAP. In addition, undue reliance should not beplaced upon non-GAAP or operating information because this information isneither standardized across companies nor subjected to the same controlactivities and audit procedures that produce our GAAP financial results.

 

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

 

**Overview**

 

We offerintegrated software products and services for automating and integrating dataand work flows across the investment management organization, as well asbetween the investment management organization and external parties. Ourproducts are intended to increase operational efficiency, improve the accuracyof client information and enable better decision-making. Each solution focuseson specific mission-critical functions of the front, middle and back offices ofinvestment management organizations and is designed to meet the needs of theparticular client, as determined by size, assets under management andcomplexity of their investment process. Unless otherwise noted, discussion inthis document pertains to our continuing operations.

 

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*Current Economic Environment*

 

During the first quarterof 2010, our business continues to benefit from an improved economicenvironment which began during the last half of 2009. For example, we grewbookings, revenues and operating cash flows during the first quarter of 2010 ascompared to the first quarter of 2009. We maintain our expectations of animproved demand environment for the remainder of 2010 and are expecting to growrevenues by 5% to 8% in fiscal 2010 compared to the prior year. We expect thatour clients and prospects, who decreased information technology spending aspart of their expense reduction measures in 2009, will be able to increasetheir capital and information technology budgets as the economic environmentcontinues to stabilize. As the current economic situation evolves, we willcontinue to evaluate its impact on our business and we will remain focused ondelivering solutions for our customers. We remain positive about our relativemarket position and our product delivery plans and we intend to remain focusedon executing in the areas we can control by continuing to provide high valueproducts while managing our expenses and headcount growth.

 

*Operating Overview*

 

Operating highlights ofour first quarter of 2010 include:

 

·                  *New and incremental bookings**.* The term license and Advent OnDemand contracts signedin the first quarter of 2010 will contribute approximately $7.3 million inannual revenue (“annual contract value” or “ACV”), once they are fullyimplemented. This represents a 65% increase over the $4.4 million of ACV bookedfrom term license and Advent OnDemand contracts signed in the first quarter of2009.

 

·                  *Portfolio management productreleases*. Welaunched APX 3.0, our most comprehensive portfolio management solution, forasset managers and wealth managers allowing them to manage portfolios andclient relationships through its flexible reporting framework, expanded dataaccess and enhanced CRM features. We also released Axys 3.8 which supports the2010 Options Symbology Initiative and includes platform compatibility updatesand reporting enhancements.

 

·                  *Building momentum in Asia Pacific(APAC)*. Wesigned several deals in the APAC region and continue to expand our presencethere as part of our international growth strategy.

 

·                  *Ongoing commitment to deliveringworld-class service and support*. Our Client Support and Professional Servicesorganizations achieved certification under the prestigious Service Capability &Performance (SCP) Standards. We are the only financial services software firmto achieve certification in both Client Support and Professional Services.

 

·                  *Build-out of new facilities*. During 2009, we signed lease agreementsfor our future facilities in New York and Boston and commenced the build-out ofthose facilities during the first quarter of 2010.

 

*Acquisition of Goya AS*

 

During the first quarterof 2010, our wholly-owned Norwegian subsidiary, Advent Norway AS, acquired theentire share capital of Goya AS, a Norwegian software company that providestransfer agency-related solutions to mutual fund managers and mutual funddistributors. Cash consideration of $4.7 million, net of cash acquired, waspaid upon closing in March 2010.

 

*Term License and Term LicenseDeferral*

 

We are substantiallythrough the process of converting the Company’s license revenues from aperpetual license model to a term license model. When a customer purchases aterm license together with implementation services, we do not recognize anyrevenue under the contract until the implementation services are complete andthe remaining services are substantially complete. If the implementationservices are still in progress as of quarter-end, we will defer all of thecontract revenues to a subsequent quarter. At the point professional services are substantiallycompleted, we recognize a pro-rata amount of the term license revenue,professional services fees earned and related expenses, based on the elapsedtime from the start of the term license to the substantial completion ofprofessional services. Term license revenue for the remaining contract years andthe remaining deferred professional services revenue and related expenses arerecognized ratably over the remaining contract length.

 

Theterm license component of the deferred revenue balance related toimplementations in process will increase or decrease in the future depending onthe amount of new term license bookings relative to the number ofimplementations that reach substantial completion in a particular quarter. Forthe first quarters of 2010 and 2009, the term license deferral increased(decreased) the Company’s revenues as follows (in millions):

 

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| ** **                       | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|----------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                       | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                             |       |                                 |       |       |       |   |   |
| Term  license revenues           |       | $                                    | (0.7       | )          | $          | 2.3 |   | $ | (3.0 | ) |
| Professional  services and other |       | 0.2                                  |       | 0.4        |       | (0.2 | ) |
| ** **                       | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  net revenues              |       | $                                    | (0.5       | )          | $          | 2.7 |   | $ | (3.2 | ) |

 

Amountsof revenues and directly-related expenses deferred as of March 31, 2010and December 31, 2009 associated with our term licensing deferral was asfollows (in millions):

 
| ** **                 | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|----------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                 | ** ** | **2010**          | ** ** | **2009**             | ** ** |
| Deferred  revenues         | ** ** | ** **        | ** ** | ** **           | ** ** |
| Short-term                 |       | $                 | 20.7       |                 | $          | 20.1 |   |
| Long-term                  |       | 4.5               |       | 4.6                  |       |
|                       |       |              |       |                 |       |
| Total                      |       | $                 | 25.2       |                 | $          | 24.7 |   |
|                       |       |              |       |                 |       |
| Directly-related  expenses |       |              |       |                 |       |
| Short-term                 |       | $                 | 6.2        |                 | $          | 6.2 |   |
| Long-term                  |       | 2.3               |       | 2.4                  |       |
|                       |       |              |       |                 |       |
| Total                      |       | $                 | 8.5        |                 | $          | 8.6 |   |

 

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

 

*Financial Overview*

 

The components of revenuefrom continuing operations during the first quarters of 2010 and 2009, andassociated dollar and percentage fluctuations were as follows (in thousands,except % change):

 
| ** **                                                        | ** ** | **Three Months Ended March 31** | ** ** | **$**      | ** ** | **%**      | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                        | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** | **Change** | ** ** |
|                                                              |       |                                 |       |       |       |       |       |   |   |
| Term  license revenues                                            |       | $                                    | 24,899     |       | $          | 26,032     |       | $ | (1,133 | ) | -4 | % |
| Maintenance  revenues                                             |       | 18,477                               |       | 18,746     |       | (269       | )          | -1 | % |
| Other  recurring revenues                                         |       | 15,475                               |       | 11,529     |       | 3,946      |       | 34 | % |
| **Total term license, maintenance and other recurring  revenues** | ** ** | **58,851**                           | ** ** | **56,307** | ** ** | **2,544**  | ** ** | **5** | **%** |
| *Recurring revenue as % of total revenue*                         | * *   | *88*                                 | *%*        | *85*       | *%*        | * *   | * *   | * * | * * |
|                                                              |       |                                 |       |       |       |       |       |   |   |
| Asset  under administration (AUA) fees                            |       | 1,269                                |       | 1,494      |       | (225       | )          | -15 | % |
| Other  perpetual license fees                                     |       | 1,033                                |       | 1,191      |       | (158       | )          | -13 | % |
| **Total perpetual license fees**                                  | ** ** | **2,302**                            | ** ** | **2,685**  | ** ** | **(383**   | **)**      | **-14** | **%** |
|                                                              |       |                                 |       |       |       |       |       |   |   |
| **Professional services and other**                               | ** ** | **5,535**                            | ** ** | **7,333**  | ** ** | **(1,798** | **)**      | **-25** | **%** |
|                                                              |       |                                 |       |       |       |       |       |   |   |
| **Total net revenues**                                            | ** ** | **$**                                | **66,688** | ** ** | **$**      | **66,325** | ** ** | **$** | **363** | ** ** | **1** | **%** |

 

Total net revenuesincreased slightly during the first quarter of 2010.  Other recurring revenues increased $3.9million driven by growth in revenues from our outsourced services and dataservices. This increase was partially offset by decreases in our other revenuestreams including a $1.1 million decrease in term license revenues. During thefirst quarter of 2009, the term license revenue recognized from completedimplementations exceeded the revenue deferred from projects. We returned to ourprevious trend of deferring more term license revenues than we recognizedduring the first quarter of 2010 resulting in the decrease in term licenserevenue compared to the same period of 2009. Perpetual license fees in thefirst quarter of 2010 were down compared to the first quarter of 2009 as we licensedfewer perpetual seats and modules to our existing perpetual client base andfewer modules to

 

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newclients. Incremental assetsunder administration fees from perpetual licenses decreased by $0.2 million inthe first quarter of 2010 compared to the comparable period in 2009, as clientsexperienced continued declines in AUA balances. Professional services and otherrevenues also decreased due to reduced spending by our customers on consultingservices during the first quarter of 2010.

 

Total recurring revenues,which we define as term license, perpetual maintenance, and other recurringrevenues, increased to 88% of total net revenues during the first quarter of2010, as compared to 85% during the same period of 2009. However, term licenserevenues decreased 4% in the first quarter of 2010 from the prior year periodand represented 42% of total term license, maintenance and other recurringrevenues in the first quarter of 2010, as compared to 46% in the same period in2009.

 

Total expenses fromcontinuing operations, including cost of revenues, were $59.4 million in thefirst quarter of 2010, compared with $57.9 million in the first quarter of2009. Our expenses increased in the first quarter of 2010 from the same periodin 2009 largely as a result of increased payroll, variable compensation andbenefit expenses resulting from increases in headcount, investment in sales andmarketing internationally, and increased facilities costs related to newoffices in Beijing, New York and Boston. During 2009, we signed leaseagreements for our future facilities in New York and Boston and commenced thebuild-out of those facilities during the first quarter of 2010. We continued tooccupy our current facilities in New York and Boston during the first quarterof 2010 and incurred rent and utilities expense in both our current and futurefacilities during the quarter.

 

Our operating income fromcontinuing operations in the first quarter of 2010 decreased to $7.3 million or11% of revenue from $8.4 million or 13% of revenue in the first quarter of 2009which is reflective of our higher headcount, increased sales and marketingefforts and increased facilities costs during the first quarter of 2010, whilerevenues were essentially flat period over period.

 

Interest and otherexpense was $0.7 million in the first quarter of 2010 compared to $0.4 millionin the comparable period of 2009. This increase was primarily due to higherforeign exchange losses as the US dollar strengthened considerably against thePound Sterling, Euro and other European currencies during the first quarter of2010.

 

Our continuing operations’income tax expense was $2.3 million resulting in a 35% effective tax rateduring the first quarter of 2010, compared to $2.7 million or 33%,respectively, in the first quarter of 2009.

 

Net income fromcontinuing operations was $4.2 million, resulting in diluted earnings per shareof $0.16 for the first quarter of 2010, compared to $5.4 million or $0.21 inthe first quarter of 2009.

 

Our continuing operationsgenerated operating cash flow of $12.5 million during the first quarter of2010, compared to $10.8 million in the first quarter of 2009. We repurchasedapproximately 249,000 shares under our Board authorized share repurchaseprogram for a total cash outlay of $10.5 million and an average price of $42.41per share.

 

**CriticalAccounting Policies and Estimates**

 

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

 

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

 

We believe the followingaccounting policies contain the more significant judgments and estimates usedin the preparation of our condensed consolidated financial statements.

 

·                  Revenue recognition and deferredrevenues;

 

·                  Income taxes;

 

·                  Stock-based compensation;

 

·                  Restructuring charges and relatedaccruals;

 

·                  Business combinations;

 

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·                  Disposition;

 

·                  Goodwill;

 

·                  Impairment of long-lived assets;

 

·                  Legal contingencies; and

 

·                  Sales returns and accounts receivableallowances

 

There have been nosignificant changes in our critical accounting policies and estimates duringthe first quarter of 2010  as compared tothe 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 31,2009.

 

**RecentAccounting Pronouncements**

 

Withthe exception of those discussed below, there have been no recent accountingpronouncements or changes in accounting pronouncements during the first quarterof 2010, as compared to the recent accounting pronouncements described in ourAnnual Report on Form 10-K for the fiscal year ended December 31,2009, that are of significance, or potential significance, to the Company.

 

InOctober 2009, the FASB issued ASU 2009-13, Multiple-Deliverable RevenueArrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) (“ASU2009-13”) and ASU 2009-14,  Certain Arrangements That Include SoftwareElements  (amendments to FASB ASC Topic985,  Software ) (“ASU 2009-14”). ASU 2009-13 requires entities toallocate revenue in an arrangement using estimated selling prices of thedelivered goods and services based on a selling price hierarchy. The amendmentseliminate the residual method of revenue allocation and require revenue to beallocated using the relative selling price method. ASU 2009-14 removestangible products from the scope of software revenue guidance and providesguidance on determining whether software deliverables in an arrangement thatincludes a tangible product are covered by the scope of the software revenueguidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospectivebasis for revenue arrangements entered into or materially modified in fiscalyears beginning on or after June 15, 2010, with early adoption permitted.We do not expect adoption of ASU 2009-13 or ASU 2009-14 to have a materialimpact on our condensed consolidated financial statements.

 

InJanuary 2010, the FASB issued guidance to amend the disclosurerequirements related to recurring and nonrecurring fair valuemeasurements. The guidance requires new disclosures on the transfers ofassets and liabilities between Level 1 (quoted prices in active market foridentical assets or liabilities) and Level 2 (significant other observableinputs) of the fair value measurement hierarchy, including the reasons and thetiming of the transfers. Additionally, the guidance requires a rollforward of activities on purchases, sales, issuance, and settlements of the assetsand liabilities measured using significant unobservable inputs (Level 3 fairvalue measurements). The guidance became effective for us beginning with thereporting period beginning January 1, 2010, except for the disclosure onthe roll forward activities for Level 3 fair value measurements, which willbecome effective for us starting with the reporting period beginning April 1,2011. The adoption of these changes had no material impact on our condensedconsolidated financial statements.

 

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**RESULTSOF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009**

 

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** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                             | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| ** **                                             | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net revenues:**                                      |       |                                 |       |   |   |   |   |
| Term  license, maintenance and other recurring         |       | 88                                   | %          |   | 85 | % |   |
| Perpetual  license fees                                |       | 3                                    |       |   | 4 |   |   |
| Professional  services and other                       |       | 8                                    |       |   | 11 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Total  net revenues                                    |       | 100                                  |       |   | 100 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| **Cost of revenues:**                                  |       |                                 |       |   |   |   |   |
| Term  license, maintenance and other recurring         |       | 19                                   |       |   | 17 |   |   |
| Perpetual  license fees                                |       | *                                    |       |   | * |   |   |
| Professional  services and other                       |       | 10                                   |       |   | 12 |   |   |
| Amortization  of developed technology                  |       | 2                                    |       |   | 2 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Total  cost of revenues                                |       | 31                                   |       |   | 32 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Gross  margin                                          |       | 69                                   |       |   | 68 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| **Operating expenses:**                                |       |                                 |       |   |   |   |   |
| Sales  and marketing                                   |       | 25                                   |       |   | 24 |   |   |
| Product  development                                   |       | 18                                   |       |   | 18 |   |   |
| General  and administrative                            |       | 14                                   |       |   | 13 |   |   |
| Amortization  of other intangibles                     |       | *                                    |       |   | 1 |   |   |
| Restructuring  charges                                 |       | *                                    |       |   | * |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Total  operating expenses                              |       | 58                                   |       |   | 56 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Income  from continuing operations                     |       | 11                                   |       |   | 13 |   |   |
| Interest  and other income (expense), net              |       | (1                                   | )          |   | * |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Income  from continuing operations before income taxes |       | 10                                   |       |   | 12 |   |   |
| Provision  for income taxes                            |       | 3                                    |       |   | 4 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Net  income from continuing operations                 |       | 6                                    |       |   | 8 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| **Discontinued operation:**                            |       |                                 |       |   |   |   |   |
| Net  income (loss) from discontinued operation         |       | *                                    |       |   | 1 |   |   |
|                                                   |       |                                 |       |   |   |   |   |
| Net  income                                            |       | 6                                    | %          |   | 9 | % |   |

 

----

*Lessthan 1%

 

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# **NETREVENUES**

 
| ** **                         | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                         | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                               | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  net revenues (in thousands) |       | $                                    | 66,688     |       | $          | 66,325 |   | $ | 363 |   |
|                                    |            |                                      |            |            |            |  |  |  |  |  |

 

Ournet revenues are made up of three components: term license, maintenance andother recurring revenue; perpetual license fees; and professional services andother revenue. The revenues from a term license, which includes both softwarelicense and maintenance services, are earned under a time based contract.Maintenance revenues are derived from maintenance fees charged for perpetuallicense arrangements and recurring revenues are derived from oursubscription-based and transaction-based services.  Perpetual license revenues are derived fromthe licensing of software products under a perpetual arrangement and includeAssets Under Administration (“AUA”) fees for certain perpetual arrangements.Professional services and other revenues include fees for consulting, fees fromtraining, and project management services and our client conferences. Salesreturns, which we generally do not provide to customers, are accounted for asdeductions to these three revenue categories based on our historicalexperience.

 

Sincefiscal 2007, revenues from recurring sources have grown and conversely revenuesfrom perpetual licenses have decreased as follows:

 
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **YTD**   | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|------------|------------|-----------|------------|
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **March** | ** ** |
| **As a percentage of net revenues**   | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**  | ** ** |
|                                  |       |       |       |       |       |       |       |      |       |
| Revenues  from recurring sources      |       | 79         | %          | 80         | %          | 86         | %          | 88        | %          |
|                                  |       |       |       |       |       |       |       |      |       |
| Revenues  from perpetual license fees |       | 11         | %          | 7          | %          | 4          | %          | 3         | %          |

 

Aswe continue to sign term license agreements for new customers, grow oursubscription, data management and outsourced services revenues, and ourcustomers renew their perpetual maintenance, we expect our revenue fromrecurring sources to continue to represent over 85% of our total net revenues.

 

Total net revenuesincreased $0.4 million in the first quarter of 2010 compared to the samequarter in 2009.  The year-over-year growthin total net revenues for the first quarter of 2010 was due to higher termlicense, maintenance and other recurring revenues, which reflected $2.5 millionor 5% growth in the first quarter of 2010 compared to the same quarter in 2009.The increase in term license, maintenance and other recurring is primarily dueto the completion of several large data service and outsourcing arrangementsduring the second half of 2009.

 

Revenues derived frominternational sales grew slightly from $9.4 million in the firstquarter of 2009 to $9.5 million in the first quarter of 2010. Theincrease is primarily due to increased demand in international locations,partially offset by the declines in the market values of AUA balances for ourEMEA customers. We plan to continue expanding our international sales efforts,both in our current markets and elsewhere. The revenues from customers in anysingle international country did not exceed 10% of total net revenues.

 

Weexpect that total net revenues from continuing operations to be between $67million and $69 million in the second quarter of 2010.

 

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

 
| **(in  thousands, except percent of**                         | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| **total  net revenues)**                                      | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                                                          |       |                                 |       |       |       |   |   |
| Term  license revenues                                        |       | $                                    | 24,899     |       | $          | 26,032 |   | $ | (1,133 | ) |
| Maintenance  revenues                                         |       | 18,477                               |       | 18,746     |       | (269 | ) |
| Other  recurring revenues                                     |       | 15,475                               |       | 11,529     |       | 3,946 |   |
| Total  term license, maintenance and other recurring revenues |       | $                                    | 58,851     |       | $          | 56,307 |   | $ | 2,544 |   |
| Percent  of total net revenues                                |       | 88                                   | %          | 85         | %          |   |   |

 

Total recurring revenues,which we define as term license, perpetual maintenance, and other recurringrevenues, increased to 88% of total net revenues during the first quarter of2010 from 85% during the first quarter of 2009.

 

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Webegan our transition to a term license model in 2004 and experienced growth inour term license revenues through 2009. Revenues from term licenses, which include both thesoftware license and maintenance services for term licenses, decreased$1.1 million or 4% during the first quarter of 2010 compared to the samequarter in 2009. For our term licenses, we defer all revenue on new bookingsuntil our implementation services are complete. For the first quarters of 2010and 2009, the term license deferral increased (decreased) the Company’s termlicense revenues as follows (in millions):

 
| ** **             | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **             | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                   | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Term  license revenues |       | $                                    | (0.7       | )          | $          | 2.3 |   | $ | (3.0 | ) |
|                        |            |                                      |            |            |            |  |  |  |  |  |

 

Inthe first quarter of 2009, the revenue recognized from completedimplementations exceeded the revenue deferred from projects being implementedas several large implementations were completed, resulting in a net recognitionof term license revenue of $2.3 million. In the first quarter of 2010, wereturned to our prior trend of net term license revenue deferral, as our ACVbookings increased 65% from the first quarter of 2009 and we deferred $0.7million in term license revenue. This decrease in revenue during the firstquarter of 2010 was partially offset by an increase in revenue from our APXproducts during the first quarter of 2010. Term license revenues represented 42%of total term license, maintenance and other recurring revenues as compared to46% in the first quarter of 2009.

 

Maintenancerevenues decreased $0.3 million or 1% during the first quarter of 2010 comparedto the same quarter of 2009. The decrease in maintenance revenues wasattributable to perpetual license customers migrating to term licenses,maintenance de-activations due to customer attrition, customers downgradingmaintenance levels, and continued decrease in new perpetual license customers,partially offset by the impact of price increases.

 

Other recurring revenues, which primarily includerevenues from the provision of software interfaces to download securitiesinformation from third party data providers, partial or full business processoutsourcing, account aggregation, reconciliation, reference data management,and hosting of hardware and/or software,  increased $3.9 million or 34% during the firstquarter of 2010 compared to the same quarter of 2009. The increase in otherrecurring revenues isprimarily due to growth in revenues from outsourced services, and in dataservices as several large arrangements went live during the second half of2009.

 

Our renewal rates arebased on cash collections and are disclosed one quarter in arrears. We discloseour renewal rates one quarter in arrears in order to include substantially allpayments received against the invoices for that quarter. We also update ourrenewal rates from the initially disclosed rates to include all cashcollections subsequent to the initial disclosure. The following summarizes ourinitial and updated renewal rates (operational metric) for the previous fivequarters:

 
| **Renewal Rates**                                               | ** ** | **Q110** | ** ** | **Q409** | ** ** | **Q309** | ** ** | **Q209** | ** ** | **Q109** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| *Based on cash collections relative to prior year  collections* | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   |
| * *                                                        | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   |
| Initially  Disclosed Rate (1)                                   |       | 89       | %          | 89       | %          | 87       | %          | 85       | %          | 93       | %          |
| Updated  Disclosed Rate (2)                                     |       | n/a      |       | 89       | %          | 90       | %          | 88       | %          | 98       | %          |

 

----

(1)   “Initially DisclosedRate” is based on cash collections and reported one quarter in arrears

 

(2)   “Updated DisclosedRate” reflects initially disclosed rate updated for subsequent cash collections

 

Aswe continue to sign term license agreements for new customers, we expect ourrevenue from recurring sources to continue to represent over 85% of our totalnet revenues.

 

***PerpetualLicense Fees***

 
| **(in  thousands, except percent of** | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|------------|------------|
| **total  net revenues)**              | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| AUA  fees                             |       | $                                    | 1,269      |       | $          | 1,494 |   | $ | (225 | ) |
| Other  perpetual license fees         |       | 1,033                                |       | 1,191      |       | (158 | ) |
| ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  perpetual license fees         |       | $                                    | 2,302      |       | $          | 2,685 |   | $ | (383 | ) |
|                                  |       |                                 |       |       |       |   |   |
| Percent  of total net revenues        |       | 3                                    | %          | 4          | %          |   |   |

 

Totalperpetual license fees decreased $0.4 million or 14% during the first quarterof 2010 as compared to the same period in 2009. As a percentage of total netrevenues, perpetual license fees decreased to 3% in the first quarter of 2010,down slightly from 4% in the same period of 2009.

 

Consistentwith our transition to term licensing, perpetual license fees continue toaccount for a smaller percentage of total net revenues. Additionally, welicensed fewer perpetual seats and modules to our existing perpetual clientbase. Incremental assets

 

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underadministration fees from perpetual licenses were $1.3 million in the firstquarter of 2010, which is down $0.2 million compared to the first quarter of2009 as clients experienced continued declines in AUA balances.

 

***Professional Services and Other Revenues***

 
| ** **                                               | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Professional  services and other revenues (in thousands) |       | $                                    | 5,535      |       | $          | 7,333 |   | $ | (1,798 | ) |
| Percent  of total net revenues                           |       | 8                                    | %          | 11         | %          |   |   |
|                                                          |            |                                      |            |            |            |  |  |  |  |  |

 

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

 

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

 

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

 

| ** **                                             | ** ** | **Change From**    | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|
| ** **                                             | ** ** | **Q1 09 to Q1 10** | ** ** |
|                                                   |       |               |       |
| Decreased  consulting services                         |       | $                  | (1,366     | ) |
| Decreased  project management                          |       | (352               | )          |
| Decreased  net term license implementation recognition |       | (160               | )          |
| Various  other items                                   |       | 80                 |       |
|                                                   |       |               |       |
| Total  change                                          |       | $                  | (1,798     | ) |

 

The overall professionalservices and other revenues decrease during the first quarter of 2010represented a contraction in new service engagements resulting in the revenuedecreases in consulting services and project management.  Additionally during the first quarter of2010, we recognized less net professional services revenue related to thecompletion of term license implementations. The impact of our term licenseimplementation recognition on professional services revenues was as follows (inthousands):

 
| ** **                                                                                 | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                                                                 | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Net  recognition of professional services revenue related to term license  implementations | ** ** | $                                    | 246        | ** ** | $          | 406 | ** ** | $ | (160 | ) |
|                                                                                            |            |                                      |            |            |            |  |  |  |  |  |

 

### **COST OF REVENUES**

 
| ** **                             | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                             | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| ** **                             | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  cost of revenues (in thousands) |       | $                                    | 20,600     |       | $          | 20,917 |   | $ | (317 | ) |
| Percent  of total net revenues         |       | 31                                   | %          | 32         | %          |   |   |
|                                        |            |                                      |            |            |            |  |  |  |  |  |

 

Ourcost of revenues is made up of four components: cost of term license,maintenance and other recurring; cost of perpetual license fees; cost ofprofessional services and other; and amortization of developed technology. Thedecrease in total cost of revenues in absolute dollars for the first quarter of2010 was due principally to a decrease in payroll and related costs in ourclient support and services groups resulting from a decrease in demand forconsulting and training services. Cost of revenues as a percent of total net revenuesdecreased for the three months ending March 31, 2010 due to growth in termlicense, maintenance and other recurring revenues and decreased payroll andrelated costs from our professional services group during the first quarter of2010.

 

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

 
| ** **                                                              | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                                              | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Cost  of term license, maintenance and other recurring (in thousands)   |       | $                                    | 12,427     |       | $          | 11,345 |   | $ | 1,082 |   |
| Percent  of total term license, maintenance and other recurring revenue |       | 21                                   | %          | 20         | %          |   |   |
|                                                                         |            |                                      |            |            |            |  |  |  |  |  |

 

Costof term license fees consists primarily of royalties and other fees paid tothird parties, the fixed direct labor and third-party costs involved inproducing and distributing our software, and cost of product media includingduplication, manuals and packaging materials. Cost of maintenance and otherrecurring revenues is primarily comprised of the direct costs related toproviding and supporting our outsourced services, providing technical supportservices under maintenance agreements and other services for recurringrevenues, and royalties paid to third party subscription-based andtransaction-based vendors.

 

Gross margins for termlicense, maintenance and other recurring revenues were 79% and 80% during thefirst quarters of 2010 and 2009, respectively. The decrease in gross marginin the first quarter of 2010 was primarily due to the return to a net deferralof revenue on our term licenses during the first quarter of 2010 and to alesser extent, lower bookings in 2009. We defer revenues and direct costs associated withservices performed on term license implementations until the project hasreached substantial completion. Indirect costs such as management and otheroverhead expenses are recognized in the period in which they are incurred.

 

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

 
| ** **                                                       | ** ** | **Change From**    | ** ** |
|------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                       | ** ** | **Q1 09 to Q1 10** | ** ** |
|                                                             |       |               |       |
| Increased  payroll and related costs                             |       | $                  | 727        |   |
| Increased  allocation-in of facility and infrastructure expenses |       | 342                |       |
| Increased  travel and entertainment                              |       | 217                |       |
| Increased  depreciation and amortization                         |       | 157                |       |
| Decreased  royalty                                               |       | (446               | )          |
| Various  other items                                             |       | 85                 |       |
|                                                             |       |               |       |
| Total  change                                                    |       | $                  | 1,082      |   |

 

Theincreases in absolute dollars for the first quarter of 2010 were due primarilyto an increase in compensation and related costs resulting from increases insalary costs and headcount which enables us to deliver the services we provideto our growing number of clients in their day-to-day use of our software. Weallocate facility and infrastructure expenses based on headcount and consistentwith the increase in departmental headcount, we allocated more of these coststo our term license, maintenance and other recurring departments. The increasein travel and entertainment costs resulted from increased travel associatedwith providing client support services. This increase was partially offset bydecreases to royalty expenses resulting from decreased renewal activity withthird party subscription-based and transaction-based vendors.

 

Costof term license, maintenance and other recurring will fluctuate based on thegrowth our term license revenues and outsourced services.

 

***Cost of Perpetual License Fees***

*** ***
| ** **                                     | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                     | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                                           |       |                                 |       |       |       |   |   |
| Cost  of perpetual license fees (in thousands) |       | $                                    | 73         |       | $          | 112 |   | $ | (39 | ) |
| Percent  of total perpetual license revenues   |       | 3                                    | %          | 4          | %          |   |   |
|                                                |            |                                      |            |            |            |  |  |  |  |  |

 

Costof perpetual license fees consists primarily of royalties and other fees paidto third parties, the fixed direct labor and third-party costs involved inproducing and distributing our software, and cost of product media includingduplication, manuals and packaging materials. The cost of perpetual licensefees for the three months ended March 31, 2010 decreased by $39,000compared

 

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withthe same period in 2009 primarily from a reduction in royalties and productmedia costs as we continue to transition away from perpetual licensing.

 

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

 
| ** **                                                 | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Cost  of professional services and other (in thousands)    |       | $                                    | 6,584      |       | $          | 8,055 |   | $ | (1,471 | ) |
| Percent  of total professional services and other revenues |       | 119                                  | %          | 110        | %          |   |   |
|                                                            |            |                                      |            |            |            |  |  |  |  |  |

 

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

 

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

 
| ** **                                                       | ** ** | **Change From**    | ** ** |
|------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                       | ** ** | **Q1 09 to Q1 10** | ** ** |
|                                                             |       |               |       |
| Decreased  payroll and related costs                             |       | $                  | (1,176     | ) |
| Increased  service cost deferral related to term implementations |       | (150               | )          |
| Various  other items                                             |       | (145               | )          |
|                                                             |       |               |       |
| Total  change                                                    |       | $                  | (1,471     | ) |

 

The decrease in totaldollars of professional services and other expense reflects a change in demand for consulting andtraining services related to term license contract sales, resulting in theredeployment of consulting employees to other areas of our business during thepast year and the decreasein payroll and related expenses during the first quarter of 2010.

 

We defer direct costsassociated with services performed on term license implementations until aproject reaches substantial completion. Indirect costs such asmanagement and other overhead expenses are recognized in the period in whichthey are incurred, with no revenue to offset them. At the point professional services are substantiallycompleted, we recognize a pro-rata amount of the term license revenue,professional services fees earned and related expenses, based on the elapsedtime from the start of the term license to the substantial completion ofprofessional services. Term license revenue for the remaining contract years andthe remaining deferred professional services revenue and related expenses arerecognized ratably over the remaining contract length.

 

The impact of our termlicense implementations on the recognition of professional services costs wasas follows (in thousands):

 
| ** **                                                                               | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                                                               | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Net  recognition of professional services costs related to term license  implementations |       | $                                    | 55         |       | $          | 205 |   | $ | (150 | ) |
|                                                                                          |            |                                      |            |            |            |  |  |  |  |  |

 

Gross margins for professional services and other were(19)%, and (10)% during the first quarter of 2010 and 2009, respectively. Thegross margin deterioration in the first quarter of 2010 when compared to thesame period in 2009 was primarily due to the lower utilization of ourconsulting employees.

 

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***Amortization of Developed Technology***

 
| ** **                                          | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                          | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Amortization  of developed techology (in thousands) |       | $                                    | 1,516      |       | $          | 1,405 |   | $ | 111 |   |
| Percent  of total net revenues                      |       | 2                                    | %          | 2          | %          |   |   |
|                                                     |            |                                      |            |            |            |  |  |  |  |  |

 

Amortization of developedtechnology represents amortization of acquisition-related intangibles, andamortization of capitalized software development costs previously capitalizedunder ASC 985. Theincrease during the first quarter of 2010 resulted from additional amortizationfrom software development costs capitalized during 2009 and 2010, and to alesser extent, amortization from technology related intangible assetsassociated with Goya which we acquired in March 2010, partially offset bydecreased amortization from other developed technology assets that were fullyamortized during 2009.

 

### **OPERATING EXPENSES**

### ** **

***Sales and Marketing***

*** ***
| ** **                          | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| ** **                          | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales  and marketing (in thousands) |       | $                                    | 16,860     |       | $          | 15,779 |   | $ | 1,081 |   |
| Percent  of total net revenues      |       | 25                                   | %          | 24         | %          |   |   |
|                                     |            |                                      |            |            |            |  |  |  |  |  |

 

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

 

Salesand marketing expense fluctuated due to the following (in thousands):

 
| ** **                                                       | ** ** | **Change From**    | ** ** |
|------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                       | ** ** | **Q1 09 to Q1 10** | ** ** |
|                                                             |       |               |       |
| Increased  payroll and related costs                             |       | $                  | 533        |   |
| Increased  allocation-in of facility and infrastructure expenses |       | 365                |       |
| Increased  travel and entertainment                              |       | 243                |       |
| Decreased  bad debt expense                                      |       | (187               | )          |
| Various  other items                                             |       | 127                |       |
|                                                             |       |               |       |
| Total  change                                                    |       | $                  | 1,081      |   |

 

Theincrease in expense in absolute dollars and as a percentage of revenue for thefirst quarter of 2010 reflects the growth of our sales and marketing effortsduring the first quarter of 2010. The increase in payroll related costs andallocation-in of facility and infrastructure expenses was due principally toheadcount growth to 199 at March 31, 2010 from 181 at March 31, 2009,as we increased our marketing efforts internationally. The increase in traveland entertainment costs resultedfrom increased travel volumes and other associated costs. The decrease inbad debt expense in the first quarter of 2010 is a result of fewer accountsbeing sent to collections when compared to the comparable period in 2009.

 

***Product Development***

*** ***
| ** **                          | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                                |       |                                 |       |       |       |   |   |
| Product  development (in thousands) |       | $                                    | 12,061     |       | $          | 12,119 |   | $ | (58 | ) |
| Percent  of total net revenues      |       | 18                                   | %          | 18         | %          |   |   |
|                                     |            |                                      |            |            |            |  |  |  |  |  |

 

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

 

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

 
| ** **                                                       | ** ** | **Change From**    | ** ** |
|------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                       | ** ** | **Q1 09 to Q1 10** | ** ** |
| ** **                                                       | ** ** | ** **         | ** ** |
| Increased  capitalization of product development                 |       | $                  | (1,023     | ) |
| Decreased  outside services                                      |       | (224               | )          |
| Increased  payroll and related costs                             |       | 587                |       |
| Increased  allocation-in of facility and infrastructure expenses |       | 437                |       |
| Various  other items                                             |       | 165                |       |
|                                                             |       |               |       |
| Total  change                                                    |       | $                  | (58        | ) |

 

The slight decrease in total product developmentexpenses during the first quarter of 2010 was primarily due to increases in thecapitalization of our product development costs. The increase in thecapitalization of our product development costs is attributable to the timingof product releases as we capitalized $1.2 million associated with new releasesof Geneva, APX and Axys during the first quarter of 2010, compared to $0.2million of capitalized product development costs in the first quarter of 2009.The decrease in outside service costs resulted from the conversion of thirdparty contractors to employees in December 2009. These decreases in expensewere offset slightly by increases in payroll related costs resulting from headcount additions to help continue theenhancement of our existing product suite including new versions of Geneva,APX, Moxy, Advent Rules Manager, Advent Revenue Center, Partner and TamaleRMS, and to a lesser extent, the conversion in December 2009 ofapproximately 50 individuals from third party contractor status to employeestatus in our new Beijing office. The additional headcount inthe first quarter of 2010 also contributed to more facility and infrastructureexpenses being allocated to the department.

 

***General and Administrative***

*** ***
| ** **                                 | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                 | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| ** **                                 | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| General  and administrative (in thousands) |       | $                                    | 9,551      |       | $          | 8,639 |   | $ | 912 |   |
| Percent  of total net revenues             |       | 14                                   | %          | 13         | %          |   |   |
|                                            |            |                                      |            |            |            |  |  |  |  |  |

 

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

 

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

 
| ** **                                                        | ** ** | **Change From**    | ** ** |
|-------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                        | ** ** | **Q1 09 to Q1 10** | ** ** |
|                                                              |       |               |       |
| Increased  facilities                                             |       | $                  | 903        |   |
| Increased  computers and telecom                                  |       | 427                |       |
| Increased  payroll and related costs                              |       | 214                |       |
| Increased  allocation-out of facility and infrastructure expenses |       | (830               | )          |
| Various  other items                                              |       | 198                |       |
|                                                              |       |               |       |
| Total  change                                                     |       | $                  | 912        |   |

 

Theincrease in total general and administrative expenses in absolute dollars andas a percentage of revenue during the first quarter of 2010 is primarily due tothe increases in facilities costs related to our new office in Beijing which weopened during the fourth quarter of 2009 and our future facilities in New Yorkand Boston. During 2009, we signed lease agreements for our future facilities inNew York City and Boston and commenced the build-out of those facilities duringthe first quarter of 2010. In the first quarter of 2010, we continued to occupyour current facilities in New York and Boston as our future facilities werebeing built-out and incurred $0.6 million of additional rent and utilitiesexpense at our future facilities for the first quarter of 2010. Payroll andother related costs increased during the first quarter of 2010 as a result ofan increase in headcount. The increase in computer and telecom expenseprimarily reflects higher communications costs associated with ourinternational expansion. These cost increases were partially offset by lessexpense due to the allocation-out of corporate expenses to other departments.Corporate expenses, such as facility and information costs, are initiallyrecognized in our general and administrative department and then allocated outto other departments based on headcount. As headcount in our other departmentsgrew at a higher rate during the past year than our general and administrativedepartment, we allocated out more corporate costs resulting in less general andadministrative expense of $0.8 million in the first quarter of 2010.

 

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***Amortization of Other Intangibles***

*** ***
| ** **                                        | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                        | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Amortization  of other intangibles (in thousands) |       | $                                    | 315        |       | $          | 439 |   | $ | (124 | ) |
| Percent  of total net revenues                    |       | 0                                    | %          | 1          | %          |   |   |
|                                                   |            |                                      |            |            |            |  |  |  |  |  |

 

Amortizationof other intangibles represents amortization of non-technology relatedintangible assets. Thedecrease during the first quarter of 2010 is a result of an asset from a prioracquisition becoming fully amortized during 2009, partially offset by increasedamortization from intangible assets associated with Goya AS, which we acquiredin March 2010.

 

***Restructuring Charges***

*** ***
| ** **                            | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                                  |       |                                 |       |       |       |   |   |
| Restructuring  charges (in thousands) |       | $                                    | 29         |       | $          | 44 |   | $ | (15 | ) |
| Percent  of total net revenues        |       | 0                                    | %          | 0          | %          |   |   |
|                                       |            |                                      |            |            |            |  |  |  |  |  |

 

##### ***During thefirst quarter of 2010 and 2009, we recorded restructuring charges of $29,000and $44,000, respectively, which related to the present value amortization offacility exit obligations partially offset by adjustments to facility exitassumptions.***

 

Foradditional analysis of the components of the payments and charges made againstthe restructuring accrual during the first quarter of 2010, see Note 11, “RestructuringCharges” to our condensed consolidated financial statements.

 

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

 
| ** **                                               | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Interest  and other income (expense), net (in thousands) |       | $                                    | (706       | )          | $          | (372 | ) | $ | (334 | ) |
| Percent  of total net revenues                           |       | -1                                   | %          | -1         | %          |   |   |
|                                                          |            |                                      |            |            |            |  |  |  |  |  |

 

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

 

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

 
| ** **                       | ** ** | **Change From**    | ** ** |
|----------------------------------|------------|--------------------|------------|
| ** **                       | ** ** | **Q1 09 to Q1 10** | ** ** |
|                             |       |               |       |
| Increased  foreign exchange loss |       | $                  | (492       | ) |
| Decreased  interest expense      |       | 157                |       |
| Increased  interest income       |       | 26                 |       |
| Various  other items             |       | (25                | )          |
|                             |       |               |       |
| Total  change                    |       | $                  | (334       | ) |

 

Foreignexchange losses increased during the first quarter of 2010 as the US dollarstrengthened against the Pound Sterling, Euro and other foreign currenciescompared to the same period in 2009.

 

The decrease of interestexpense during the first quarter of 2010 resulted from zero debt outstandingduring the first quarter of 2010, compared to a debt balance of $15 million to$25 million during the first quarter of 2009. In February 2010, Advent’s Credit Facilityexpired in accordance with the terms of the senior secured facility agreementwith the Lender and Advent elected not to renew the Credit Facility.

 

The increase in interest income during the firstquarter of 2010 reflects a higher cash and investment balance, and to a lesserextent, higher interest rates during the first quarter of 2010 compared to thesame period in 2009.

 

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

 
| ** **                                 | ** ** | **Three Months Ended March 31** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                 | ** ** | **2010**                             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Provision  for income taxes (in thousands) |       | $                                    | 2,323      |       | $          | 2,653 |   | $ | (330 | ) |
| Effective  tax rate                        |       | 35                                   | %          | 33         | %          |   |   |
|                                            |            |                                      |            |            |            |  |  |  |  |  |

 

The increase in theeffective tax rate during the first quarter of 2010 compared to the firstquarter of 2009 primarily reflects the impact of the suspension of a federalresearch credit during fiscal 2010 partially offset by an increase in thebenefit recognized for employee disqualified dispositions of incentive stockoptions.

 

Wecurrently expect an annual effective tax rate for 2010 between 35% and 40%. Theexpected effective tax rate excludes benefit from the federal research creditwhich lapsed in 2009.  Should the research credit be reinstatedretroactively to the beginning of 2010 during the year, we would expect our effectivetax rate for 2010 to range between 30% and 35%.

 

***Discontinued Operation***

*** ***
| ** **                                                                                                         | ** ** | **Three Months Ended March 31** | ** ** | ** **         | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------|------------|
| ** **                                                                                                         | ** ** | **2010**                             | ** ** | **2009**           | ** ** | **Change** | ** ** |
| ** **                                                                                                         | ** ** | ** **                           | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| Net  revenues                                                                                                      |       | $                                    | —     |               | $          | 6,461 |   | $ | (6,461 | ) |
|                                                                                                               |       |                                 |       |               |       |   |   |
| Income  (loss) from operation of discontinued operation (net of applicable taxes of  $(13) and $594, respectively) |       | (18                                  | )          | 866                |       | (884 | ) |
|                                                                                                               |       |                                 |       |               |       |   |   |
| Loss  on disposal of discontinued operation (net of applicable taxes of $(20) and  $0, respectively)               |       | (30                                  | )          | —             |       | (30 | ) |
|                                                                                                               |       |                                 |       |               |       |   |   |
| Net  income (loss) from discontinued operation                                                                     |       | $                                    | (48        | )                  | $          | 866 |   | $ | (914 | ) |

 

Net revenues of $6.5 million and net income of $0.9million from our discontinued operation, MicroEdge, for the three months ended March 31,2009  represents perpetual license salesin MicroEdge’s core product, GIFTS and expenses for the three months ending March 31,2009.

 

On October 1, 2009, we completed the sale ofMicroEdge and recorded an associated gain of $13.6 million, net of tax, in ourfourth quarter of 2009 results. Pursuant to the Agreement and Plan of Merger,the purchase price was subject to certain adjustments for working capital.During the first quarter of 2010, the final working capital adjustment wassettled, resulting in a downward adjustment to the gain on sale of MicroEdge of$30,000, net of tax.

 

### **LIQUIDITYAND CAPITAL RESOURCES**

### ** **

The following is asummary of our cash, cash equivalents and marketable securities (in thousands):

 
| ** **                                      | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                      | ** ** | **2010**          | ** ** | **2009**             | ** ** |
| ** **                                      | ** ** | ** **        | ** ** | ** **           | ** ** |
| Cash  and cash equivalents                      |       | $                 | 52,015     |                 | $          | 57,877 |   |
| Short-term  and long-term marketable securities |       | $                 | 60,022     |                 | $          | 59,768 |   |

 

Cash and cashequivalents, short-term and long-term marketable securities primarily consistof money market mutual funds, US government and US Government SponsoredEntities (GSE’s) and high credit quality corporate debt securities. Cash andcash equivalents are comprised of highly liquid investments purchased with anoriginal or remaining maturity of 90 days or less at the date of purchase. Ourshort-term and long-term marketable securities are classified as available-for-sale,with long-term investments having a maturity date greater than one year fromthe end of the period.

 

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

 
| ** **                                                                       | ** ** | **Three Months Ended March 31** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                       | ** ** | **2010**                             | ** ** | **2009** | ** ** |
|                                                                             |       |                                 |       |   |   |
| Net  cash provided by operating activities from continuing operations            |       | $                                    | 12,536     |   | $ | 10,827 |   |
| Net  cash used in investing activities from continuing operations                |       | $                                    | (10,224    | ) | $ | (793 | ) |
| Net  cash used in financing activities from continuing operations                |       | $                                    | (7,963     | ) | $ | (24,712 | ) |
| Net  cash (used in) provided by operating activities from discontinued operation |       | $                                    | (319       | ) | $ | 3,122 |   |
| Net  cash used in investing activities from discontinued operation               |       | $                                    | —     |   | $ | (336 | ) |

 

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

 

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

 

Our cash provided byoperating activities from continuing operations of $12.5 million during thethree months ended March 31, 2010 was primarily the result of our netincome and non-cash charges including stock-based compensation, anddepreciation and amortization. Cash flows resulting from changes in assets andliabilities included decreases in accounts receivable, accrued liabilities anddeferred revenues. Days’sales outstanding were 57 days during the first quarter of 2010, compared to 61days in the fourth quarter of 2009 and 62 days in the first quarter of 2009. The decreasein deferred revenue primarily reflected the recognition during the firstquarter of 2010 of previously deferred revenue, partially offset by deferredrevenue additions from new bookings in the first quarter of 2010. The decrease in accrued liabilitiesreflected cash payments of fiscal 2009 liabilities including year-end bonuses,commissions, and payroll taxes. Other changes in assets and liabilitiesincluded a decrease in prepaid and other assets, and an increase in accountspayable and income taxes payable.

 

Ourcash provided by operating activities from continuing operations of $10.8million during the three months ended March 31, 2009 was primarily theresult of our net income and non-cash charges including stock-basedcompensation, and depreciation and amortization during the quarter. Cash flowsresulting from changes in assets and liabilities included decreases in accruedliabilities and deferred revenue. The decrease in deferred revenue reflectedlower bookings and the recognition of revenue as several term licenseimplementation projects reached substantial completion during the first quarterof 2009. The decrease in accrued liabilities reflected cash payments of fiscal2008 liabilities including year-end bonuses, commissions, and payroll taxes.Other changes in assets and liabilities included a decrease in prepaid andother assets, and an increase in income taxes payable.

 

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

 

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

 

Net cash used in investingactivities from continuing operations of $10.2 million for the first quarter of2010 reflects netcash used of $4.7 million related to the acquisition of Goya AS, purchases ofmarketable securities of $3.0 million, expenditures of $1.2million for internal use software development costs and capital expenditures of$4.3 million primarily related to the build-out of our new facilities in NewYork and Boston and, to a lesser extent, computer and software equipmentpurchases. These expenditures were offset by proceeds received from the sale ofshort-term and long-term marketable securities of $3.0 million.

 

Netcash used in investing activities from continuing operations of $0.8 millionfor the first quarter of 2009 reflects capital expenditures consisting ofinternal use software of $0.5 million and computer and software equipment of$0.3 million.

 

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

 

Netcash used in financing activities from continuing operations for the firstquarter of 2010 of $8.0 million reflects the repurchase of 0.2 million shares ofour common stock for $10.5 million and payments totaling $0.5 million tosatisfy withholding taxes on equity awards that are net share settled.  This was partially offset by cash receivedfrom the exercise of employee stock options of $3.1 million.

 

Netcash used in financing activities from continuing operations for the firstquarter of 2009 of $24.7 million reflects the repurchase of 0.7 million sharesof our common stock for $14.6 million, proceeds used of $10.0 million used topay down our outstanding debt, and payments totaling $1.5 million to satisfywithholding taxes on equity awards that are net share settled.  This was partially offset by cash receivedfrom the exercise of employee stock options of $1.3 million.

 

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

 

Our cash used in operating activities fromdiscontinued operation of $0.3 million during the three months ended March 31,2010 was primarily the result of our net loss. Cash flows resulting fromchanges in assets and liabilities included decreases in prepaid and otherassets and accrued liabilities. The decrease in accrued liabilities primarily reflectscash payments of sales taxes. Other changes in assets andliabilities include a decrease in income taxes payable.

 

Ourcash provided by operating activities from discontinued operation of $3.1million during the three months ended March 31, 2009 was primarily theresult of our net income and non-cash charges including stock-basedcompensation and depreciation and amortization. Cash flows resulting fromchanges in assets and liabilities included decreases in accounts receivable andaccrued liabilities. The decrease in accounts receivable reflected strongcollections and lower bookings during the first quarter of 2009 in comparisonto the fourth quarter of 2008. Days’ sales outstanding were 51 days during thefirst quarter of 2009, compared to 59 days in the fourth quarter of 2008 and 52days in the first quarter of 2008. The decrease in accrued liabilities reflected cashpayments of fiscal 2008 liabilities including year-end payables, bonuses andcommissions. Other changes in assets and liabilities included adecrease in prepaid and other assets and an increase in income taxes payable.

 

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

 

Net cash used in investing activities fromdiscontinued operation of $0.3 million for the first quarter of 2009 reflectscapital expenditures of $0.3 million primarily related to the capitalization of costs associated withinternal use software and capitalized software development costs ofapproximately $43,000.

 

***Working Capital***

 

AtMarch 31, 2010, we had working capital of $7.9 million, compared tonegative working capital of $(6.7) million at December 31, 2009. The increase inour working capital at March 31, 2010 is primarily due to there-classification of $19.4 million of marketable securities from long-term toshort-term as they will mature by March 31, 2011 and proceeds receivedfrom the exercise of stock options of $3.1 million, partially offset by commonstock repurchases of $10.5 million, cash paid to acquire Goya AS of $4.7million and changes in our deferred revenue balance. Our negative working capital atthe end of fiscal 2009 was due to our common stock repurchases of $14.6million, our repayment on our credit facility of $25.0 million, our purchase oflong-term marketable securities of $28.5 million and our deferred revenuebalance, partially offset by proceeds received from the exercise of stockoptions of $1.3 million. Excluding deferred revenues and deferred taxes, we hadworking capital of $129.3 million at March 31, 2010, compared to $118.4million at December 31, 2009.

 

***Credit Facilityand Expiration***

 

In February 2007,Advent and certain of our domestic subsidiaries entered into a senior securedcredit facility agreement (the “Credit Facility”) with Wells Fargo Foothill, Inc.(the “Lender”). Under the Credit Facility, the Lender provided 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 December 31, 2009, there was no outstanding balance underthe Credit Facility and the Company was in compliance with all associatedcovenants.

 

In the past, we hadutilized the Credit Facility to facilitate the timing of stock repurchases. In February 2010,the Credit Facility expired and we elected not to renew the Credit Facility dueto the limited expected use of the Credit Facility. We believe our existingcash, cash equivalents, short-term and long-term marketable securities,together with cash expected to be generated from operations, will be sufficientto fund our operating activities, anticipated capital expenditures andauthorized stock repurchases. Although the expiration of the Credit Facilitymay restrict our liquidity, we believe the costs associated with the CreditFacility would exceed the anticipated benefit of the additional liquidity. Forexample, our interest expense and other fees related to the Credit Facility wasapproximately $2 million during the three-year term of the Credit Facility.

 

***Common Stock Repurchases***

 

On October 30, 2008,our Board authorized the repurchase of up to 3.0 million shares of the Company’scommon stock. During the first quarter of 2010, the Company repurchased 0.2million shares of its common stock at a cost of $10.5 million. At March 31,2010, there remained approximately 0.7 million shares authorized by the Boardfor repurchase.

 

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***Off-BalanceSheet Arrangements and Contractual Obligations***

 

Thefollowing table summarizes our contractual cash obligations, excluding cashobligations for our MicroEdge discontinued operation, as of March 31, 2010(in thousands):

 
| ** **                                                | ** ** | **Nine**             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|----------------------|------------|----------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                                | ** ** | **Months Ended**     | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **December 31** | ** ** | **Years Ended December 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **2010**             | ** ** | **2011**                         | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Operating  lease obligations,****net of  sub-lease income | ** ** | $                    | 5,647      | ** **                       | $          | 7,569      | ** ** | $          | 6,951      | ** ** | $          | 6,363          | ** ** | $          | 6,716      | ** ** | $ | 34,757 | ** ** | $ | 68,003 | ** ** |
|                                                           |            |                      |            |                                  |            |            |            |            |            |            |            |                |            |            |            |  |  |  |  |  |  |  |

 

As of March 31,2010, MicroEdge had operating lease commitments totaling $8.7 million, lesssublease income of $1.5 million, which are not reflected in the above table. OnOctober 1, 2009, we completed the sale of our MicroEdge subsidiary. Inconnection with the sale of MicroEdge, the Company entered into a subleaseagreement with Microedge LLC, whereby Microedge LLC will sub-leaseapproximately 24,000 square feet of office space located at 619 West 54thStreet in New York, New York from the Company. Microedge LLC will sub-lease thepremises for two years with the option to extend the sub-lease term through theend of the lease term in 2018. The sub-lease agreement became effective uponthe close of sale of MicroEdge on October 1, 2009. With the exception ofthe MicroEdge facilities in New York City, the leases related to MicroEdge havebeen transferred to the Purchaser.

 

At March 31, 2010and December 31, 2009, we had a gross liability of $7.6 million and $7.5million for uncertain tax positions. Since almost all of this liability relatesto reserves against deferred tax assets that we do not expect to utilize in theshort term, we cannot estimate the timing of potential future cash settlementsand have not included any estimates in the table of contractual cashobligations above. Additionally, our cash payments for income taxes willcontinue to be nominal over the next few years as we have significant netoperating losses, capital losses and tax credit carryforwards to utilize.

 

At March 31, 2010and December 31, 2009, we did not have any relationships withunconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would havebeen established for the purpose of facilitating off-balance sheet arrangementsor other contractually narrow or limited purposes. As such, we are notmaterially exposed to any financing, liquidity, market or credit risk that couldarise if we had engaged in such relationships.

 

***Other Liquidityand Capital Resources Considerations***

 

As noted above, we expectour cash payments for federal income taxes to remain nominal over the next fewyears as we have significant net operating losses and tax credit carryforwardsto utilize against current income taxes. However, our cash payments for federalincome taxes could increase as early as fiscal 2012.

 

Ourliquidity and capital resources in any period could be affected by the exerciseof outstanding employee stock options and issuance of common stock under ouremployee stock purchase plan, as cash received from these transactions wouldincrease our liquidity. Conversely, our liquidity would be negatively affectedby an employee’s vesting of restricted stock units and exercise ofstock-settled stock appreciation rights, as cash is used to satisfy withholdingtaxes on these equity awards which are net share settled. The resulting increase in the number ofoutstanding shares could also affect our per share results of operations.However, we cannot predict the timing or amount of proceeds from the exerciseof these securities, or whether they will be exercised at all.

 

We expect that for thenext year, our operating expenses will continue to constitute a significant useof cash flow. In addition, we may use cash to fund other acquisitions,repurchase additional common stock, or invest in other businesses, whenopportunities arise. Based upon the predominance of our revenues from recurringsources, bookings performance and current expectations, we believe that ourcash and cash equivalents, and cash generated from operations will besufficient to satisfy our working capital needs, capital expenditures,investment requirements, stock repurchases and financing activities for thenext year. However, if we identify opportunities that exceed our currentexpectation, we may choose to seek additional capital resources through debt orequity financing. However, such financing may not be available at all particularlyin light of the uncertain current economic environment, or if available may notbe obtainable on terms favorable to us and could be dilutive.

 

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

 

Since the acquisitions ofAdvent Denmark, Advent Norway, Advent Sweden, Advent Netherlands, and AdventEurope’s remaining distributors in the United Kingdom and Switzerland, whoseservice and certain license revenues and capital spending are transacted inlocal country currencies, we have greater exposure to foreign currencyfluctuations. As of March 31, 2010, $40 million of goodwill from theacquisition of these entities are denominated in foreign currency. Therefore ahypothetical change of 10% could increase or decrease our assets and equity byapproximately $12.3 million and could increase or decrease our condensedconsolidated results of operations or cash flows by approximately $1.6 million.

 

We maintain an investment portfolio of variousholdings, types, and maturities. Our interest rate risk relates primarily toour investment portfolio, which consisted of $112.0 million in cash and cashequivalents, short-term and long-term marketable securities as of March 31,2010. Our short-term and long-term marketable securities are generally classifiedas available-for-sale

 

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and, consequently, are recorded on our consolidatedbalance sheet at fair value with unrealized gains or losses reported as aseparate component of accumulated other comprehensive income. At any time, arise in interest rates could have a material adverse impact on the fair valueof our investment portfolio. Conversely, declines in interest rates could havea material impact on interest earnings of our investment portfolio. We do notcurrently hedge these interest rate exposures.

 

The following tablepresents hypothetical changes in fair value of our short-term and long-termmarketable securities of $60.0 million at March 31, 2010.  For March 31, 2010, the market changesreflect an immediate hypothetical parallel shifts in the yield curve of plus orminus 25 basis points (“BPS”), plus 50 BPS, and plus 100 BPS.  For balances at March 31, 2010 thehypothetical fair values are as follows (in millions, except percentages):

 
| **Decrease  in Interest Rates** | ** ** | **Increase in Interest Rates** | ** ** |
|---------------------------------|------------|--------------------------------|------------|
| **-100 Basis Points**           | ** ** | **-50 Basis Points**           | ** ** | **-25 Basis Points** | ** ** | **25 Basis Points** | ** ** | **50 Basis Points** | ** ** | **100 Basis Points** | ** ** |
| **$**                           | **60.5**   | ** **                     | **$**      | **60.3** | ** ** | **$** | **60.2** | ** ** | **$** | **60.0** | ** ** | **$** | **59.9** | ** ** | **$** | **59.7** | ** ** |
| **0.67**                        | **%**      | **0.34**                       | **%**      | **0.17** | **%** | **-0.17** | **%** | **-0.34** | **%** | **-0.67** | **%** |
|                                 |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

Our investments inprivately held companies are assessed for impairment when a review of theinvestee’s operations indicates that a decline in value of the investment isother-than-temporary. Such indicators include, but are not limited to, limitedcapital resources, limited prospects of receiving additional financing, andprospects for liquidity of the related securities. Impaired investments inprivately held companies are written down to estimated fair value. We estimatefair value using a variety of valuation methodologies. Such methodologiesinclude comparing the private company with publicly traded companies in similarlines of business, applying revenue and price/earnings multiples to estimatedfuture operating results for the private company and estimating discounted cashflows for that company. We could lose our entire investment in these companies.At March 31, 2010 and December 31, 2009, our net investments inprivately-held companies totaled $0.5 million.

 

**Item 4. Controls and Procedures**

 

**Evaluation of disclosure controls and procedures.**

 

TheCompany’s management evaluated, with the participation of the Chief ExecutiveOfficer and Chief Financial Officer, the effectiveness of the Company’sdisclosure controls and procedures, as such term is defined under Rule 13a-15(f) ofthe Securities and Exchange Act of 1934, as of the end of the period covered bythis Quarterly Report on Form 10-Q. Based on this evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded our disclosurecontrols and procedures were effective as of March 31, 2010 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 Chief FinancialOfficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

**Changes in internal control overfinancial reporting.**

 

There were no changes inour internal control over financial reporting which were identified inconnection with the evaluation required by Rule 13a-15(e) of theExchange Act that occurred during the first quarter ended March 31, 2010that has materially affected, or is reasonably likely to materially affect,Advent’s internal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**Item 1.****  ****Legal Proceedings**

 

OnMarch 8, 2005, certain of the former shareholders of Kinexus and theshareholders’ representative filed suit against Advent in the Delaware ChanceryCourt. The complaint alleges that Advent breached the Agreement and Plan ofMerger dated as of December 31, 2001 pursuant to which Advent acquired allof the outstanding shares of Kinexus due principally to the fact that no amountwas paid by Advent on an earn-out of up to $115 million. The earn-out, whichwas payable in cash or stock at the election of Advent, was based upon Kinexusmeeting certain revenue targets in both 2002 and 2003. The complaint seeksunspecified compensatory damages, an accounting and restitution for unjustenrichment. Advent advised the shareholders’ representative in January 2003that the earn-out terms had not been met in 2002 and accordingly no earn-outwas payable for 2002 and would not be payable for 2003. There has been nofurther activity in this case since additional document discovery andinterrogatory answers were provided by the parties in December 2008. Advent disputes theplaintiffs’ claim and believes that it has meritorious defenses and intends tovigorously defend this action. Management believes that any potential lossassociated with this litigation is neither probable nor reasonably estimable atthis time and accordingly has not accrued any amounts for any potential loss.

 

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

 

**Item 1A. Risk Factors**

 

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

 

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

 

Total recurring revenues represented 88%, 86% and80% of total net revenues during the first quarter of 2010, fiscal 2009 and2008, respectively. We expect to continue to derive a significant portion ofour revenue from our clients’ renewal of term license, perpetual maintenanceand other recurring contracts and such renewals are critical to our futuresuccess. Some factors that may affect the renewal rate of our contractsinclude:

 

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

·                  The impact of customersconsolidating or going out of business;

·                  The price, performance andfunctionality of our solutions;

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

·                  The effectiveness of ourmaintenance and support services; and

·                  Our ability to developcomplementary products and services.

 

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

 

As a result of ourrelatively recent transition to term licensing, we only have limited experiencewith renewals of our term license contracts. During the third quarter of 2007,we commenced renewing term license contracts signed in the third quarter of2004.  These were the first three-yearterm license contracts to be renewed by Advent since our transition to a termpricing model began. Our customers have no obligation to renew their termlicense contracts and given the small number of contracts subject to renewalthat were renewed in the second half of 2007 through 2009, we cannot yetconclude whether customers will renew at a rate consistent with our perpetualmaintenance customers. Additionally, we cannot predict whether the renewalswill be less advantageous to us than the original term contract. For example,the renewal periods for our term license contracts are typically shorter thanour original term license contract and customers may request a reduction in thenumber of users or products licensed, resulting in a lower annual term licensefee.  Further, customers may elect to notrenew their term license contracts at all. We may incur significantly morecosts in securing our term license contract renewals than we incur for ourperpetual maintenance renewals. If our term license contract customers renewunder terms less favorable to us or choose not to renew their contracts, or ifit costs significantly more to secure a renewal for us, our operating resultsmay be harmed.

 

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

 

Thepurchase of our software products often requires prospective customers toprovide significant executive-level sponsorship and to make major systemsarchitecture decisions. As a result, we must generally engage in relativelylengthy sales and contracting efforts. Sales transactions may therefore bedelayed during the customer decision process because we must provide asignificant level of education to prospective customers regarding the use andbenefit of our products. Our business and prospects are subject touncertainties in the financial markets that can cause customers to remaincautious about capital and information technology expenditures, particularly asa result of the uncertain economic environment, or to decrease theirinformation technology budgets as an expense reduction measure. The sales cycleassociated with the purchase of our solutions is typically between two andtwelve months depending upon the size of the client, and is subject to a numberof significant risks over which we have little or no control, including broaderfinancial market volatility, adverse economic conditions, customers’ budgetingconstraints, internal selection procedures, and changes in customer personnel,among others. Ongoing volatility in the US and global financial markets hasfurther exacerbated this risk.

 

Asa result of a lengthy and unpredictable sales cycle, we have limited ability toforecast the timing and amount of specific perpetual license sales, or termlicense sales which we report quarterly as annual contract value (ACV). Thetiming of large individual license sales is especially difficult to forecast,and we may not be successful in closing large license transactions on a timelybasis or at all. Customers may postpone their purchases of our existingproducts or product enhancements in advance of the anticipated introduction ofnew products or product enhancements by us or our competitors. Accordingly, ourlevel of ACV bookings and perpetual license revenue in any particular period issubject to significant fluctuation. For example, during the first quarter of2010, our ACV bookings and perpetual license revenue decreased by 28% and 37%,respectively, compared to the fourth quarter of 2009.

 

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

 

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

 

During the first quarter of 2010, fiscal 2009 and2008, we recognized 88%, 86% and 80%, respectively, of total net revenues fromrecurring sources, which we define as revenues from term license, maintenanceon perpetual licenses, and other recurring revenue. We generally recognizerevenue from these sources ratably over the terms of these agreements, whichtypically range from one to three years. As a result, almost all of ourrevenues in any quarter are generated from contracts entered into duringprevious periods.

 

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

 

Further, because of the large percentage of revenuefrom recurring sources in our term license business model, our historicaloperating results on a generally accepted accounting principles (GAAP) basiswill not necessarily be the sole or most relevant factor in predicting ourfuture operating results. Accordingly, we report certain non-GAAP oroperational information, including our quarterly bookings metrics (expressed asACV) and maintenance renewal rates, that is intended to provide investors withcertain of the information that management uses as a basis for planning andforecasting of future periods. However, we believe that undue reliance shouldnot be placed upon non-GAAP or operating information because this informationis neither standardized across companies nor subjected to the same controlactivities and audit procedures that produce our GAAP financial results.

 

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

 

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

 

Themarket for investment management software systems has been and continues to benegatively affected by a number of factors, including reductions in capitalexpenditures by customers and volatile performance of major financial markets.The market downturn and fluctuations over the last 18 to 24 months, dissolutionand acquisitions of our clients and prospects, the decline in Assets UnderAdministration (AUA) or Assets Under Management (AUM) as a result ofsignificant declines in asset values of our clients and the accompanying marketuncertainty affects and will continue to affect both our ability to sell oursolutions and the amount of revenue we receive from such sales. The targetclients for our products include a range of financial services organizationsthat manage investment portfolios. The success of many of our clients isintrinsically linked to the health of the financial markets. The demand for oursolutions has been and continues to be disproportionately affected byfluctuations, disruptions, instability and downturns in the economy andfinancial services industry, which may cause clients and potential clients toexit the industry or delay, cancel or reduce any planned expenditures for investmentmanagement systems and software products. Since the fall of 2008, we haveexperienced some clients and prospects delaying or cancelling additionallicense purchases. In addition, some prospects and clients have gone out ofbusiness, undergone personnel reductions or turnover, or have been acquired,which we expect to continue should the financial markets face future hardship.

 

Inaddition, the failure of existing investment firms or the slowdown in theformation of new investment firms could cause a decline in demand for oursolutions. Consolidation of financial services firms and other clients willresult in reduced technology expenditures or acquired customers using theacquirer’s own proprietary software and services solutions or the solutions ofanother 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. Challenging economic conditions may also cause ourcustomers to experience difficulty with gaining timely access to sufficientcredit or our customers may become unable to pay for the products or servicesthey have purchased, which could result in their inability to fulfill or maketimely payments to us. If that were to occur, our ability to collectreceivables would be negatively affected, and our reserves for doubtfulaccounts and write-offs of accounts receivable may increase.

 

Wehave, in the past, experienced a number of market downturns in the financialservices industry and resulting declines in information technology spending,which has caused longer sales and contracting cycles, deferral or delay ofinformation technology projects and generally reduced expenditures for softwareand related services. The severity of the market downturn and volatility anduncertainty in the financial markets and the financial services sector in thelast several years makes it difficult for us to forecast operating results andmay result in a material adverse effect on our revenues and results ofoperations in the longer term.

 

**Our stock price may fluctuate significantly.**

 

Likemany other companies, our stock price has been subject to wide fluctuations inrecent quarters as a result of market volatility. If net revenues or earningsin any quarter or our financial guidance for future periods fail to meet theinvestment community’s expectations, our stock price is likely to decline. Evenif our revenues or earnings meet or exceed expectations, our stock price issubject to decline in periods of high market volatility because our stock priceis affected by trends in the financial services sector and by broader markettrends unrelated to our performance. Unfavorable or uncertain economic andmarket conditions, which can be caused by many factors, including 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; outbreaks of hostilities orother geopolitical instability; natural disasters or pandemics; or a combinationof these or other factors, have adversely affected, and may in the futureadversely affect, our business, profitability and stock price.

 

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

 

The market for investment management software iscompetitive and highly fragmented, is subject to rapid change and is sensitiveto new product introductions and marketing efforts by industry participants.Our largest single source of competition is from proprietary systems used byexisting and potential clients, many of whom develop their own software fortheir particular needs and therefore may be reluctant to license softwareproducts 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 services offeredand platforms supported. In recent years, many of our competitors havemerged with each other or with other larger third parties, and it is possiblethat even larger companies will emerge through additional acquisitions ofcompanies and technologies. Consolidation among our competitors may result instronger competitors in our markets and may therefore either result in a lossof market share or harm our results of operations. In addition, we also facecompetition from potential new entrants into our markets that may developinnovative technologies or business models. Furthermore, competitors mayrespond to weak market conditions by lowering prices, offering bettercontractual terms and attempting to lure away our customers and prospects tolower cost solutions. 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 mustcontinue to introduce new products and product enhancements.

 

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Themarket for our products is characterized by rapid technological change, changesin customer demands, evolving industry standards and new regulatoryrequirements. New products based on recent technologies or new industrystandards can render existing products obsolete and unmarketable. As a result,our future success will continue to depend upon our ability to develop newproducts or product enhancements that address the future needs of our targetmarkets and respond to their changing standards and practices. We continue torelease numerous products and product upgrades and we believe our futuresuccess depends on continuing such releases. Additionally, in October 2008,we acquired Tamale Software which enables us to offer a new product in thenascent research management field. However, it is too early to know whetherthese products will meet anticipated sales or will be broadly accepted in themarket, that a market will develop as expected for these new products or thatwe will continue to introduce more products.

 

Wemay not be successful in developing, introducing, marketing and licensing ournew products or product enhancements on a timely and cost effective basis, orat all, and our new products and product enhancements may not adequately meetthe requirements of the marketplace or achieve market acceptance. Delays in thecommencement of commercial shipments of new products or enhancements or delaysin client implementations or migrations may result in client dissatisfactionand delay or loss of product revenues. Additionally, existing clients may bereluctant to go through the process of migrating from our Axys product to ourAPX product, which may slow the migration of our customer base to APX. Inaddition, 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,database vendors and development tool vendors. If the products of such vendorshave design defects or flaws, are unexpectedly delayed in their introduction,are unavailable on acceptable terms, or the vendors exit the business, ourbusiness could be seriously harmed.

 

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

 

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

 

**Our operating results may fluctuate significantly.**

 

Revenuesfrom recurring sources have grown from 80% in 2008, to 86% in 2009 to 88% inthe first quarter of 2010. During the first quarter of 2010, term licenserevenues comprised approximately 42% of term license, maintenance and otherrecurring revenues as compared to approximately 44% and 35% in fiscal 2009 and2008, respectively. Term license contracts are comprised of both softwarelicenses and maintenance services. Individual perpetual software licenses varysignificantly in value, and the value and timing of these transactions cantherefore cause our quarterly perpetual license revenues to fluctuate. As wecontinue to sign term license agreements for new customers, grow oursubscription, data management and outsourced services revenues, and ourcustomers renew their perpetual maintenance, we expect our revenue fromrecurring sources to continue to represent over 85% of our total net revenues.

 

Whena customer purchases a term license together with implementation services, wedo not recognize any revenue under the contract until the implementationservices are substantially completed and then we recognize revenue ratably overthe remaining length of the contract. If the implementation services are stillin progress as of quarter-end, we will defer all of the contract revenues to asubsequent quarter. Atthe point professional services are substantially completed, we recognize apro-rata amount of the term license revenue, professional services fees earnedand related expenses, based on the elapsed time from the start of the termlicense to the substantial completion of professional services. During 2009,the revenue recognized from completed implementations exceeded the revenuedeferred from projects being implemented, resulting in a net recognition ofrevenue of $6.1 million for fiscal 2009, composed of $3.5 million of termlicense revenue and $2.6 million of professional services revenue. In futureperiods, our revenues related to completed implementations may be lower dependingon the number of projects that reach substantial completion during the quarter.Term license revenuefor the remaining contract years and the remaining deferred professionalservices revenue and related expenses are recognized ratably over the remainingcontract length. The term license component of the deferred revenuebalance will increase or decrease in the future depending on the amount of newterm license bookings relative to the number of implementations that reachsubstantial completion in a particular quarter. Although our substantialrevenue from recurring sources under our term license model provides us withlonger term stability and more visibility in the short term, our quarterly netrevenues and operating results may still fluctuate significantly depending onthese and other factors. Our expense levels are relatively fixed in theshort-term. Due to the fixed nature of these expenses, combined with therelatively high gross margin historically achieved on our products, anunanticipated decline in net revenues in any particular quarter may adverselyaffect our operating results.

 

Inaddition, we experience seasonality in our licensing. We believe that thisseasonality results primarily from customer budgeting cycles and expect thisseasonality to continue in the future. The fourth quarter of the year typically has more licensingactivity.  That can result in termlicense bookings and perpetual license fee revenue being the highest in thefourth quarter, followed by

 

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lowerterm license bookings and perpetual license revenue in the first quarter of thefollowing year. This seasonality has been, and may be in the future, adverselyaffected by market downturns we experienced and uncertain economicconditions.  Also, term licenses enteredinto during a quarter may not result in recognition of associated revenue untillater quarters, as we begin recognizing revenue for such licenses when therelated implementation services are substantially complete. In addition, we mayincur commission and bonus expenses in the period in which we enter into alicense, but not recognize the associated revenue until later periods.

 

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

 

**If our relationship with Financial Times/Interactive Data isterminated, our business may be harmed.**

 

Manyof our clients use our proprietary interface to electronically retrieve pricingand other data from Financial Times/Interactive Data (“FTID”). FTID pays us acommission based on their revenues from providing this data to our clients. Oursoftware products have been customized to be compatible with their system andour software would need to be redesigned to operate with additional alternativedata vendors if FTID’s services were unavailable for any reason. Non-renewal ofour current agreement with FTID would require at least two years’ prior noticeby either us or them and the agreement may be terminated upon 90 days advancenotice for an uncured material breach of the other party. While we havecontracts with other data vendors for substantially similar financial data withwhich our products can be used, if our relationship with FTID was terminated ortheir services were unavailable to clients for any reason, we cannot be certainthat we could enter into contracts with additional alternative data providers,or that these other relationships would provide similar commission rates to usor if the amount of data used by our clients would remain the same, and ouroperating results could suffer or our resources could be constrained from thecosts of redesigning our software.

 

**If our large subscription-based clients or if our revenue sharingrelationships are terminated, our business may be harmed.**

 

In recent years, Advent has entered intocontracts relating to our subscription, data management revenue streams andoutsourced services with contract values that are substantially larger than wehave customarily entered into in the past, including our agreement withTIAA-CREF.  It is too early to know whether we will be able to continue tosign large recurring revenue contracts of this nature or if such clients willrenew their contracts at similar rates, if at all. Some of these agreements aresubject to milestones, acceptance and penalties and there is no assurance thatthese agreements will be fully implemented. In addition, we have revenue sharing agreements with other companiesthat provide revenue to Advent for our clients’ use of those companies’services and products. Our operating results could be adversely impacted ifthese agreements are not fully implemented, terminated or not renewed, or if weare unable to continue to generate similar opportunities and enter similar orlarger sized contracts in the future.

 

**Our outsourcing and data integration services are subject to risks thatmay harm our business.**

 

Our clients rely on our outsourcing anddata services to meet their operational needs, including account aggregationand reconciliation.  Because our servicesare complex, we utilize third party data and other vendors, and our clients useour services in a variety of ways, our services may have undetected errors ordefects, service disruptions, delays, or incomplete or incorrect data thatcould result in unanticipated downtime for our customers, failure to meetservice levels and service disruptions. In addition, our security measures could be breached or unauthorizedaccess to our information or our customers’ information could occur.  Such potential errors, defects, delays,disruptions or other performance problems may damage our clients’ business,harm our reputation, result in losing future sales, cause clients to withholdpayment or terminate or not renew their agreements with us, and subject us tolitigation and other possible liabilities.

 

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

 

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 supportour implementations; we must hire client services personnel to providetechnical support to our growing installed base of customers; and we mustattract and retain financial and accounting personnel to comply with our publiccompany reporting requirements. We need to identify, attract, motivate andretain such employees with the requisite education, backgrounds andindustry experience.  However, experienced high quality personnel in theinformation technology industry continue to be in high demand and competitionfor their talents remains intense, especially in the San Francisco Bay Areawhere the majority of our employees are located.

 

We have relied on our ability to grantequity compensation as one mechanism for recruiting and retaining such highlyskilled personnel. In making employment decisions, particularly in thehigh-technology industries and San Francisco Bay Area, job candidates oftenconsider the value of the equity awards they are to receive in connection withtheir employment and market downturns may result

 

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in our incentives becoming less valuable.Additionally, accounting regulations requiring the expensing of equitycompensation impair our ability to provide these incentives without reportingsignificant compensation 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, or could result in our stock price falling; or may not bevalued as highly by our employees which may create retention issues.

 

**We face challenges in expanding our international operations in whichwe may have limited experience and resources.**

 

Wemarket and sell our products in the United States and, to a growing extent,internationally. From 2001 through 2005, we acquired the subsidiaries of ourindependent distributor. In addition, we have begun to expand our sales inrelatively new jurisdictions for Advent, such as the Middle East, EasternEurope, and Asia. In 2006, we opened a branch office of Advent Europe Ltd. inthe United Arab Emirates, and we established Advent Software (Asia) Ltd. asubsidiary of Advent Software, Inc. in Hong Kong in 2008.  In addition, in the third quarter of 2009, weestablished a subsidiary of Advent Software (Asia), Ltd. in Beijing, China.More recently in March 2010,our wholly-owned Norwegian subsidiary, Advent Norway AS, acquired the entireshare capital of Goya AS, a Norwegian software company that provides transferagency-related solutions to mutual fund managers and mutual fund distributors.

 

Wecannot be certain that establishing businesses in other countries will producethe desired levels of revenues, such as in the case of our former Greeksubsidiary, Advent Hellas, which produced less than satisfactory revenues andprofitability before its sale by Advent in 2005. Also, the recent worldwidevolatility in financial markets may disrupt our sales efforts in overseasmarkets. We currently have limited experience in developing localized versionsof our products and marketing and distributing our products internationally. Inother instances, we may rely on the efforts and abilities of foreign businesspartners in such markets. For example, we outsourced certain engineering activitiesto a business partner located in China. Now, Advent has transitioned thosecontract developers to become employees of Advent as part of our recentlyopened Beijing office. In addition, international operations are subject toother inherent risks, including:

 

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

·                  Adverse changesin foreign currency exchange rates;

·                  Greaterdifficulty in accounts receivable collection and longer collection periods;

·                  Difficulty ofenforcement of contractual provisions in local jurisdictions;

·                  Unexpectedchanges in foreign laws and regulatory requirements;

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

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

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

·                  Difficulties inand costs of staffing and managing foreign operations;

·                  Reducedprotection for intellectual property rights in some countries;

·                  Foreign taxstructures and potentially adverse tax consequences; and

·                  Political andeconomic instability.

 

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

 

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

 

Periodicallywe seek to grow through the acquisition of additional complementary businesses.In October 2008, we completed the acquisition of Tamale Software, Inc.,which provides research management software. In December 2006, we acquiredEast Circle Solutions, Inc., a developer of investment management billingsolutions to integrate their product into our software offerings. More recentlyin March 2010,our wholly-owned Norwegian subsidiary, Advent Norway AS, acquired the entireshare capital of Goya AS, a Norwegian software company that provides transferagency-related solutions to mutual fund managers and mutual fund distributors.

 

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Theprocess of integrating our acquisitions has required and will continue torequire significant resources, particularly in light of our relativeinexperience in integrating acquisitions, potential regulatory requirements andoperational demands. In particular, our Tamale acquisition reflects our entryinto the research management software market, where we have no priorexperience. Integrating these acquisitions in the past has been time-consuming,expensive and disruptive to our business. This integration process has strainedour managerial resources, resulting in the diversion of these resources fromour core business objectives and may do so in the future. Failure to achievethe anticipated benefits of these acquisitions or to successfully integrate theoperations of these entities has harmed and could potentially harm ourbusiness, results of operations and cash flows in future periods. Theassumptions we made in determining the value of, and relative risks, of theseacquisitions could be erroneous. For example, in the first quarter of 2003, weclosed our Australian subsidiary because it failed to perform at a satisfactoryprofit level and similarly in the fourth quarter of 2005, we disposed of ourAdvent Hellas subsidiary because of less than satisfactory profitability. Inaddition, as we have expanded into new business areas and built new offeringsthrough strategic alliances and internal development, as well as acquisitions,some of this expansion has required significant management time and resourceswithout generating required revenues. We have had difficulty and may continueto have difficulty creating demand for such offerings. Furthermore, we may faceother unanticipated costs from our acquisitions, such as disputes involvingearn-out and incentive compensation amounts.

 

Wemay make additional acquisitions of complementary companies, products ortechnologies in the future. In addition, we periodically evaluate theperformance of all our products and services and may sell or discontinuecurrent products, product lines or services, particularly as we focus on waysto streamline our operations. For example, in October 2009, we divestedour MicroEdge subsidiary. Failure to achieve the anticipated benefits of anyacquisition or divestiture could harm our business, results of operations andcash flows. Furthermore, we may have to incur debt, write-off investments,infrastructure costs or other assets, incur severance liabilities, write-offimpaired goodwill or other intangible assets or issue equity securities to payfor any future acquisitions. Financing may not be available to us onsufficiently advantageous terms, or at all, and we have let our Credit Facilitywith Wells Fargo Foothill lapse. The issuance of equity securities could diluteour existing stockholders’ ownership. Finally, we may not identify suitablebusinesses to acquire or negotiate acceptable terms for future acquisitions.

 

**Ourinvestment portfolio may become impaired by deterioration of the capitalmarkets.**

 

Ourcash equivalent, short-term and long-term investment portfolio as of March 31,2010 consisted of US government and commercial debt securities. We follow anestablished investment policy and set of guidelines to monitor and helpmitigate our exposure to interest rate and credit risk. The policy sets forthcredit quality standards and limits our exposure to any one issuer, as well asour maximum exposure to various asset classes.

 

Asa result of adverse financial market conditions, investments in some financialinstruments may pose risks arising from recent market liquidity and creditconcerns. As of March 31, 2010, we had no impairment charges associatedwith our short-term or long-term investment portfolio relating to such adversefinancial market conditions. Although we believe our current investmentportfolio has very little risk of material impairment, we cannot predict futuremarket conditions or market liquidity and can provide no assurance that ourinvestment portfolio will remain materially unimpaired. In addition, thedecrease in interest rates has materially decreased the interest income wereceive on our investments.

 

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

 

Oursuccess depends significantly upon our proprietary technology. We currentlyrely on a combination of copyright, trademark, patent and trade secret law, aswell as confidentiality procedures and contractual provisions to protect ourproprietary rights. We have registered trademarks and copyrights for many ofour products and services and will continue to evaluate the registration ofadditional trademarks and copyrights as appropriate. We generally enter intoconfidentiality agreements with our employees, customers, resellers, vendorsand others. We seek to protect our software, documentation and other writtenmaterials under trade secret and copyright laws. We also have three issued patents.Despite our efforts, existing intellectual property laws may afford onlylimited protection. It may be possible for unauthorized third parties to copycertain portions of our products or to reverse engineer or otherwise obtain anduse our proprietary information. In addition, we cannot be certain that otherswill not develop or acquire substantially equivalent or superseding proprietarytechnology, equivalent or better products will not be marketed in competitionwith our products, or others may not design around any patent that we have orthat may be issued to us or other intellectual property rights of ours, therebysubstantially reducing the value of our proprietary rights. We cannot be surethat we will develop proprietary products or technologies that are patentable,that any patent, if issued, would provide us with any competitive advantages orwould not be challenged by third parties, or that the patents of others willnot adversely affect our ability to do business. Despite our efforts to protectour proprietary rights, unauthorized parties may attempt to copy aspects of ourproducts or to obtain and use information that we regard as proprietary. Inaddition, the laws of some foreign countries do not protect proprietary rightsto as great an extent as do the laws of the United States and so our expansioninto international markets may expose our proprietary rights to increasedrisks. Litigation may be necessary to protect our proprietary technology whichmay be time-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.

 

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

 

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

 

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

 

Weare a highly automated business and rely on our network infrastructure andenterprise applications, internal technology systems and our website for ourdevelopment, marketing, operational, support, and sales activities. Adisruption or failure of these systems in the event of major earthquake, fire,telecommunications failure, cyber-attack, terrorist attack, or othercatastrophic event could cause system interruptions, reputational harm, delaysin our product development and loss of critical data and could affect ourability to sell and deliver products and services and other critical functionsof our business. Our corporate headquarters, a significant portion of ourresearch and development activities, our data centers, and certain othercritical business operations are located in the San Francisco Bay Area, whichis a region of seismic activity. We have developed certain disaster recoveryplans and certain backup systems to reduce the potentially adverse effect ofsuch events, but a catastrophic event that results in the destruction ordisruption of any of our data centers or our critical business or informationtechnology systems could severely affect our ability to conduct normal businessoperations and, as a result, our future operating results could be adverselyaffected. Further, such disruptions could cause further instability in thefinancial markets or the spending of our clients and prospects upon which wedepend. Although we are in the process of creating an enterprise riskmanagement program to attempt to manage some of these risks, it is notcurrently implemented and, when implemented, may not adequately protect us.

 

Inaddition to the recent severe market conditions, other catastrophic events suchas abrupt political change, terrorist acts, conflicts or wars may cause damageor disruption to the economy, financial markets and our customers. Thepotential for future attacks, the national and international responses toattacks or perceived threats to national security and other actual or potentialconflicts or wars have created many economic and political uncertainties.Although it is impossible to predict the occurrences or consequences of anysuch events, they could unsettle the financial markets or result in a declinein information technology spending, which could have a material adverse effecton our revenues.

 

**Undetectederrors or failures found in new products and services may result in loss of ordelay in market acceptance of our products and services that could seriouslyharm our business.**

 

Ourproducts and services may contain undetected errors or scalability limitationsat any point in their lives, but particularly when first introduced or as newversions are released. Despite testing by us and by current and potentialcustomers, errors may not be found in new products and services until aftercommencement of commercial shipments or use, resulting in a loss of or a delayin market acceptance, damage to our reputation, customer dissatisfaction andreductions 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, particularly as we expand into new international markets.

 

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

 

Our Chief ExecutiveOfficer and the Chairman of our board of directors own or control, indirectlyor directly, a substantial number of shares of our common stock (approximately39% as of April 9, 2010). As a result, if these parties were to acttogether, they will have the ability to exert significant influence on matterssubmitted to our stockholders for approval, such as the election or removal ofdirectors, amendments to our certificate of incorporation or the approval of abusiness combination. These actions may be taken even if they are opposed byother stockholders or it may be difficult to approve these actions withouttheir consent. This concentration of ownership may also have the effect ofdelaying or preventing a change of control of our company or discouragingothers from making tender offers for our shares, which could prevent ourstockholders from receiving a premium for their shares.

 

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

 

The Sarbanes-Oxley Act (“theAct”) of 2002 required changes in some of our corporate governance andsecurities disclosure and/or compliance practices. As part of the Act’srequirements, the SEC has enacted new rules on a variety of subjects, andthe Nasdaq

 

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Stock Market has enactednew corporate governance listing requirements. These developments haveincreased and may in the future increase our accounting and legal compliancecosts and could also expose us to additional liability if we fail to complywith these new rules and reporting requirements. In fiscal 2009, 2008 and2007, we incurred approximately $0.5 million, $0.8 million and $0.9 million,respectively, in Sarbanes-Oxley related expenses consisting of externalconsulting costs and auditor fees. In addition, such developments may makeretention and recruitment of qualified persons to serve on our board ofdirectors, or as executive officers, more difficult. We continue to evaluateand monitor regulatory and legislative developments and cannot reliablyestimate the timing or magnitude of all costs we may incur as a result of theAct or other related legislation or regulation.

 

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

 

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

 

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

 

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

 

·                  Software revenuerecognition;

·                  Accounting for stock-basedcompensation;

·                  Accounting for income taxes;and

·                  Accounting for businesscombinations and related goodwill.

 

**Changesin, or interpretations of, tax rules and regulations may adversely affectour effective tax rates.**

 

Weare a US based multinational company subject to tax in multiple US and foreigntax jurisdictions. Unanticipated changes in our tax rates could affect ourfuture results of operations. Our future effective tax rates could be unfavorablyaffected by changes in, or interpretation of, tax rules and regulations inthe jurisdictions in which we do business, by unanticipated decreases in theamount of revenue or earnings in countries with low statutory tax rates, bylapses of the availability of the US research and development tax credit, or bychanges in the valuation of our deferred tax assets and liabilities.

 

Inaddition, we could be subject to examination of our income tax returns by theIRS and other domestic and foreign tax authorities. These examinations would beexpected to focus on areas where considerable judgment is exercised by thecompany. We regularly assess the likelihood of outcomes resulting from anexamination to determine the adequacy of our provision for income taxes andhave reserved for potential adjustments that may result from an examination. Webelieve such estimates to be reasonable; however, there can be no assurancethat the final determination of any of these examinations will not have anadverse effect on our operating results and financial position.

 

**Security risks may harm our business.**

 

Maintainingthe security of computers, computer networks, hosted solutions and thetransmission of confidential information over public networks is essential tocommerce and communications, particularly in the market in which Adventoperates. Efforts of others to seek unauthorized access to Advent’s or itsclients’ information, computers and networks or introduce viruses, worms andother malicious software programs that disable or impair computers into oursystems or those of our customers or other third parties, could disrupt or makeour systems and services inaccessible or allow access to proprietaryinformation and data of Advent or its clients. Advances in computer capabilities, new discoveries in the field ofcryptography or other events or developments, could also result in compromisesor breaches of our security systems. Our security measures may be inadequate toprevent security breaches, exposing us to a risk of data loss, financial loss,harm to reputation, business interruption, litigation and other possibleliabilities, as well as possibly

 

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requiringus to expend significant capital and other resources to protect against thethreat of security breaches or to alleviate problems caused by such breaches.

 

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

 

Someof our clients utilized trading commissions (“soft dollar arrangements”) to payfor software products and services. During each of fiscal 2009, 2008 and 2007,the total value of Advent products and services paid with soft dollars wasapproximately 4% of our total billings. Such soft dollar arrangements could beimpacted by changes in the regulations governing those arrangements.

 

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

 

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

 

Effective internalcontrol is necessary for us to provide reliable financial reports. If we cannotprovide reliable financial reports, our business and operating results could beharmed. We have in the past discovered, and may in the future discover, areasof our internal control that need improvement including control deficienciesthat may constitute material weaknesses.

 

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

 

Any failure to implement or maintain improvements inour internal control over financial reporting, or difficulties encountered inthe implementation of these improvements in our controls, could causesignificant deficiencies or material weaknesses in our internal controls andconsequently cause us to fail to meet our reporting obligations. Any failure toimplement or maintain required new or improved internal controls could alsocause investors to lose confidence in our reported financial information, whichcould have a negative impact on the trading price of our stock. In addition,during 2009, we moved certain compliance functions from external providers tointernal resources, and we cannot be certain that these changes will be aseffective or will control costs as anticipated.

 

**Item 2.****  ****Unregistered Sales of EquitySecurities and Use of Proceeds**

 

**Issuer Purchases of Equity Securities**

 

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

 

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On October 30, 2008,Advent’s Board authorized the repurchase of up to 3.0 million shares of theCompany’s outstanding common stock. During the first quarter of 2010, theCompany repurchased 0.2 million shares of its common stock under the stockrepurchase program approved by the Board in October 2008 for an averageprice per share of $42.41. At March 31, 2010, there remained approximately0.7 million shares authorized by the Board for repurchase. The following tableprovides a month-to-month summary of the repurchase activity under the stockrepurchase program approved by the Board in October 2008 during the threemonths ended March 31, 2010:

 
| ** **         | ** ** | ** **                | ** ** | ** **    | ** ** | **Maximum**                   | ** ** |
|--------------------|------------|---------------------------|------------|---------------|------------|-------------------------------|------------|
| ** **         | ** ** | **Total**                 | ** ** | **Average**   | ** ** | **Number of Shares That**     | ** ** |
| ** **         | ** ** | **Number**                | ** ** | **Price**     | ** ** | **May Yet Be Purchased** | ** ** |
| ** **         | ** ** | **of Shares**             | ** ** | **Paid**      | ** ** | **Under Our Share**           | ** ** |
| ** **         | ** ** | **Purchased**             | ** ** | **Per Share** | ** ** | **Repurchase Programs**       | ** ** |
| ** **         | ** ** | **(shares in thousands)** | ** ** |
| ** **         | ** ** | ** **                | ** ** | ** **    | ** ** | ** **                    | ** ** |
| January 2010  |       | —                    |       | $             | —     |                          | 979        |   |
| February 2010 |       | 79                        |       | $             | 39.83      |                          | 900        |   |
| March 2010    |       | 170                       |       | $             | 43.61      |                          | 730        |   |
|               |       |                      |       |          |       |                          |       |
| Total              |       | 249                       |       | $             | 42.41      |                          | 730        |   |

 

Inaddition to the repurchases disclosed above, we withheld shares through netshare settlements during the three months ended March 31, 2010. Thefollowing table provides a month-to-month summary of the purchase activity uponthe employee vesting of restricted stock units and the exercise ofstock-settled stock appreciation rights under our equity compensation plan tosatisfy tax withholding obligations during the three months ended March 31,2010 (in thousands, except per share data):

** **
| ** ** | ** ** | **Total**         | ** ** | ** **    | ** ** | **Maximum Number**     | ** ** |
|------------|------------|-------------------|------------|---------------|------------|------------------------|------------|
| ** ** | ** ** | **Number**        | ** ** | **Average**   | ** ** | **of Shares that May** | ** ** |
| ** ** | ** ** | **of Shares**     | ** ** | **Price Per** | ** ** | **Yet Be Purchased**   | ** ** |
| **Month**  | ** ** | **Purchased (1)** | ** ** | **Share**     | ** ** | **Under the Plan**     | ** ** |
|       |       |              |       |          |       |                   |       |
| January    |       | 3                 |       | $             | 41.52      |                   | —     |   |
| February   |       | 1                 |       | $             | 38.84      |                   | —     |   |
| March      |       | 8                 |       | $             | 44.52      |                   | —     |   |
|       |       |              |       |          |       |                   |       |
| Total      |       | 12                |       | $             | 43.23      |                   | —     |   |

 

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

 

**Item 3.****  ****Defaults Upon Senior Securities**

 

None.

 

**Item 5.****  ****Other Information**

 

None.

 

**Item 6.****  ****Exhibits**

 

31.1               Certification of Chief Executive Officerunder Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2               Certification of Chief Financial Officerunder Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1               Certification of Chief Executive Officerunder Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2               Certification of Chief Financial Officerunder Section 906 of the Sarbanes-Oxley Act of 2002

 

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Table ofContents

 

**SIGNATURES**

 

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

 

 
|                     | ADVENT  SOFTWARE, INC. |
|--------------------------|------------------------|
|                     |                   |
|                     |                   |
| Dated: May 10, 2010 | By:                    | /s/  James S. Cox |
|                     |                   | James  S. Cox*Senior Vice President and**Chief Financial Officer**(Principal Financial and Accounting  Officer)* |

 

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