Table ofContents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **x** | ** ** | **Quarterly report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934 for the  quarterly period ended September 30, 2010** |
|-------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**or**

 

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

 

**Commission file number:  0-26994**

 

**ADVENTSOFTWARE, INC.**

(Exact name of registrant as specified in its charter)

 

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

 

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

(Address of principal executive offices and zip code)

 

**(415) 543-7696**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

Yes x  No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes  o No x

 

Thenumber of shares of the registrant’s Common Stock outstanding as of October 31,2010 was 25,770,218.

 

 

 

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**INDEX**

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

 

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**PART I.FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**ADVENT SOFTWARE, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                       | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **2010**              | ** ** | **2009**             | ** ** |
| **ASSETS**                                       |       |                  |       |                 |       |
| Current assets:                                  |       |                  |       |                 |       |
| Cash and cash equivalents                        |       | $                     | 51,910     |                 | $          | 57,877 |   |
| Short-term marketable securities                 |       | 70,126                |       | 31,273               |       |
| Accounts receivable, net                         |       | 44,735                |       | 44,246               |       |
| Deferred taxes, current                          |       | 15,145                |       | 15,081               |       |
| Prepaid expenses and other                       |       | 17,799                |       | 22,350               |       |
| Current assets of discontinued operation         |       | —                |       | 494                  |       |
| Total current assets                             |       | 199,715               |       | 171,321              |       |
| Property and equipment, net                      |       | 41,534                |       | 33,945               |       |
| Goodwill                                         |       | 146,460               |       | 144,827              |       |
| Other intangibles, net                           |       | 21,007                |       | 22,965               |       |
| Long-term marketable securities                  |       | —                |       | 28,495               |       |
| Deferred taxes, long-term                        |       | 40,500                |       | 40,502               |       |
| Other assets                                     |       | 9,719                 |       | 10,142               |       |
| Noncurrent assets of discontinued operation      |       | 2,095                 |       | 2,095                |       |
|                                             |       |                  |       |                 |       |
| Total assets                                     |       | $                     | 461,030    |                 | $          | 454,292 |   |
|                                             |       |                  |       |                 |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**   |       |                  |       |                 |       |
| Current liabilities:                             |       |                  |       |                 |       |
| Accounts payable                                 |       | $                     | 9,087      |                 | $          | 4,708 |   |
| Accrued liabilities                              |       | 28,526                |       | 31,066               |       |
| Deferred revenues                                |       | 135,661               |       | 140,186              |       |
| Income taxes payable                             |       | 9,190                 |       | 1,616                |       |
| Current liabilities of discontinued operation    |       | 162                   |       | 719                  |       |
| Total current liabilities                        |       | 182,626               |       | 178,295              |       |
| Deferred revenue, long-term                      |       | 5,968                 |       | 5,879                |       |
| Other long-term liabilities                      |       | 14,073                |       | 12,969               |       |
| Noncurrent liabilities of discontinued operation |       | 5,200                 |       | 5,115                |       |
|                                             |       |                  |       |                 |       |
| Total liabilities                                |       | 207,867               |       | 202,258              |       |
|                                             |       |                  |       |                 |       |
| Commitments and contingencies (See Note 12)      |       |                  |       |                 |       |
|                                             |       |                  |       |                 |       |
| Stockholders’ equity:                       |       |                  |       |                 |       |
| Common stock                                     |       | 257                   |       | 259                  |       |
| Additional paid-in capital                       |       | 399,415               |       | 386,623              |       |
| Accumulated deficit                              |       | (156,067              | )          | (145,584             | )          |
| Accumulated other comprehensive income           |       | 9,558                 |       | 10,736               |       |
| Total stockholders’ equity                  |       | 253,163               |       | 252,034              |       |
|                                             |       |                  |       |                 |       |
| Total liabilities and stockholders’ equity  |       | $                     | 461,030    |                 | $          | 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 September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2010**                                                | ** ** | **2009**                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                                                                              | ** ** | ** **                                              | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net revenues:**                                                                                                       |       |                                                    |       |                                                   |       |   |   |   |   |
| Term license, maintenance and other recurring                                                                           |       | $                                                       | 61,971     |                                                   | $          | 55,346 |   | $ | 181,055 |   | $ | 166,416 |   |
| Perpetual license fees                                                                                                  |       | 2,755                                                   |       | 2,370                                                  |       | 7,796 |   | 7,633 |   |
| Professional services and other                                                                                         |       | 7,261                                                   |       | 6,066                                                  |       | 19,096 |   | 19,126 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Total net revenues                                                                                                      |       | 71,987                                                  |       | 63,782                                                 |       | 207,947 |   | 193,175 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| **Cost of revenues:**                                                                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Term license, maintenance and other recurring                                                                           |       | 12,709                                                  |       | 11,920                                                 |       | 37,866 |   | 34,729 |   |
| Perpetual license fees                                                                                                  |       | 61                                                      |       | 65                                                     |       | 199 |   | 255 |   |
| Professional services and other                                                                                         |       | 8,730                                                   |       | 7,628                                                  |       | 21,623 |   | 23,190 |   |
| Amortization of developed technology                                                                                    |       | 1,672                                                   |       | 1,416                                                  |       | 4,871 |   | 4,145 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Total cost of revenues                                                                                                  |       | 23,172                                                  |       | 21,029                                                 |       | 64,559 |   | 62,319 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Gross margin                                                                                                            |       | 48,815                                                  |       | 42,753                                                 |       | 143,388 |   | 130,856 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| **Operating expenses:**                                                                                                 |       |                                                    |       |                                                   |       |   |   |   |   |
| Sales and marketing                                                                                                     |       | 16,763                                                  |       | 15,627                                                 |       | 50,671 |   | 46,538 |   |
| Product development                                                                                                     |       | 13,069                                                  |       | 12,179                                                 |       | 38,237 |   | 35,528 |   |
| General and administrative                                                                                              |       | 8,893                                                   |       | 8,636                                                  |       | 28,316 |   | 25,932 |   |
| Amortization of other intangibles                                                                                       |       | 331                                                     |       | 438                                                    |       | 977 |   | 1,315 |   |
| Restructuring charges                                                                                                   |       | 26                                                      |       | 36                                                     |       | 610 |   | 92 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Total operating expenses                                                                                                |       | 39,082                                                  |       | 36,916                                                 |       | 118,811 |   | 109,405 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Income from continuing operations                                                                                       |       | 9,733                                                   |       | 5,837                                                  |       | 24,577 |   | 21,451 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Interest and other income (expense), net                                                                                |       | 163                                                     |       | (194                                                   | )          | (772 | ) | 1,585 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Income from continuing operations before income  taxes                                                                  |       | 9,896                                                   |       | 5,643                                                  |       | 23,805 |   | 23,036 |   |
| Provision for income taxes                                                                                              |       | 3,915                                                   |       | 1,741                                                  |       | 8,734 |   | 6,612 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income from continuing operations                                                                                   |       | $                                                       | 5,981      |                                                   | $          | 3,902 |   | $ | 15,071 |   | $ | 16,424 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| **Discontinued operation:**                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income (loss) from discontinued operation (net  of applicable taxes of $(19), $223, $(69) and $1,409, respectively) |       | (23                                                     | )          | 770                                                    |       | (98 | ) | 2,499 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income                                                                                                              |       | $                                                       | 5,958      |                                                   | $          | 4,672 |   | $ | 14,973 |   | $ | 18,923 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Basic net income (loss) per share:                                                                                      |       |                                                    |       |                                                   |       |   |   |   |   |
| Continuing operations                                                                                                   |       | $                                                       | 0.23       |                                                   | $          | 0.15 |   | $ | 0.59 |   | $ | 0.65 |   |
| Discontinued operation                                                                                                  |       | (0.00                                                   | )          | 0.03                                                   |       | (0.00 | ) | 0.10 |   |
| Total operations                                                                                                        |       | $                                                       | 0.23       |                                                   | $          | 0.18 |   | $ | 0.58 |   | $ | 0.75 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Diluted net income (loss) per share:                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Continuing operations                                                                                                   |       | $                                                       | 0.22       |                                                   | $          | 0.15 |   | $ | 0.56 |   | $ | 0.63 |   |
| Discontinued operation                                                                                                  |       | (0.00                                                   | )          | 0.03                                                   |       | (0.00 | ) | 0.10 |   |
| Total operations                                                                                                        |       | $                                                       | 0.22       |                                                   | $          | 0.18 |   | $ | 0.55 |   | $ | 0.72 |   |
|                                                                                                                    |       |                                                    |       |                                                   |       |   |   |   |   |
| Weighted average shares used to compute net income  per share:                                                          |       |                                                    |       |                                                   |       |   |   |   |   |
| Basic                                                                                                                   |       | 25,634                                                  |       | 25,527                                                 |       | 25,735 |   | 25,352 |   |
| Diluted                                                                                                                 |       | 27,116                                                  |       | 26,630                                                 |       | 27,139 |   | 26,244 |   |

 

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

 

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**ADVENTSOFTWARE, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                                    | ** ** | **Nine Months Ended September 30** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **2010**                                               | ** ** | **2009** | ** ** |
| **Cash flows from operating  activities:**                                                                    |       |                                                   |       |   |   |
| Net income                                                                                                    |       | $                                                      | 14,973     |   | $ | 18,923 |   |
| Adjustment to net income for discontinued  operation                                                          |       | 98                                                     |       | (2,499 | ) |
| Net income from continuing operations                                                                         |       | 15,071                                                 |       | 16,424 |   |
|                                                                                                          |       |                                                   |       |   |   |
| Adjustments to reconcile net income to net cash  provided by operating activities from continuing operations: |       |                                                   |       |   |   |
| Stock-based compensation                                                                                      |       | 13,638                                                 |       | 13,975 |   |
| Depreciation and amortization                                                                                 |       | 13,289                                                 |       | 12,432 |   |
| Loss on dispositions of fixed assets                                                                          |       | 22                                                     |       | 9 |   |
| Provision for doubtful accounts                                                                               |       | 148                                                    |       | 268 |   |
| Provision for (reduction of) sales returns                                                                    |       | (813                                                   | )          | 454 |   |
| Gain on investment                                                                                            |       | —                                                 |       | (2,056 | ) |
| Deferred income taxes                                                                                         |       | (56                                                    | )          | (1 | ) |
| Other                                                                                                         |       | 353                                                    |       | 116 |   |
| Effect of statement of operations adjustments                                                                 |       | 26,581                                                 |       | 25,197 |   |
| Changes in operating assets and liabilities:                                                                  |       |                                                   |       |   |   |
| Accounts receivable                                                                                           |       | (354                                                   | )          | 7,717 |   |
| Prepaid and other assets                                                                                      |       | 4,770                                                  |       | 5,688 |   |
| Accounts payable                                                                                              |       | 4,347                                                  |       | 483 |   |
| Accrued liabilities                                                                                           |       | (2,214                                                 | )          | (93 | ) |
| Deferred revenues                                                                                             |       | (3,889                                                 | )          | (9,089 | ) |
| Income taxes payable                                                                                          |       | 7,548                                                  |       | 5,250 |   |
| Effect of changes in operating assets and  liabilities                                                        |       | 10,208                                                 |       | 9,956 |   |
|                                                                                                          |       |                                                   |       |   |   |
| Net cash provided by operating activities from  continuing operations                                         | ** ** | **51,860**                                             | ** ** | **51,577** | ** ** |
|                                                                                                          |       |                                                   |       |   |   |
| **Cash flows from investing  activities:**                                                                    |       |                                                   |       |   |   |
| Cash used in acquisitions, net of cash acquired                                                               |       | (4,719                                                 | )          | — |   |
| Purchases of property and equipment                                                                           |       | (14,995                                                | )          | (2,860 | ) |
| Capitalized software development costs                                                                        |       | (1,599                                                 | )          | (2,000 | ) |
| Purchases of marketable securities                                                                            |       | (29,000                                                | )          | — |   |
| Sales and maturities of marketable securities                                                                 |       | 19,000                                                 |       | — |   |
| Proceeds from disposition of fixed assets                                                                     |       | —                                                 |       | 37 |   |
| Change in restricted cash                                                                                     |       | —                                                 |       | 1,534 |   |
| Proceeds from sale of investments                                                                             |       | —                                                 |       | 2,056 |   |
|                                                                                                          |       |                                                   |       |   |   |
| Net cash used in investing activities from  continuing operations                                             | ** ** | **(31,313**                                            | **)**      | **(1,233** | **)** |
|                                                                                                          |       |                                                   |       |   |   |
| **Cash flows from financing  activities:**                                                                    |       |                                                   |       |   |   |
| Proceeds from common stock issued from exercises  of stock options                                            |       | 10,943                                                 |       | 6,318 |   |
| Withholding taxes related to equity award net  share settlement                                               |       | (4,342                                                 | )          | (2,026 | ) |
| Proceeds from common stock issued under the  employee stock purchase plan                                     |       | 2,929                                                  |       | 2,946 |   |
| Repurchase of common stock                                                                                    |       | (35,881                                                | )          | (14,578 | ) |
| Repayment of long-term borrowing                                                                              |       | —                                                 |       | (25,000 | ) |
|                                                                                                          |       |                                                   |       |   |   |
| Net cash used in financing activities from  continuing operations                                             | ** ** | **(26,351**                                            | **)**      | **(32,340** | **)** |
| ** **                                                                                                    | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Net cash transferred (to) from discontinued  operation                                                        | ** ** | **(76**                                                | **)**      | **5,662** | ** ** |
|                                                                                                          |       |                                                   |       |   |   |
| Effect of exchange rate changes on cash and cash  equivalents                                                 | ** ** | **(87**                                                | **)**      | **400** | ** ** |
|                                                                                                          |       |                                                   |       |   |   |
| **Net change in cash and cash  equivalents from continuing operations**                                       | ** ** | **(5,967**                                             | **)**      | **24,066** | ** ** |
| **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**                                      | ** ** | **$**                                                  | **51,910** | ** ** | **$** | **69,164** | ** ** |
|                                                                                                          |       |                                                   |       |   |   |
| **Supplemental disclosure of cash  flow information**                                                         |       |                                                   |       |   |   |
| Cash flow from discontinued operation:                                                                        |       |                                                   |       |   |   |
| Net cash (used in) provided by operating  activities                                                          |       | $                                                      | (341       | ) | $ | 4,283 |   |
| Net cash used in investing activities                                                                         |       | —                                                 |       | (715 | ) |
| Net cash transferred (to) from continuing  operations                                                         |       | 76                                                     |       | (5,662 | ) |
| Effect of exchange rates on cash and cash  equivalents                                                        |       | (1                                                     | )          | (8 | ) |
| Net change in cash and cash equivalents from  discontinued operations                                         |       | (266                                                   | )          | (2,102 | ) |
| 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                                         |       | $                                                      | —     |   | $ | 1,151 |   |

 

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 nine monthsended September 30, 2010, as compared to the recent accountingpronouncements described in Advent’s Annual Report on Form 10-K for thefiscal year ended December 31, 2009, that are of significance, orpotential significance, to the Company.

 

InOctober 2009, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable RevenueArrangements, (amendments to FASB Accounting Standards Codification (“ASC”)Topic 605, Revenue Recognition) (“ASU 2009-13”) and ASU 2009-14,  CertainArrangements That Include Software Elements, (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.The Company has not early adopted this guidance and does not expect adoption ofASU 2009-13 or ASU 2009-14 to have a material impact on the Company’s condensedconsolidated 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 theassets and liabilities measured using significant unobservable inputs (Level 3fair value measurements). The guidance became effective for entities with areporting period beginning January 1, 2010, except for the disclosure onthe roll forward activities for Level 3 fair value measurements, which willbecome effective for the reporting period beginning April 1, 2011. Theadoption of these changes had no material impact on the Company’s condensedconsolidated financial statements.

 

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

 

AtSeptember 30, 2010, cash equivalents and short-term marketable securitiesprimarily consisted of money market mutual funds, US government and USGovernment Sponsored Entities (GSE’s) and high credit quality corporate debtsecurities that are guaranteed by the US government. The Company’s short-termmarketable securities are classified as available-for-sale, with long-terminvestments, if applicable, having a maturity date greater than one year fromthe end of the period.

 

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AtSeptember 30, 2010, marketable securities were summarized as follows (inthousands):

 
| ** **                    | ** ** | ** **    | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** **          | ** ** |
|-------------------------------|------------|---------------|------------|----------------|------------|----------------|------------|---------------------|------------|
| ** **                    | ** ** | **Amortized** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Aggregate**       | ** ** |
| ** **                    | ** ** | **Cost**      | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Fair Value** | ** ** |
|                          |       |          |       |           |       |           |       |                |       |
| Corporate debt securities     |       | $             | 27,580     |           | $          | 18             |       | $                   | (1         | ) | $ | 27,597 |   |
| US government debt securities |       | 42,512        |       | 19             |       | (2             | )          | 42,529              |       |
| Total                         |       | $             | 70,092     |           | $          | 37             |       | $                   | (3         | ) | $ | 70,126 |   |

 

Thefollowing table summarizes marketable securities with unrealized gains andlosses by contractual maturity dates at September 30, 2010 (in thousands):

 
| ** **                    | ** ** | **Less than 12 months** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|
| ** **                    | ** ** | ** **                             | ** ** | **Net** | ** ** |
| ** **                    | ** ** | **Amortized**                          | ** ** | **Unrealized** | ** ** |
| ** **                    | ** ** | **Cost**                               | ** ** | **Gains** | ** ** |
|                          |       |                                   |       |   |   |
| Corporate debt securities     |       | $                                      | 27,580     |   | $ | 17 |   |
| US government debt securities |       | 42,512                                 |       | 17 |   |
| Total                         |       | $                                      | 70,092     |   | $ | 34 |   |

 

Adventregularly reviews its investment portfolio to identify and evaluate investmentsthat have indications of possible impairment. Factors considered in determiningwhether a loss is temporary include the length of time and extent to which fairvalue has been less than the cost basis, the financial condition, creditquality and near-term prospects of the investee, and Advent’s ability to holdthe investment for a period of time sufficient to allow for any anticipatedrecovery in market value.

 

Thegross unrealized losses related to investments are primarily due to a decreasein the fair value of debt securities as a result of an increase in interestrates since the acquisition of the securities. For fixed income securities thathave unrealized losses as of September 30, 2010,  the Company has determined that (i) itdoes not have the intent to sell any of these investments and (ii) it isnot more likely than not that it will be required to sell any of theseinvestments before recovery of the entire amortized cost basis. In addition,the Company has evaluated these fixed income securities and has determined thatno credit losses exist. As of September 30, 2010, all securities in an unrealized loss position have been inan unrealized loss position for less than one year. The Company’s management has determined that the unrealizedlosses on its fixed income securities as of September 30, 2010 weretemporary in nature.

 

Duringthe nine months ended September 30, 2010, $19.0 million of marketablesecurities matured, which did not have any associated gross realized gains orlosses, and were reinvested in the purchase of additional marketablesecurities.

 

**Note4—Discontinued Operation**

 

During 2009, the Companydecided to discontinue its operations in the not-for-profit business communityto concentrate on its core investment management business. In connection withthis decision, the Company completed the sale of MicroEdge on October 1,2009 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 from the date of the close and will be held as security for lossesincurred by the Purchaser in the event of certain breaches of therepresentations and warranties contained in the Agreement or certain otherevents. Any gain on sale associated with the $3.0 million held in escrow willbe recorded when realized. In connection with the sale of MicroEdge, the Companyrecorded an associated gain of $13.6 million in “net income from discontinuedoperation, net of applicable taxes” in its fourth quarter of 2009 results.

 

Aspart of the disposition, certain assets and obligations of the Company’sdiscontinued operation were excluded from the sale and are reflected on theCompany’s balance sheet as of September 30, 2010 and December 31,2009. Assets excluded from the sale include cash and deferred tax assets.  Liabilities excluded from the sale includesales tax and other tax-related obligations, future payments related to a twoyear service and maintenance agreement, certain legal costs and employeerelated compensation payments incurred as of the period ended September 30,2009, and continuing lease obligations included as part of the restructuringnoted below. Legal costs and liabilities related to employee compensation wereall paid as of December 31, 2009 and certain sales tax obligations havebeen paid through September 30, 2010.

 

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Inconnection with the sale of MicroEdge, the Company vacated its MicroEdgefacilities in New York and entered into a sub-lease agreement with the Purchaserwhereby the Purchaser will sub-lease the premises for two years with the optionto extend the sub-lease term through the end of the lease term in 2018.

 

Thefollowing table sets forth an analysis of the components of the restructuringcharges related to the Company’s discontinued operation and the payments andnon-cash charges made against the accrual during the nine months ended September 30,2010 (in thousands):

 
| ** **                                                   | ** ** | **Facility Exit** | ** ** | **Severance and** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------|------------|
| ** **                                                   | ** ** | **Costs**              | ** ** | **Benefits**           | ** ** | **Total**  | ** ** |
|                                                         |       |                   |       |                   |       |       |       |
| Balance of restructuring accrual at  December 31, 2009  |       | $                      | 5,115      |                   | $          | —     |       | $ | 5,115 |   |
|                                                         |       |                   |       |                   |       |       |       |
| Restructuring charges                                        |       | 6                      |       | —                 |       | 6          |       |
| Cash payments                                                |       | (44                    | )          | (8                     | )          | (52        | )          |
| Adjustment of prior restructuring costs                      |       | 123                    |       | 8                      |       | 131        |       |
|                                                         |       |                   |       |                   |       |       |       |
| Balance of restructuring accrual at  September 30, 2010 |       | $                      | 5,200      |                   | $          | —     |       | $ | 5,200 |   |

 

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

 
| ** **                                                                                                               | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2010**                                                | ** ** | **2009**                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                                                                                     |       |                                                    |       |                                                   |       |   |   |   |   |
| Net revenues                                                                                                             |       | $                                                       | —     |                                                   | $          | 5,934 |   | $ | — |   | $ | 18,859 |   |
|                                                                                                                     |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income (loss) from discontinued operation (net  of applicable taxes of $(19), $223, $(69), and $1,409, respectively) |       | $                                                       | (23        | )                                                      | $          | 770 |   | $ | (98 | ) | $ | 2,499 |   |

 

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

 
| ** **                                              | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|---------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **2010**              | ** ** | **2009**             | ** ** |
| ** **                                              | ** ** | ** **            | ** ** | ** **           | ** ** |
| Assets:                                                 | ** ** | ** **            | ** ** | ** **           | ** ** |
| Cash and cash equivalents                               |       | $                     | —     |                 | $          | 266 |   |
| Prepaid expenses and other                              |       | —                |       | 228                  |       |
| Total current assets of discontinued operation          |       | $                     | —     |                 | $          | 494 |   |
|                                                    |       |                  |       |                 |       |
| Deferred taxes, long-term                               |       | $                     | 2,095      |                 | $          | 2,095 |   |
| Total noncurrent assets of discontinued operation       |       | $                     | 2,095      |                 | $          | 2,095 |   |
|                                                    |       |                  |       |                 |       |
| Liabilities:                                            |       |                  |       |                 |       |
| Accrued liabilities and income taxes payable            |       | $                     | 162        |                 | $          | 719 |   |
| Total current liabilities of discontinued  operation    |       | $                     | 162        |                 | $          | 719 |   |
|                                                    |       |                  |       |                 |       |
| Accrued restructuring, long-term portion                |       | $                     | 5,200      |                 | $          | 5,115 |   |
| Total noncurrent liabilities of discontinued  operation |       | $                     | 5,200      |                 | $          | 5,115 |   |

 

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**Note5—Stock-Based**Compensation**

 

**Equity Award Activity**

 

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

 
| ** **                             | ** ** | ** **         | ** ** | ** **   | ** ** | **Weighted**              | ** ** | ** **         | ** ** |
|----------------------------------------|------------|--------------------|------------|--------------|------------|---------------------------|------------|--------------------|------------|
| ** **                             | ** ** | ** **         | ** ** | **Weighted** | ** ** | **Average**               | ** ** | **Aggregate**      | ** ** |
| ** **                             | ** ** | **Number of** | ** ** | **Average**  | ** ** | **Remaining**             | ** ** | **Intrinsic**      | ** ** |
| ** **                             | ** ** | **Shares**         | ** ** | **Exercise** | ** ** | **Contractual Life** | ** ** | **Value**          | ** ** |
| ** **                             | ** ** | **(in thousands)** | ** ** | **Price**    | ** ** | **(in years)**            | ** ** | **(in thousands)** | ** ** |
| ** **                             | ** ** | ** **         | ** ** | ** **   | ** ** | ** **                | ** ** | ** **         | ** ** |
| Outstanding at December 31, 2009  |       | 3,945              |       | $            | 29.14      |                      |       |               |       |   |
| Options & SARs granted        |       | 485                |       | $            | 43.56      |                      |       |               |       |   |
| Options & SARs exercised      |       | (643               | )          | $            | 27.29      |                      |       |               |       |   |
| Options & SARs canceled       |       | (105               | )          | $            | 36.67      |                      |       |               |       |   |
| Outstanding at September 30, 2010 |       | 3,682              |       | $            | 31.15      |                      | 6.34       |               | $          | 77,502 |   |
| Exercisable at September 30, 2010 |       | 2,282              |       | $            | 26.60      |                      | 5.07       |               | $          | 58,420 |   |

 

Theaggregate intrinsic value is calculated as the difference between the exerciseprice of the underlying awards and the Company’s closing stock price of $52.19as of September 30, 2010 for options and SARs that were in-the-money as ofthat date.

 

Theweighted average grant date fair value of options and SARs granted (asdetermined under ASC 718), total intrinsic value of options and SARs exercisedand cash received from option exercises during the nine months ended September 30,2010 and 2009 were as follows (in thousands, except weighted average grant datefair value):

 
| ** **                                | ** ** | **Nine Months Ended September 30** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                | ** ** | **2010**                                               | ** ** | **2009** | ** ** |
| *Options and SARs*                        |       |                                                   |       |   |   |
| Weighted average grant date fair value    |       | $                                                      | 14.98      |   | $ | 14.68 |   |
| Total intrinsic value of awards exercised |       | $                                                      | 12,445     |   | $ | 5,261 |   |
|                                      |       |                                                   |       |   |   |
| *Options*                                 |       |                                                   |       |   |   |
| Cash received from exercises              |       | $                                                      | 10,943     |   | $ | 6,318 |   |

 

TheCompany settles exercised stock options and SARs with newly issued commonshares.

 

Asummary of the status of the Company’s restricted stock unit (“RSU”) activityfor the nine months ended September 30, 2010 is as follows:

 
| ** **                                           | ** ** | ** **              | ** ** | **Weighted**        | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                                           | ** ** | **Number of**      | ** ** | **Average**         | ** ** |
| ** **                                           | ** ** | **Shares**              | ** ** | **Grant Date** | ** ** |
| ** **                                           | ** ** | **(in thousands)** | ** ** | **Fair Value** | ** ** |
| ** **                                           | ** ** | ** **              | ** ** | ** **          | ** ** |
| Outstanding and unvested at December 31, 2009   |       | 685                     |       | $                   | 36.33      |   |
|                                                 |       |                    |       |                |       |
| RSUs granted                                         |       | 218                     |       | $                   | 43.73      |   |
|                                                 |       |                    |       |                |       |
| RSUs vested                                          |       | (211                    | )          | $                   | 42.41      |   |
|                                                 |       |                    |       |                |       |
| RSUs canceled                                        |       | (28                     | )          | $                   | 37.53      |   |
|                                                 |       |                    |       |                |       |
| Outstanding and unvested at September 30,  2010 |       | 664                     |       | $                   | 36.78      |   |

 

Theweighted average grant date fair value was determined based on the closing marketprice of the Company’s common stock on the date of the award. The aggregateintrinsic value of RSUs outstanding at September 30, 2010 was $34.7million, using the closing price of $52.19 per share as of September 30,2010.

 

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**Stock-BasedCompensation Expense**

 

Stock-basedemployee compensation expense recognized on Advent’s condensed consolidatedstatement of operations for the three and nine months ended September 30,2010 and 2009 was as follows (in thousands):

 
| ** **                                                      | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2010**                                                | ** ** | **2009**                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Statement of operations  classification**                     |       |                                                    | ** ** | ** **                                             |       |   | ** ** | ** ** | ** ** |
| Cost of term license, maintenance and other  recurring revenues |       | $                                                       | 466        |                                                   | $          | 498 |   | $ | 1,308 |   | $ | 1,333 |   |
| Cost of professional services and other revenues                |       | 294                                                     |       | 336                                                    |       | 846 |   | 967 |   |
| Total cost of revenues                                          |       | 760                                                     |       | 834                                                    |       | 2,154 |   | 2,300 |   |
|                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Sales and marketing                                             |       | 1,572                                                   |       | 1,650                                                  |       | 4,288 |   | 4,265 |   |
| Product development                                             |       | 1,356                                                   |       | 1,326                                                  |       | 3,882 |   | 3,641 |   |
| General and administrative                                      |       | 1,122                                                   |       | 1,388                                                  |       | 3,314 |   | 3,769 |   |
| Total operating expenses                                        |       | 4,050                                                   |       | 4,364                                                  |       | 11,484 |   | 11,675 |   |
|                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Total stock-based compensation expense                          |       | 4,810                                                   |       | 5,198                                                  |       | 13,638 |   | 13,975 |   |
|                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Tax effect on stock-based employee compensation                 |       | (2,244                                                  | )          | (2,212                                                 | )          | (6,213 | ) | (5,721 | ) |
|                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Effect on net income from continuing operations,  net of tax    |       | 2,566                                                   |       | 2,986                                                  |       | 7,425 |   | 8,254 |   |
|                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Effect on net income from discontinued operation,  net of tax   |       | —                                                  |       | (35                                                    | )          | — |   | 340 |   |
|                                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Effect on net income, net of tax                                |       | $                                                       | 2,566      |                                                   | $          | 2,951 |   | $ | 7,425 |   | $ | 8,594 |   |

 

Adventcapitalized stock-based employee compensation expense of $0.2 million duringthe nine months ended September 30, 2009 associated with the Company’ssoftware development, internal-use software and professional servicesimplementation projects. There were no capitalized stock-based employeecompensation expenses during the nine months ended September 30, 2010.

 

Asof September 30, 2010, total unrecognized compensation cost related tounvested awards not yet recognized under all equity compensation plans,adjusted for estimated forfeitures, was $30.3 million and is expected to berecognized through the remaining vesting period of each grant, with a weighted averageremaining period of 2.4 years.

 

**ValuationAssumptions**

 

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

 
| ** **                         | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                         | ** ** | **2010**                                                | ** ** | **2009**                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Stock  Options & SARs** |       |                                                    |       |                                                   |       |   |   |   |   |
| Expected volatility                |       | 38.0% - 38.2%                                           |       | 43.1% - 48.3%                                          |       | 35.2% - 38.8% |   | 43.1% - 57.7% |   |
| Expected life (in years)           |       | 4.96                                                    |       | 5.1                                                    |       | 3.86 - 4.96 |   | 4.17 - 5.47 |   |
| Risk-free interest rate            |       | 1.5% - 1.9%                                             |       | 2.6% - 2.7%                                            |       | 1.5% - 2.7% |   | 1.8% - 3.0% |   |
| Expected dividends                 |       | None                                                    |       | None                                                   |       | None |   | None |   |
|                               |       |                                                    |       |                                                   |       |   |   |   |   |
| **Employee  Stock Purchase Plan**  |       |                                                    |       |                                                   |       |   |   |   |   |
| Expected volatility                |       | 29.9%                                                   |       | 58.3%                                                  |       | 29.5% - 29.9% |   | 58.3% - 72.8% |   |
| Expected life (in months)          |       | 6                                                       |       | 6                                                      |       | 6 |   | 6 |   |
| Risk-free interest rate            |       | 0.2%                                                    |       | 0.3%                                                   |       | 0.2% |   | 0.3% - 0.4% |   |
| Expected dividends                 |       | None                                                    |       | None                                                   |       | None |   | None |   |

 

Theexpected stock price volatility was determined based on an equally weightedaverage of historical and implied volatility of the Company’s commonstock. Advent believes that a blend of implied volatility and historicalvolatility is more reflective of the market conditions and a better indicatorof expected volatility than using purely historical volatility. The expectedlife was determined based on historical experience of similar awards, givingconsideration to the contractual terms of the stock-based awards, vestingschedules and expectations of future employee behavior. The risk-free interestrate is based on the US Treasury yield curve in effect at the time ofgrant for periods corresponding with the expected life of the option. Thedividend yield assumption is based on the Company’s history of not payingdividends and the resultant future expectation of 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 shares outstandingduring the period, excluding the effect of any anti-dilutive securities.Potential common shares consist of the shares issuable upon the exercise ofstock options and SARs, the vesting of restricted stock awards and fromwithholdings associated with the Company’s employee stock purchase plan. Potentialcommon shares are reflected in diluted earnings per share by application of thetreasury stock method, which in the current period includes consideration ofunamortized stock-based compensation 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 September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **2010**                                                | ** ** | **2009**                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Numerator:**                                                                                                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income (loss):                                                                                                                               |       |                                                    |       |                                                   |       |   |   |   |   |
| Continuing operations                                                                                                                            |       | $                                                       | 5,981      |                                                   | $          | 3,902 |   | $ | 15,071 |   | $ | 16,424 |   |
| Discontinued operation                                                                                                                           |       | (23                                                     | )          | 770                                                    |       | (98 | ) | 2,499 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Total operations                                                                                                                                 |       | $                                                       | 5,958      |                                                   | $          | 4,672 |   | $ | 14,973 |   | $ | 18,923 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| **Denominator:**                                                                                                                                 |       |                                                    |       |                                                   |       |   |   |   |   |
| Denominator for basic net income (loss) per share-  weighted average shares outstanding                                                          |       | 25,634                                                  |       | 25,527                                                 |       | 25,735 |   | 25,352 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Dilutive common equivalent shares:                                                                                                               |       |                                                    |       |                                                   |       |   |   |   |   |
| Employee stock options and other                                                                                                                 |       | 1,482                                                   |       | 1,103                                                  |       | 1,404 |   | 892 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Denominator for diluted net income (loss) per  share-weighted average shares outstanding, assuming exercise of potential  dilutive common shares |       | 27,116                                                  |       | 26,630                                                 |       | 27,139 |   | 26,244 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| **Net income (loss) per share:**                                                                                                                 |       |                                                    |       |                                                   |       |   |   |   |   |
| Basic:                                                                                                                                           |       |                                                    |       |                                                   |       |   |   |   |   |
| Continuing operations                                                                                                                            |       | $                                                       | 0.23       |                                                   | $          | 0.15 |   | $ | 0.59 |   | $ | 0.65 |   |
| Discontinued operation                                                                                                                           |       | (0.00                                                   | )          | 0.03                                                   |       | (0.00 | ) | 0.10 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Total operations                                                                                                                                 |       | $                                                       | 0.23       |                                                   | $          | 0.18 |   | $ | 0.58 |   | $ | 0.75 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Diluted:                                                                                                                                         |       |                                                    |       |                                                   |       |   |   |   |   |
| Continuing operations                                                                                                                            |       | $                                                       | 0.22       |                                                   | $          | 0.15 |   | $ | 0.56 |   | $ | 0.63 |   |
| Discontinued operation                                                                                                                           |       | (0.00                                                   | )          | 0.03                                                   |       | (0.00 | ) | 0.10 |   |
|                                                                                                                                             |       |                                                    |       |                                                   |       |   |   |   |   |
| Total operations                                                                                                                                 |       | $                                                       | 0.22       |                                                   | $          | 0.18 |   | $ | 0.55 |   | $ | 0.72 |   |

 

Weightedaverage stock options, SARs and RSUs of approximately 1.0 million and 0.9 millionfor the three and nine months ended September 30, 2010, respectively, wereexcluded from the calculation of diluted net income (loss) per share becausetheir inclusion would have been anti-dilutive. Similarly, weighted averagestock options, SARs and RSUs of approximately 1.9 million and 2.3 million forthe three and nine months ended September 30, 2009, respectively, wereexcluded from the calculation of diluted net income per share.

 

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**Note7—Goodwill**

 

The changes in the carryingvalue of goodwill for the nine months ended September 30, 2010 were asfollows (in thousands):

 
| ** **                         | ** ** | **Goodwill** | ** ** |
|------------------------------------|------------|--------------|------------|
| ** **                         | ** ** | ** **   | ** ** |
| Balance at December 31, 2009  |       | $            | 144,827    |   |
| Additions                          |       | 3,175        |       |
| Translation adjustments            |       | (1,542       | )          |
|                               |       |         |       |
| Balance at September 30, 2010 |       | $            | 146,460    |   |

 

Additions to goodwill of$3.2 million relate to the acquisition of Goya AS. In March 2010, theCompany’s 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.

 

Foreign currency translationadjustments totaling $1.5 million reflect the general weakening of the USdollar versus European currencies during the nine months ended September 30,2010.

 

**Note 8—Other Intangibles**

 

Thefollowing is a summary of other intangibles as of September 30, 2010 (inthousands):

 
| ** **                         | ** ** | **Weighted**     | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                         | ** ** | **Average**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                         | ** ** | **Amortization** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
| ** **                         | ** ** | **Period**       | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                         | ** ** | **(Years)**      | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
| ** **                         | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Purchased technologies             |       | 5.0              |       | $                | 28,099     |             | $          | (17,867          | )          | $ | 10,232 |   |
| Product development costs          |       | 3.0              |       | 13,134           |       | (8,805           | )          | 4,329            |       |
|                               |       |             |       |             |       |             |       |             |       |
| Developed technology sub-total     |       |             |       | 41,233           |       | (26,672          | )          | 14,561           |       |
|                               |       |             |       |             |       |             |       |             |       |
| Customer relationships             |       | 6.0              |       | 27,581           |       | (21,748          | )          | 5,833            |       |
| Other intangibles                  |       | 4.0              |       | 1,584            |       | (971             | )          | 613              |       |
|                               |       |             |       |             |       |             |       |             |       |
| Other intangibles sub-total        |       |             |       | 29,165           |       | (22,719          | )          | 6,446            |       |
|                               |       |             |       |             |       |             |       |             |       |
| Balance at September 30, 2010 |       |             |       | $                | 70,398     |             | $          | (49,391          | )          | $ | 21,007 |   |

 

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

 
| ** **                        | ** ** | **Weighted**     | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                        | ** ** | **Average**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                        | ** ** | **Amortization** | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
| ** **                        | ** ** | **Period**       | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                        | ** ** | **(Years)**      | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **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 |   |

 

The changes in the carryingvalue of other intangibles during the nine months ended September 30, 2010were as follows (in thousands):

 
| ** **                         | ** ** | **Other**        | ** ** | ** **       | ** ** | **Other**        | ** ** |
|------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                         | ** ** | **Intangibles,** | ** ** | **Accumulated**  | ** ** | **Intangibles,** | ** ** |
| ** **                         | ** ** | **Gross**        | ** ** | **Amortization** | ** ** | **Net**          | ** ** |
|                               |       |             |       |             |       |             |       |
| Balance at December 31, 2009  |       | $                | 66,569     |             | $          | (43,604          | )          | $ | 22,965 |   |
| Additions                          |       | 3,891            |       | —           |       | 3,891            |       |
| Amortization                       |       | —           |       | (5,848           | )          | (5,848           | )          |
| Translation adjustments            |       | (62              | )          | 61               |       | (1               | )          |
|                               |       |             |       |             |       |             |       |
| Balance at September 30, 2010 |       | $                | 70,398     |             | $          | (49,391          | )          | $ | 21,007 |   |

 

Additionsto intangible assets of $3.9 million during the nine months ended September 30,2010 include intangible asset additions of $2.2 million from the acquisition ofGoya AS and capitalized product development costs of approximately $1.7million.

 

Basedon the carrying amount of intangible assets as of September 30, 2010, theestimated future amortization is as follows (in thousands):

 
| ** **                        | ** ** | **Three**             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|-----------------------------------|------------|-----------------------|------------|--------------------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                        | ** ** | **Months Ended** | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **December 31**  | ** ** | **Years Ended December 31** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **2010**              | ** ** | **2011**                                   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Estimated future amortization of: | ** ** | ** **            | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Developed technology              |       | $                     | 1,501      |                                       | $          | 5,346      |       | $          | 4,459      |       | $          | 2,654          |       | $          | 257        |   | $ | 344 |   | $ | 14,561 |   |
| Other intangibles                 |       | 294                   |       | 1,169                                      |       | 1,169      |       | 1,124      |       | 989        |       | 1,701          |       | 6,446      |       |
|                              |       |                  |       |                                       |       |       |       |       |       |       |       |           |       |       |       |
| Total                             |       | $                     | 1,795      |                                       | $          | 6,515      |       | $          | 5,628      |       | $          | 3,778          |       | $          | 1,246      |   | $ | 2,045 |   | $ | 21,007 |   |

 

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** **

**Note 9—Balance Sheet Detail**

 

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

 
| ** **                       | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|----------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                       | ** ** | **2010**              | ** ** | **2009**             | ** ** |
| ** **                       | ** ** | ** **            | ** ** | ** **           | ** ** |
| Prepaid commission               |       | $                     | 4,849      |                 | $          | 5,483 |   |
| Prepaid contract expense         |       | 6,229                 |       | 5,815                |       |
| Prepaid royalty                  |       | 822                   |       | 1,138                |       |
| Tenant improvement allowance     |       | 1,957                 |       | 3,863                |       |
| Other                            |       | 3,942                 |       | 6,051                |       |
|                             |       |                  |       |                 |       |
| Total prepaid expenses and other |       | $                     | 17,799     |                 | $          | 22,350 |   |

 

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

 
| ** **                          | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                          | ** ** | **2010**              | ** ** | **2009**             | ** ** |
|                                |       |                  |       |                 |       |
| Long-term investment                |       | $                     | 500        |                 | $          | 500 |   |
| Long-term prepaid commissions       |       | 3,239                 |       | 3,204                |       |
| Deposits                            |       | 2,900                 |       | 2,821                |       |
| Prepaid contract expense, long-term |       | 3,080                 |       | 3,617                |       |
|                                |       |                  |       |                 |       |
| Total other assets                  |       | $                     | 9,719      |                 | $          | 10,142 |   |

 

Long-term investment isan equity investment in a privately held company. This equity investment iscarried at the lower of cost or fair value at September 30, 2010 and December 31,2009. Deposits include restricted cash balances of $1.4 million at each of September 30,2010 and December 31, 2009 related to the Company’s San Franciscoheadquarters and facilities in Boston and New York.

 

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

 
| ** **                             | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|----------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                             | ** ** | **2010**              | ** ** | **2009**             | ** ** |
|                                   |       |                  |       |                 |       |
| Salaries and benefits payable          |       | $                     | 15,564     |                 | $          | 21,273 |   |
| Accrued restructuring, current portion |       | 728                   |       | 518                  |       |
| Other                                  |       | 12,234                |       | 9,275                |       |
|                                   |       |                  |       |                 |       |
| Total accrued liabilities              |       | $                     | 28,526     |                 | $          | 31,066 |   |

 

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

 

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

 
| ** **                               | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                               | ** ** | **2010**              | ** ** | **2009**             | ** ** |
|                                     |       |                  |       |                 |       |
| Deferred rent                            |       | $                     | 11,271     |                 | $          | 10,595 |   |
| Accrued restructuring, long-term portion |       | 630                   |       | 716                  |       |
| Other                                    |       | 2,172                 |       | 1,658                |       |
|                                     |       |                  |       |                 |       |
| Total other long-term liabilities        |       | $                     | 14,073     |                 | $          | 12,969 |   |

 

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**Note 10—Comprehensive Income**

 

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

 
| ** **                                               | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                               | ** ** | **2010**                                                | ** ** | **2009**                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                     |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income from continuing operations                    |       | $                                                       | 5,981      |                                                   | $          | 3,902 |   | $ | 15,071 |   | $ | 16,424 |   |
| Unrealized gain on marketable securities, net of  taxes  |       | 3                                                       |       | —                                                 |       | 82 |   | — |   |
| Foreign currency translation adjustment                  |       | 3,544                                                   |       | 1,141                                                  |       | (1,260 | ) | 2,693 |   |
| Comprehensive income from continuing operations          |       | 9,528                                                   |       | 5,043                                                  |       | 13,893 |   | 19,117 |   |
| Comprehensive income (loss) from discontinued  operation |       | (22                                                     | )          | 726                                                    |       | (98 | ) | 2,933 |   |
|                                                     |       |                                                    |       |                                                   |       |   |   |   |   |
| Total comprehensive income                               |       | $                                                       | 9,506      |                                                   | $          | 5,770 |   | $ | 13,795 |   | $ | 22,049 |   |

 

The Company recordedtaxes of $6,000 and $57,000 during the three and nine months ended September 30,2010, respectively, related to the marketable securities component of othercomprehensive income.

 

The components of accumulated other comprehensiveincome, net of related taxes, were as follows (in thousands):

 
| ** **                                                       | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                                       | ** ** | **2010**              | ** ** | **2009**             | ** ** |
| ** **                                                       | ** ** | ** **            | ** ** | ** **           | ** ** |
| Accumulated net unrealized gain (loss) on  marketable securities |       | $                     | 20         |                 | $          | (62 | ) |
| Accumulated foreign currency translation  adjustments            |       | 9,538                 |       | 10,798               |       |
| Accumulated other comprehensive income, net of  taxes            |       | $                     | 9,558      |                 | $          | 10,736 |   |

 

**Note11—Restructuring Charges**

 

Minorrestructuring initiatives were implemented in the Company’s Advent InvestmentManagement segment since 2006 to reduce costs and improve operatingefficiencies. These initiatives have resulted in restructuring chargescomprised primarily of costs related to properties abandoned in connection withfacilities consolidation and associated write-down of leasehold improvements.Advent’s restructuring charges included accruals for estimated losses onfacility costs based on the Company’s contractual obligations net of estimatedsublease income. Advent reassesses this liability periodically based on marketconditions.

 

During the nine months ended September 30,2010, Advent recorded a restructuring charge of $0.6 million which primarilyrelated to facility and exit costs associated with the relocation of one of itsfacilities in New York City in the second quarter of 2010. During the ninemonths ended September 30, 2009, the Company recorded a restructuringcharge $0.1 million which related to the present value amortization of facilityexit obligations partially offset by adjustments to facility exit assumptions.

 

Thefollowing table sets forth an analysis of the components of the payments and restructuringcharges made against the accrual during the nine months ended September 30,2010 (in thousands):

 
| ** **                                                         | ** ** | **Facility Exit** | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                         | ** ** | **Costs**              | ** ** |
| ** **                                                         | ** ** | ** **             | ** ** |
| Balance of restructuring accrual at  December 31, 2009        |       | $                      | 1,234      |   |
| Restructuring charges                                              |       | 570                    |       |
| Reversal of deferred rent related to facilities  exited            |       | 14                     |       |
| Cash payments                                                      |       | (500                   | )          |
| Adjustment of prior restructuring costs                            |       | 40                     |       |
|                                                               |       |                   |       |
| Balance of total restructuring accrual at  September 30, 2010 |       | $                      | 1,358      |   |

 

Ofthe remaining restructuring accrual of $1.4 million at September 30, 2010,$0.7 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 $1.4 million are statedat estimated fair value, net of estimated sublease income of approximately $1.3million. Advent expects to pay the remaining obligations associated with thevacated facilities over the remaining lease terms, which expire on variousdates through 2012.

 

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**Note 12—Commitments and Contingencies**

 

*LeaseObligations*

 

Adventleases office space and equipment under non-cancelable operating leaseagreements, which expire at various dates through June 2025. Someoperating leases contain escalation provisions for adjustments in the consumerprice index. Advent is responsible for maintenance, insurance, and propertytaxes. Excluding leases and associated sub-leases for MicroEdge facilities, asof September 30, 2010, Advent’s remaining operating lease commitmentsthrough 2025 are approximately $65.4 million, net of future minimum rentalreceipts of $1.3 million to be received under non-cancelable sub-leases.

 

Inconnection with the sale of MicroEdge, the Company entered into a sub-leaseagreement with the Purchaser, whereby Purchaser will sub-lease approximately24,000 square feet of the 29,000 square feet of office space located at 619West 54th Street in New York, New York from the Company. The Purchaser willsub-lease the premises for two years with the option to extend the sub-leaseterm through the end of the lease term in 2018. The sub-lease agreement becameeffective upon the close of sale of MicroEdge on October 1, 2009. Theoperating lease commitment related to this discontinued operation facility isapproximately $8.7 million, less estimated sub-lease income for two years of$1.0 million. With the exception of the MicroEdge facilities in New York City,the leases related to MicroEdge have been transferred to the Purchaser.

 

*Indemnifications*

 

Aspermitted or required under Delaware law and to the maximum extent allowableunder that law, Advent has certain obligations to indemnify its current andformer officers and directors for certain events or occurrences while theofficer or director is, or was serving, at Advent’s request in such capacity.These indemnification obligations are valid as long as the director or officeracted in good faith and in a manner the person reasonably believed to be in ornot opposed to the best interests of the corporation, and, with respect to anycriminal action or proceeding, had no reasonable cause to believe his or herconduct was unlawful. The maximum potential amount of future payments Adventcould be required to make under these indemnification obligations is unlimited;however, Advent has a director and officer insurance policy that mitigatesAdvent’s exposure and enables Advent to recover a portion of any future amountspaid. The Company believes the estimated fair value of these indemnificationobligations is minimal.

 

*LegalContingencies*

 

OnMarch 8, 2005, certain of the former shareholders of Kinexus Corporationand the shareholders’ representative filed suit against Advent in the DelawareChancery Court. The complaint alleges that Advent breached the Agreement andPlan of Merger dated as of December 31, 2001 pursuant to which Adventacquired all of the outstanding shares of Kinexus due principally to the factthat no amount was paid by Advent on an earn-out of up to $115 million. Theearn-out, which was payable in cash or stock at the election of Advent, wasbased upon Kinexus meeting certain revenue targets in both 2002 and 2003. Thecomplaint seeks unspecified compensatory damages, an accounting and restitutionfor unjust enrichment. 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 the plaintiff’s claim and believes that it has meritoriousdefenses and intends to vigorously defend this action. Management has notdetermined that any potential loss associated with this litigation is eitherprobable or reasonably estimable at this time and accordingly has not accruedany amounts for any potential loss.

 

Fromtime to time, Advent is involved in claims and legal proceedings that arise inthe ordinary course of business. Based on currently available information,management does not believe that the ultimate outcome of these unresolvedmatters, individually and in the aggregate, is likely to have a materialadverse effect on the Company’s financial position or results of operations.However, litigation is subject to inherent uncertainties and the Company’s viewof these matters may change in the future. Were an unfavorable outcome tooccur, there exists the possibility of a material adverse impact on the Company’sfinancial position and results of operations for the period in which theunfavorable outcome occurs, and potentially in future periods.

 

**Note13—Segment Information**

 

*Descriptionof Segments*

 

ASC280, “*Segment Reporting”*establishes standards for reporting information about operating segments in acompany’s financial statements. 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.

 

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*MajorCustomers*

 

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

 

**Note 14—Debt**

 

On February 14, 2007, Advent and certain of its subsidiariesentered into a senior secured $75 million credit facility agreement (the “CreditFacility”) with Wells Fargo Foothill, Inc. (the “Lender”) for a term ofthree years. As of December 31, 2009, there were no outstanding borrowingsunder the Credit Facility and the Company was in compliance with all associatedcovenants.

 

In February 2010, Advent’s Credit Facility expired in accordancewith the terms of the senior secured facility agreement with the Lender. Adventelected not to renew the Credit Facility as the Company determined its existingcash, cash equivalents, short-term and long-term marketable securities,together with cash expected to be generated from operations, would besufficient to fund its operating activities, anticipated capital expendituresand authorized stock repurchases.

 

**Note 15—Income Taxes**

 

Thefollowing table summarizes the activity relating to the Company’s unrecognizedtax benefits during the nine months ended September 30, 2010 (inthousands):

 
| ** **                                               | ** ** | **Total**  | ** ** |
|----------------------------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | ** ** | ** ** |
| Balance at December 31, 2009                        |       | $          | 7,467      |   |
|                                                     |       |       |       |
| Gross increases related to current period tax  positions |       | 290        |       |
| Balance at September 30, 2010                       |       | $          | 7,757      |   |

 

AtSeptember 30, 2010 and December 31, 2009, Advent had$7.8 million and $7.5 million of gross unrecognized tax benefits,respectively. During the nine months ended September 30, 2010, Adventincreased the amount of unrecognized tax benefits by approximately $0.3 millionrelating to California research and enterprise zone credits. If recognized, thetotal unrecognized tax benefits would decrease Advent’s tax provision andincrease net income by $6.4 million. The impact on net income reflects theliabilities for unrecognized tax benefits net of the federal tax benefit ofstate income tax items. The Company’s liabilities for unrecognized tax benefitsrelate to federal research credits, California research and enterprise zone taxcredits and various state net operating losses.

 

Adventis subject to taxation in the US and various state and foreign jurisdictions.Advent does not 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 ninemonths ended September 30, 2010, New York concluded an income tax auditfor tax years up through 2007 and there were no material income taxassessments. Advent is currently undergoing a franchise tax examination by theState of California for the 2006 and 2007 tax years.

 

**Note16—Fair Value Measurements**

 

Theaccounting guidance for fair value measurements establishes a three-tierhierarchy, which prioritizes the inputs used in the valuation methodologies inmeasuring fair value as follows:

 
| **Level Input** | ** ** | **Input Definition**                                                                                                                                                 |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                      |
| Level 1              |       | Observable  inputs that reflect quoted prices (unadjusted) for identical assets or  liabilities in active markets.                                                        |
|                 |       |                                                                                                                                                                      |
| Level 2              |       | Inputs  other than quoted prices included within Level 1 that are observable for the  asset or liability through corroboration with market data at the measurement  date. |
|                 |       |                                                                                                                                                                      |
| Level 3              |       | Unobservable  inputs that reflect management’s best estimate of what market participants  would use in pricing the asset or liability at the measurement date.       |

 

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Ingeneral, and where applicable, the Company uses quoted prices in active marketsfor identical assets or liabilities to determine fair value. The Companyapplied this valuation technique to measure the fair value of the Company’sLevel 1 investments, such as treasury obligation money market mutual funds andUS government debt securities. Money market funds consist of cashequivalents with remaining maturities of three months or less at the date ofpurchase and are composed primarily of US government debt securities andtreasury obligation money market mutual funds. Advent’s US government debtsecurities are securities sponsored by the federal government.

 

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. The Company classifies its corporatedebt securities as having Level 2 inputs. These corporate debt securities areguaranteed by the US government. The valuation techniques used to measure thefair value of the Company’s financial instruments having Level 2 inputs werederived from non-binding market consensus prices that are corroborated byobservable market data, quoted market prices for similar instruments, orpricing models, such as discounted cash flow techniques. The Company’sprocedures include controls to ensure that appropriate fair values are recordedsuch as comparing prices obtained from multiple independent sources.

 

TheCompany measures certain financial assets and liabilities at fair value on arecurring basis, including available-for-sale securities. The fair value ofthese certain financial assets was determined using the following inputs as of September 30,2010 (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)            |       | $                                                                                 | 31,559     |   | $ | 31,559 |   | $ | — |   | $ | — |   |
| US government debt securities (2) |       | 42,529                                                                            |       | 42,529 |   | — |   | — |   |
| Corporate debt securities (2)     |       | 27,597                                                                            |       | — |   | 27,597 |   | — |   |
|                              |       |                                                                              |       |   |   |   |   |   |   |
| Total                             |       | $                                                                                 | 101,685    |   | $ | 74,088 |   | $ | 27,597 |   | $ | — |   |

 

----

(1)    Included in cash andcash equivalents on the Company’s condensed consolidated balance sheet

(2)    Included in short-termmarketable securities on the Company’s condensed consolidated balance sheet

 

There were no material transfers between Level 1 and Level 2 assetsduring the nine months ended September 30, 2010 and the Company does nothave any significant assets that utilize unobservable or Level 3 inputs.

 

Thecarrying amounts of cash and cash equivalents, accounts receivable, accountspayable and accrued liabilities approximate fair value based on the short-termmaturities of these instruments.

 

TheCompany also has a direct investment in a privately-held company accounted forunder the cost method which is not reported in the table of assets measured atfair value above. This investment, which has a carrying value of $0.5 millionat September 30, 2010, is periodically assessed for other-than-temporaryimpairment. If Advent determines that an other-than-temporary impairment hasoccurred, the Company writes down the investment to its fair value. Adventestimates fair value using a variety of valuation methodologies. Suchmethodologies include comparing the private company with publicly tradedcompanies in similar lines of business, applying revenue and price/earningsmultiples to estimated future operating results for the private company andestimating discounted cash flows for that company.

 

**Note 17—Common Stock RepurchaseProgram**

 

Advent’s Board has approved common stockrepurchase programs authorizing management to repurchase shares of the Company’scommon stock. The timing and actual number of shares subject to repurchase areat the discretion of Advent’s management and are contingent on a number offactors, including the price of Advent’s stock, Advent’s cash balances andworking capital needs, general business and market conditions, regulatoryrequirements, and alternative investment opportunities. Repurchased shares arereturned to the status of authorized and unissued shares of common stock.

 

On October 30, 2008, Advent’s Boardauthorized the repurchase of up to 3.0 million shares of the Company’s commonstock. In May 2010, Advent’s Board authorized the repurchase of up to anadditional 1.0 million shares of the Company’s common stock. Consistent withprior repurchase programs, there was no expiration date and repurchases couldbe limited or terminated at any time at the discretion of management.

 

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The following table provides a summary of thequarterly repurchase activity during the nine months ended September 30,2010 under the stock repurchase program approved by the Board inOctober 2008 and May 2010 (in thousands, except per share data):

 
| ** ** | ** ** | **Total**          | ** ** | ** ** | ** ** | **Average**        | ** ** |
|------------|------------|--------------------|------------|------------|------------|--------------------|------------|
| ** ** | ** ** | **Number**         | ** ** | ** ** | ** ** | **Price**          | ** ** |
| ** ** | ** ** | **of Shares** | ** ** | ** ** | ** ** | **Paid**           | ** ** |
| ** ** | ** ** | **Purchased**      | ** ** | **Cost**   | ** ** | **Per Share** | ** ** |
|       |       |               |       |       |       |               |       |
| Q1 2010    |       | 249                |       | $          | 10,542     |               | $          | 42.41 |   |
| Q2 2010    |       | 555                |       | 23,857     |       | 43.02              |       |
| Q3 2010    |       | 32                 |       | 1,482      |       | 45.89              |       |
|       |       |               |       |       |       |               |       |
|       | Total      |               | 836        |       | $          | 35,881             |       | $ | 42.95 |   |
|            |            |                    |            |            |            |                    |            |  |  |  |

 

At September 30, 2010, there remainedapproximately 1.1 million shares authorized by the Board for repurchase.

 

**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, orinvestment in other businesses, the impact of our divestment of MicroEdge,projections of revenues, future cost and expense levels, expected timing andamount of amortization expenses related to past acquisitions, the adequacy ofresources to meet future cash requirements, estimates or predictions of actionsby customers, suppliers, competitors or regulatory authorities, future clientwins, future hiring and future product introductions and acceptance. Suchforward-looking statements are based on our current plans and expectations andinvolve known and unknown risks and uncertainties which may cause our actualresults or performance to be materially different from any results orperformance expressed or implied by such forward-looking statements. Suchfactors 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**

 

Weoffer integrated software products and services for automating and integratingdata and work flows across the investment management organization, as well asbetween the investment management organization and external parties. Ourproducts are intended to increase operational efficiency, improve the accuracyof client information and 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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*CurrentEconomic Environment*

 

Duringthe first nine months of 2010, our business continued to benefit from animproved economic environment which began during the last half of 2009. Forexample, we grew bookings, revenues and renewal rates during the first ninemonths of 2010 as compared to the comparable period of 2009. We maintain ourexpectations of an improved demand environment for the remainder of 2010, andare expecting to grow revenues by 8% to 9% in fiscal 2010 compared to the prioryear primarily as a result of recent booking activity from the prior 12 monthsand our improved renewal rates. As the current economic situation evolves, wewill continue to evaluate its impact on our business and we will remain focusedon delivering innovative solutions for our customers. We remain positive aboutour relatively strong market position and we intend to remain focused onexecuting in the areas we can influence by continuing to provide high valueproducts while managing our expenses and headcount growth.

 

*OperatingOverview*

 

Operatinghighlights of our third quarter of 2010 include:

 

·                  *New and incremental bookings**.* The termlicense and Advent OnDemand contracts signed in the third quarter of 2010 willcontribute approximately $7.6 million in annual revenue (“annual contract value”or “ACV”), once they are fully implemented. This represents a 12% increase overthe $6.8 million of ACV booked from term license and Advent OnDemand contractssigned in the third quarter of 2009.

 

·                  *Improvement in Renewal Rate*.  Our renewal rate improved to a 91% initialrenewal rate for the second quarter of 2010. This represents a 4-pointimprovement over the same period of 2009.

 

·                  *International traction and expansion*.  We continue to execute on our internationalgrowth strategy, with revenues from international sources totaling 15% in thethird quarter of 2010. This represents a 2-point improvement over the sameperiod in 2009. Additionally, we signed new customers in Bahrain, Singapore,Sweden, Switzerland and the United Kingdom in the third quarter of 2010.

 

·                  *Advent Client Conference**.* We hosted avery successful client conference in September 2010 with more than 1,100attendees, which included executives from the many market segments we serveincluding: asset managers, financial advisors, hedge funds, prime brokers, fundadministrators, family offices, banks, broker dealers and trusts.

 

·                  *Launch of Moxy 7.0*.  We launched the latest version of Moxy, whichis designed to support the growing trends towards model-driven portfolioconstruction and management, combined with increased concerns about compliance.

 

·                  *Build-out of new facilities*. During 2009,we signed lease agreements for our future facilities in New York City (the “GraceBuilding”) and Boston, and commenced the build-out of those facilities duringthe first quarter of 2010.  We completedthe build-out and consolidated our operations in New York City and Bostonduring the second and third quarters of 2010, respectively.

 

*Acquisitionof Goya AS*

 

Duringthe first quarter of 2010, our wholly-owned Norwegian subsidiary, Advent NorwayAS, acquired the entire share capital of Goya AS, a Norwegian software companythat provides transfer agency-related solutions to mutual fund managers andmutual fund distributors. Cash consideration of $4.7 million, net of cash acquired,was paid upon closing in March 2010.

 

*TermLicense and Term License Deferral/Recognition*

 

Weare substantially through the process of converting the Company’s licenserevenues from a perpetual license model to a term license model. When acustomer purchases a term license together with implementation services, we donot recognize any revenue under the contract until the implementation servicesare complete and the remaining services are substantially complete. If theimplementation services are still in progress as of quarter-end, we will deferall of the contract revenues to a subsequent quarter. At the point professionalservices are substantially completed, we recognize a pro-rata amount of theterm license revenue, professional services fees earned and related expenses,based on the elapsed time from the start of the term license to the substantialcompletion of professional services. Term license revenue for the remainingcontract years and the remaining deferred professional services revenue andrelated expenses are recognized ratably over the remaining contract length.

 

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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 three months ended September 30, 2010 and 2009, the term licensedeferral/recognition (decreased) increased the Company’s revenues as follows(in millions):

 
| ** **                      | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------|------------|---------------------------------------------------------|------------|------------|------------|
| ** **                      | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change** | ** ** |
|                            |       |                                                    |       |       |       |   |   |
| Term license revenues           |       | $                                                       | (0.4       | )          | $          | 0.7 |   | $ | (1.1 | ) |
| Professional services and other |       | (0.1                                                    | )          | 1.5        |       | (1.6 | ) |
| ** **                      | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total net revenues              |       | $                                                       | (0.5       | )          | $          | 2.2 |   | $ | (2.7 | ) |

 

Amountsof revenues and directly-related expenses deferred as of September 30,2010 and December 31, 2009 associated with our term licensing deferral wasas follows (in millions):

 
| ** **                | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|---------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                | ** ** | **2010**              | ** ** | **2009**             | ** ** |
| Deferred revenues         | ** ** | ** **            | ** ** | ** **           | ** ** |
| Short-term                |       | $                     | 22.1       |                 | $          | 20.1 |   |
| Long-term                 |       | 4.9                   |       | 4.6                  |       |
|                      |       |                  |       |                 |       |
| Total                     |       | $                     | 27.0       |                 | $          | 24.7 |   |
|                      |       |                  |       |                 |       |
| Directly-related expenses |       |                  |       |                 |       |
| Short-term                |       | $                     | 6.8        |                 | $          | 6.2 |   |
| Long-term                 |       | 2.5                   |       | 2.4                  |       |
|                      |       |                  |       |                 |       |
| Total                     |       | $                     | 9.3        |                 | $          | 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.

 

*FinancialOverview*

 

Thecomponents of revenue from continuing operations during the third quarters of2010 and 2009, and associated dollar and percentage fluctuations were asfollows (in thousands, except % change):

 
| ** **                                                        | ** ** | **Three Months Ended September 30** | ** ** | **$**      | ** ** | **%**      | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                        | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change** | ** ** | **Change** | ** ** |
|                                                              |       |                                                    |       |       |       |       |       |   |   |
| Term license revenues                                             |       | $                                                       | 28,168     |       | $          | 24,282     |       | $ | 3,886 |   | 16 | % |
| Maintenance revenues                                              |       | 18,111                                                  |       | 18,703     |       | (592       | )          | -3 | % |
| Other recurring revenues                                          |       | 15,692                                                  |       | 12,361     |       | 3,331      |       | 27 | % |
| **Total term license, maintenance and  other recurring revenues** | ** ** | **61,971**                                              | ** ** | **55,346** | ** ** | **6,625**  | ** ** | **12** | **%** |
| *Recurring revenue as % of total  revenue*                        | * *   | *86*                                                    | *%*        | *87*       | *%*        | * *   | * *   | * * | * * |
|                                                              |       |                                                    |       |       |       |       |       |   |   |
| Asset under administration (AUA) fees                             |       | 1,521                                                   |       | 1,199      |       | 322        |       | 27 | % |
| Other perpetual license fees                                      |       | 1,234                                                   |       | 1,171      |       | 63         |       | 5 | % |
| **Total perpetual license fees**                                  | ** ** | **2,755**                                               | ** ** | **2,370**  | ** ** | **385**    | ** ** | **16** | **%** |
|                                                              |       |                                                    |       |       |       |       |       |   |   |
| **Professional services and other**                               | ** ** | **7,261**                                               | ** ** | **6,066**  | ** ** | **1,195**  | ** ** | **20** | **%** |
|                                                              |       |                                                    |       |       |       |       |       |   |   |
| **Total net revenues**                                            | ** ** | **$**                                                   | **71,987** | ** ** | **$**      | **63,782** | ** ** | **$** | **8,205** | ** ** | **13** | **%** |

 

Totalnet revenues increased by $8.2 million or 13% during the third quarter of 2010,which was primarily attributed to an increase in term license revenues of $3.9million due to our recent bookings activity from the previous 12 months, growthin sales of our Geneva and APX products and our improved renewal rates.Additionally, other recurring revenues increased by $3.3 million or 27% duringthe third quarter of 2010 compared to the same period of 2009, as we recognizedrevenues from recent outsourced services and data services contracts that wentlive in September 2009. These increases were partially offset by adecrease of $0.6 million in perpetual maintenance revenues primarily resultingfrom perpetual license customers’ migration to term licenses and to maintenancede-activations due to customer attrition.

 

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Perpetuallicense fees in the third quarter of 2010 increased 16% or $0.4 millioncompared to the third quarter of 2009 as our clients experienced modest growthin AUA balances. Professional services and other revenues also increased due torevenues generated by our annual client conference that we hosted in September 2010,and greater consulting activity as a result of the continued growth in bookingsdriving additional implementations during the third quarter of 2010.

 

Totalrecurring revenues, which we define as term license, perpetual maintenance, andother recurring revenues, increased by $6.6 million but decreased to 86% oftotal net revenues during the third quarter of 2010, as compared to the sameperiod in 2009. The increase in absolute dollars was driven by the increase interm license and other recurring revenues, while the decrease as a percentageof total net revenues reflects faster growth in professional services and otherrevenues, in particular consulting revenues and conference revenues. During thethird quarter of 2010, we experienced an increase in new service engagementsresulting in the revenue increases in consulting services. Conference revenueincreased as we returned to hosting our client conference in 2010.

 

Thecomponents of cost of revenues and operating expenses, operating income,interest and other income (expense) net, provision for income taxes and netincome from continuing operations during the third quarters of 2010 and 2009,and associated dollar and percentage fluctuations, were as follows (inthousands, except % change):

 
| ** **                                    | ** ** | **Three Months Ended September 30** | ** ** | **$**      | ** ** | **%**      | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                    | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change** | ** ** | **Change** | ** ** |
| **Cost of revenues:**                         |       |                                                    |       |       |       |       |       |   |   |
| Term license, maintenance and other recurring |       | $                                                       | 12,709     |       | $          | 11,920     |       | $ | 789 |   | 7 | % |
| Perpetual license fees                        |       | 61                                                      |       | 65         |       | (4         | )          | -6 | % |
| Professional services and other               |       | 8,730                                                   |       | 7,628      |       | 1,102      |       | 14 | % |
| Amortization of developed technology          |       | 1,672                                                   |       | 1,416      |       | 256        |       | 18 | % |
| ** **                                    | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total cost of revenues**                    | ** ** | **23,172**                                              | ** ** | **21,029** | ** ** | **2,143**  | ** ** | **10** | **%** |
| * *                                      | * *   | * *                                                | * *   | * *   | * *   | * *   | * *   | * * | * * |
| **Operating expenses**                        |       |                                                    |       |       |       |       |       |   |   |
| Sales and marketing expense                   |       | 16,763                                                  |       | 15,627     |       | 1,136      |       | 7 | % |
| Product development                           |       | 13,069                                                  |       | 12,179     |       | 890        |       | 7 | % |
| General and administrative                    |       | 8,893                                                   |       | 8,636      |       | 257        |       | 3 | % |
| Amortization of other intangibles             |       | 331                                                     |       | 438        |       | (107       | )          | -24 | % |
| Restructuring charges                         |       | 26                                                      |       | 36         |       | (10        | )          | -28 | % |
|                                          |       |                                                    |       |       |       |       |       |   |   |
| **Total operating expenses**                  | ** ** | **39,082**                                              | ** ** | **36,916** | ** ** | **2,166**  | ** ** | **6** | **%** |
|                                          |       |                                                    |       |       |       |       |       |   |   |
| **Income from continuing operations**         | ** ** | **9,733**                                               | ** ** | **5,837**  | ** ** | **3,896**  | ** ** | **67** | **%** |
| ** **                                    | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest and other income  (expense), net** | ** ** | **163**                                                 | ** ** | **(194**   | **)**      | **357**    | ** ** | **-184** | **%** |
| ** **                                    | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income from continuing operations  before** | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **income taxes**                              | ** ** | **9,896**                                               | ** ** | **5,643**  | ** ** | **4,253**  | ** ** | **75** | **%** |
| ** **                                    | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Provision for income taxes**                | ** ** | **3,915**                                               | ** ** | **1,741**  | ** ** | **2,174**  | ** ** | **125** | **%** |
| ** **                                    | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income from continuing  operations**    | ** ** | **$**                                                   | **5,981**  | ** ** | **$**      | **3,902**  | ** ** | **$** | **2,079** | ** ** | **53** | **%** |

 

Totalexpenses from continuing operations, including cost of revenues, increased to$62.3 million in the third quarter of 2010 from $57.9 million in the thirdquarter of 2009. This increase reflected costs associated with our clientconference, which did not occur in 2009, and investments made in productdevelopment to upgrade our products. Additionally, we made investments toexpand our business which resulted in higher costs for travel andentertainment, payroll and related expenses, and facilities. The increase infacilities costs reflects new offices in Beijing and Singapore which wereopened subsequent to September 30, 2009. Domestic facility costs alsoincreased as we consolidated our offices in New York City and Boston during thefirst nine months of 2009. During 2009, we signed lease agreements for our newfacilities in these cities and during the first quarter of 2010 we commencedthe build-out. We occupied our former facilities in New York and Boston untilthe build-out for our new facilities was completed; as a result, we incurredrent and utilities expense in both our former and new facilities during 2010 inthese cities. We completed the build-out of our new facilities in New York andBoston in May and August 2010, respectively, and moved our operationsto consolidate our facility space in both locations.

 

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Ouroperating income from continuing operations in the third quarter of 2010increased to $9.7 million or 14% of revenue from $5.8 million or 9% of revenuein the third quarter of 2009, which is reflective of improved leverage in ouroperating expense categories. Sales and marketing, product development, andgeneral and administrative costs were all down by at least one percentage pointcompared to the same period last year.

 

Interestand other income was $0.2 million in the third quarter of 2010 compared toexpense of $(0.2) million in the comparable period of 2009. The income in thethird quarter of 2010 primarily represents foreign exchange gains as the USdollar weakened against the Pound Sterling, the Euro and other Europeancurrencies.

 

Ourcontinuing operations’ income tax expense was $3.9 million resulting in a 40%effective tax rate during the third quarter of 2010, compared to $1.7 millionor 31%, respectively, in the third quarter of 2009. The increase in theeffective tax rate in the third quarter of 2010 compared with the third quarterof 2009 is primarily due to the lapsing of the federal research credit for2010.

 

Netincome from continuing operations was $6.0 million, resulting in dilutedearnings per share of $0.22 for the third quarter of 2010, compared to $3.9million or $0.15 in the third quarter of 2009.

 

Ourcontinuing operations generated operating cash flow of $21.6 million in thethird quarter of 2010, compared to $19.8 million in the third quarter of 2009.During the third quarter of 2010, we repurchased approximately 32,000 shares ofcommon stock under our Board authorized share repurchase program for a totalcash outlay of $1.5 million and an average price of $45.89 per share.

 

**Critical Accounting Policies and Estimates**

 

Management’sdiscussion and analysis of our financial condition and results of operationsare based upon our condensed consolidated financial statements and relatednotes, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America. We review the accountingpolicies used in reporting our financial results on a regular basis. Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent liabilities.

 

Onan ongoing basis, we evaluate the process we use to develop estimates. We base ourestimates on historical experience and on other information that we believe isreasonable for making judgments at the time the estimates are made. Actualresults may differ from our estimates due to actual outcomes being differentfrom those on which we based our assumptions.

 

Webelieve the following accounting policies contain the more significantjudgments and estimates used in the preparation of our condensed consolidatedfinancial statements.

 

·                  Revenue recognition and deferred revenues;

 

·                  Income taxes;

 

·                  Stock-based compensation;

 

·                  Restructuring charges and related accruals;

 

·                  Business combinations;

 

·                  Disposition;

 

·                  Goodwill;

 

·                  Impairment of long-lived assets;

 

·                  Legal contingencies; and

 

·                  Sales returns and accounts receivableallowances

 

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Therehave been no significant changes in our critical accounting policies andestimates during the nine months ended September 30, 2010  as compared to the critical accountingpolicies and estimates disclosed in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” included in our Annual Report onForm 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 nine monthsended September 30, 2010, as compared to the recent accountingpronouncements described in our Annual Report on Form 10-K for the fiscalyear ended December 31, 2009, that are of significance, or potentialsignificance, to the Company.

 

InOctober 2009, the Financial Accounting and Standards Board (“FASB”) issuedAccounting Standards Update (“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.The Company has not early adopted this guidance and does not expect adoption ofASU 2009-13 or ASU 2009-14 to have a material impact on our condensedconsolidated 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 theassets and liabilities measured using significant unobservable inputs (Level 3fair value measurements). The guidance became effective for us beginning withthe reporting period beginning January 1, 2010, except for the disclosureon the 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009**

 

Thefollowing table sets forth, for the periods indicated, certain financialinformation as a percentage of total net revenues. The financial informationand the ensuing discussion should be read in conjunction with the accompanyingcondensed consolidated financial statements and notes thereto:

 
| ** **                                             | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                             | ** ** | **2010**                                                | ** ** | **2009**                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| **Net revenues:**                                      |       |                                                    |       |                                                   |       |   |   |   |   |
| Term license, maintenance and other recurring          |       | 86                                                      | %          | 87                                                     | %          | 87 | % | 86 | % |
| Perpetual license fees                                 |       | 4                                                       |       | 4                                                      |       | 4 |   | 4 |   |
| Professional services and other                        |       | 10                                                      |       | 10                                                     |       | 9 |   | 10 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Total net revenues                                     |       | 100                                                     |       | 100                                                    |       | 100 |   | 100 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| **Cost of revenues:**                                  |       |                                                    |       |                                                   |       |   |   |   |   |
| Term license, maintenance and other recurring          |       | 18                                                      |       | 19                                                     |       | 18 |   | 18 |   |
| Perpetual license fees                                 |       | *                                                       |       | *                                                      |       | * |   | * |   |
| Professional services and other                        |       | 12                                                      |       | 12                                                     |       | 10 |   | 12 |   |
| Amortization of developed technology                   |       | 2                                                       |       | 2                                                      |       | 2 |   | 2 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Total cost of revenues                                 |       | 32                                                      |       | 33                                                     |       | 31 |   | 32 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Gross margin                                           |       | 68                                                      |       | 67                                                     |       | 69 |   | 68 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| **Operating expenses:**                                |       |                                                    |       |                                                   |       |   |   |   |   |
| Sales and marketing                                    |       | 23                                                      |       | 25                                                     |       | 24 |   | 24 |   |
| Product development                                    |       | 18                                                      |       | 19                                                     |       | 18 |   | 18 |   |
| General and administrative                             |       | 12                                                      |       | 14                                                     |       | 14 |   | 13 |   |
| Amortization of other intangibles                      |       | *                                                       |       | 1                                                      |       | * |   | 1 |   |
| Restructuring charges                                  |       | *                                                       |       | *                                                      |       | * |   | * |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Total operating expenses                               |       | 54                                                      |       | 58                                                     |       | 57 |   | 57 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Income from continuing operations                      |       | 14                                                      |       | 9                                                      |       | 12 |   | 11 |   |
| Interest and other income (expense), net               |       | *                                                       |       | *                                                      |       | * |   | 1 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Income from continuing operations before income  taxes |       | 14                                                      |       | 9                                                      |       | 11 |   | 12 |   |
| Provision for income taxes                             |       | 5                                                       |       | 3                                                      |       | 4 |   | 3 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income from continuing operations                  |       | 8                                                       |       | 6                                                      |       | 7 |   | 9 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| **Discontinued operation:**                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income (loss) from discontinued operation          |       | *                                                       |       | 1                                                      |       | * |   | 1 |   |
|                                                   |       |                                                    |       |                                                   |       |   |   |   |   |
| Net income                                             |       | 8                                                       | %          | 7                                                      | %          | 7 | % | 10 | % |

 

----

 *Less than 1%

 

**NETREVENUES**

 
| ** **                        | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                        | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| ** **                        | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total net revenues (in thousands) |       | $                                                       | 71,987     |       | $          | 63,782                                                 |       | $          | 8,205      |   | $ | 207,947 |   | $ | 193,175 |   | $ | 14,772 |   |
|                                   |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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 other recurring revenues are derived from oursubscription-based and transaction-based services. Perpetual license revenuesare derived from the licensing of software products under a perpetualarrangement and include Assets Under Administration (“AUA”) fees for certainperpetual arrangements. Professional services and other revenues include feesfor consulting, fees from training, and project management services and ourclient conferences. Sales returns, which we generally do not provide tocustomers, are accounted for as deductions to these three revenue categoriesbased on our historical experience.

 

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

 
| ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **YTD**       | ** ** |
|--------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|
| ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **September** | ** ** |
| **As a percentage of net revenues** | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**      | ** ** |
|                                                         |       |       |       |       |       |       |       |          |       |
| Revenues from recurring sources                              |       | 79         | %          | 80         | %          | 86         | %          | 87            | %          |
|                                                         |       |       |       |       |       |       |       |          |       |
| Revenues from perpetual license fees                         |       | 11         | %          | 7          | %          | 4          | %          | 4             | %          |

 

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.

 

Totalnet revenues increased $8.2 million in the third quarter of 2010 compared tothe same quarter in 2009.  Theyear-over-year growth in total net revenues for the third quarter of 2010 wasdue to higher revenues from recurring sources, primarily term license and otherrecurring revenues, which reflected $6.6 million or 12% growth in the thirdquarter of 2010 compared to the same quarter in 2009. The increase in termlicense and other recurring revenue is primarily due to growth in sales of ourGeneva and APX products, revenue being recognized from several large dataservice and outsourcing arrangements where implementation was completed in September 2009.The increase in professional services and other revenues was due to our clientconference held in September 2010.

 

Revenuesderived from international sales were $10.5 million and $30.2 million for thethree and nine months ended September 30, 2010, which reflected anincrease of $2.4 million and $4.0 million when compared to the comparableperiods in 2009. The increase primarily reflects increased demand ininternational locations over the previous 12 months. We plan to continueexpanding our international sales efforts, both in our current markets andelsewhere. The revenues from customers in any single international country didnot exceed 10% of total net revenues.

 

Weexpect total net revenues from continuing operations to be between $72 millionand $74 million in the fourth quarter of 2010.

 

***Term License, Maintenance andOther Recurring Revenues***

*** ***
| **(in thousands, except percent of**      | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| **total net revenues)**                             | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
|                                                          |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Term  license revenues                                        |       | $                                                       | 28,168     |       | $          | 24,282                                                 |       | $          | 3,886      |   | $ | 79,268 |   | $ | 74,855 |   | $ | 4,413 |   |
| Maintenance  revenues                                         |       | 18,111                                                  |       | 18,703     |       | (592                                                   | )          | 54,970     |       | 56,196 |   | (1,226 | ) |
| Other  recurring revenues                                     |       | 15,692                                                  |       | 12,361     |       | 3,331                                                  |       | 46,817     |       | 35,365 |   | 11,452 |   |
| Total  term license, maintenance and other recurring revenues |       | $                                                       | 61,971     |       | $          | 55,346                                                 |       | $          | 6,625      |   | $ | 181,055 |   | $ | 166,416 |   | $ | 14,639 |   |
| Percent  of total net revenues                                |       | 86                                                      | %          | 87         | %          |                                                   |       | 87         | %          | 86 | % |   |   |

 

Totalrecurring revenues, which we define as term license, perpetual maintenance, andother recurring revenues, increased to 87% of total net revenues during thenine months ended September 30, 2010, compared to 86% in the comparableperiod of 2009. Total recurring revenues decreased to 86% of total net revenuesduring the third quarter of 2010 as compared to 87% in the comparable period of2009, due to faster growth in professional service and other non-recurringrevenues, primarily consulting and conference revenues. In 2010, we hosted theAdvent client conference which contributed $1.0 million to professionalservices and other revenues during the third quarter of 2010, compared to zeroin the same period of 2009.

 

Revenuesfrom term licenses, which include both the software license and maintenanceservices for term licenses, grew during the three and nine months ended September 30,2010 compared to the comparable periods of 2009. The growth of term licenserevenues reflects continued market acceptance of our Geneva, APX, Partner,Tamale and Moxy products and the continued layering of incremental ACV sold inthe previous 12 months into our term revenue.

 

Theseincreases were partially offset by the net term license revenue deferral duringthe three months ended September 30, 2010. For our term licenses, we deferall revenue on new bookings until our implementation services are complete. Forthe three and nine months ended September 30, 2010 and 2009, the termlicense deferral/recognition increased (decreased) the Company’s term licenserevenues as follows (in millions):

 
| ** **             | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **             | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
|                   |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Term  license revenues |       | $                                                       | (0.4       | )          | $          | 0.7                                                    |       | $          | (1.1       | ) | $ | (2.3 | ) | $ | 3.8 |   | $ | (6.1 | ) |
|                        |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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** **

Duringthe nine months ended September 30, 2009, the revenue recognized fromcompleted implementations exceeded the revenue deferred from projects beingimplemented as several large implementations were completed, resulting in a netrecognition of term license revenue of $0.7 million and $3.8 million during thethree and nine months ended September 30, 2009, respectively. During thenine months ended September 30, 2010, we returned to our prior trend ofnet term license revenue deferral, as our ACV bookings during this periodincreased 38% compared to the nine months ended September 30, 2009, and wedeferred net term license revenues of $0.4 million and $2.3 million during thethree and nine months ended September 30, 2010, respectively.

 

Maintenancerevenues decreased $0.6 million and $1.2 million during the three and ninemonths ended September 30, 2010, respectively, when compared to the sameperiods in 2009. The decrease in maintenance revenues was attributable tomaintenance de-activations from customer attrition, maintenance leveldowngrades, reductions in products licensed or number of users by clients,perpetual license customers migrating to term licenses, and continued decreasein new perpetual license customers, partially offset by the impact of priceincreases.

 

Other recurring revenues,which primarily include revenues from the provision of software interfaces todownload securities information from third party data providers, partial orfull business process outsourcing, account aggregation, reconciliation,reference data management, and hosting of hardware and/or software, increased$3.3 million and $11.5 million during the three and nine months ended September 30,2010, respectively when compared to the same periods in 2009. The increase inother recurring revenues is primarily due to growth in revenues from outsourcedservices, and in data services as several large arrangements went live in September 2009.

 

Ourrenewal rates are based on cash collections and are disclosed one quarter inarrears. We disclose our renewal rates one quarter in arrears in order toinclude substantially all payments received against the invoices for thatquarter. We also update our renewal rates from the initially disclosed rates toinclude all cash collections subsequent to the initial disclosure. Thefollowing summarizes our initial and updated renewal rates (operational metric)for the previous five quarters:

 
| **Renewal Rates**                                          | ** ** | **Q310** | ** ** | **Q210** | ** ** | **Q110** | ** ** | **Q409** | ** ** | **Q309** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| *Based on cash collections relative to prior year  collections* | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   |
| * *                                                        | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   |
| Initially  Disclosed Rate (1)                                   |       | 91%      |       | 90%      |       | 89%      |       | 89%      |       | 87%      |       |
| Updated  Disclosed Rate (2)                                     |       | n/a      |       | 95%      |       | 92%      |       | 89%      |       | 90%      |       |

 

----

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

 

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

 

 

Weexpect our revenue from recurring sources to continue to represent over 85% ofour total net revenues as we continue to sign term license agreements andAdvent OnDemand contracts with new customers.

 

***Perpetual License Fees***

*** ***
| **(in thousands, except percent of** | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| **total net revenues)**                        | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| ** **                                               | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| AUA  fees                                                |       | $                                                       | 1,521      |       | $          | 1,199                                                  |       | $          | 322        |   | $ | 4,284 |   | $ | 4,052 |   | $ | 232 |   |
| Other  perpetual license fees                            |       | 1,234                                                   |       | 1,171      |       | 63                                                     |       | 3,512      |       | 3,581 |   | (69 | ) |
| ** **                                               | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  perpetual license fees                            |       | $                                                       | 2,755      |       | $          | 2,370                                                  |       | $          | 385        |   | $ | 7,796 |   | $ | 7,633 |   | $ | 163 |   |
|                                                     |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Percent  of total net revenues                           |       | 4                                                       | %          | 4          | %          |                                                   |       | 4          | %          | 4 | % |   |   |

 

Totalperpetual license fees increased $0.4 million and $0.2 million during the threeand nine months ended September 30, 2010, respectively, as a result ofincreases in AUA balances of our clients. Incremental assets underadministration fees from perpetual licenses increased by $0.3 million and $0.2million during the three and nine months ended September 30, 2010,respectively, when compared to the same periods in 2009 as clients experiencedgrowth in the market value of AUA balances during 2010 due to marketconditions.

 

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***Professional Services and Other Revenues***

 
| ** **                                               | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                               | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Professional services and other revenues (in  thousands) |       | $                                                       | 7,261      |       | $          | 6,066                                                  |       | $          | 1,195      |   | $ | 19,096 |   | $ | 19,126 |   | $ | (30 | ) |
| Percent of total net revenues                            |       | 10                                                      | %          | 10         | %          |                                                   |       | 9          | %          | 10 | % |   |   |
|                                                          |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Professionalservices and other revenues primarily include consulting, project management, customintegration, and training. Professional services projects related to Axys, Moxyand Partner products generally can be completed in a two- to six-month timeperiod, while services related to Geneva and APX products may require a four-to twelve-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 services fees earned based on the elapsed time from thestart of the term license to the substantial completion of professionalservices. The remaining deferred professional services revenue is recognizedratably over the remaining contract length.

 

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

 
| ** **                                             | ** ** | **Change From**       | ** ** | **Change From**       | ** ** |
|--------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                             | ** ** | **2009 to 2010** | ** ** | **2009 to 2010** | ** ** |
| ** **                                             | ** ** | **QTD**                    | ** ** | **YTD**                    | ** ** |
|                                                   |       |                       |       |                       |       |
| Increased consulting services                          |       | $                          | 1,067      |                       | $          | 899 |   |
| Increased conference                                   |       | 1,008                      |       | 1,046                      |       |
| Increased reimbursable travel revenue                  |       | 392                        |       | 438                        |       |
| Decreased net term license implementation  recognition |       | (1,615                     | )          | (2,782                     | )          |
| Various other items                                    |       | 343                        |       | 369                        |       |
|                                                   |       |                       |       |                       |       |
| Total change                                           |       | $                          | 1,195      |                       | $          | (30 | ) |

 

Thefluctuations in professional services and other revenues during the three andnine months ended September 30, 2010 reflected increased revenue fromconsulting services and conference, partially offset by the revenue deferralimpact associated with term license implementations. During the third quarterof 2010, we experienced an increase in new service engagements resulting in therevenue increases in consulting services. Conference revenue also increased aswe returned to hosting our client conference in 2010.

 

Theimpact of our term license implementation recognition on professional servicesrevenues for the three and nine months ended September 30, 2010 and 2009was as follows (in thousands):

 
| ** **                                                                                           | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                                                                           | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Net (deferral) recognition of professional  services revenue related to term license implementations |       | $                                                       | (67        | )          | $          | 1,548                                                  |       | $          | (1,615     | ) | $ | 40 |   | $ | 2,822 |   | $ | (2,782 | ) |
|                                                                                                      |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Duringthe three and nine months ended September 30, 2009, the revenue recognizedfrom completed implementations exceeded the revenue deferred from projectsbeing implemented as several large implementations were completed in the prioryear, resulting in the net recognition of professional services revenue of $1.5million and $2.8 million, respectively. During the three and nine months ended September 30,2010, the net impact of the term license implementation recognition (deferral)was minimal as the revenue recognized from completed implementations was offsetby revenue deferred from implementations in process at September 30, 2010.

 

**COST OF REVENUES**

 
| ** **                            | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total cost of revenues (in thousands) |       | $                                                       | 23,172     |       | $          | 21,029                                                 |       | $          | 2,143      |   | $ | 64,559 |   | $ | 62,319 |   | $ | 2,240 |   |
| Percent of total net revenues         |       | 32                                                      | %          | 33         | %          |                                                   |       | 31         | %          | 32 | % |   |   |
|                                       |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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Ourcost of revenues is made up of four components: cost of term license,maintenance and other recurring; cost of perpetual license fees; cost ofprofessional services and other; and amortization of developed technology. Theincrease in total cost of revenues in absolute dollars for the three and ninemonths ended September 30, 2010 was due principally to increases in thecost of term license, maintenance and other recurring related to new hires tosupport our increase in demand for technical support and outsourcing dataservices, costs related to our client conference and to an increase inamortization of developed technology costs, partially offset by decreasedpayroll and related costs from our professional services group during the firstnine months of 2010. Cost of revenues as a percent of total net revenuesdecreased for the three and nine months ended September 30, 2010 due togrowth in term license, maintenance and other recurring revenues and decreasedpayroll and related costs from our professional services group during the firstnine months of 2010.

 

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

 
| ** **                                                              | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                                              | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Cost of term license, maintenance and other recurring  (in thousands)   |       | $                                                       | 12,709     |       | $          | 11,920                                                 |       | $          | 789        |   | $ | 37,866 |   | $ | 34,729 |   | $ | 3,137 |   |
| Percent of total term license, maintenance and  other recurring revenue |       | 21                                                      | %          | 22         | %          |                                                   |       | 21         | %          | 21 | % |   |   |
|                                                                         |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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. We defer revenues and direct costs associated withservices performed on term license implementations until the project is reachedsubstantially complete. Indirect costs such as management and other overheadexpenses 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**       | ** ** | **Change From**       | ** ** |
|------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                       | ** ** | **2009 to 2010** | ** ** | **2009 to 2010** | ** ** |
| ** **                                                       | ** ** | **QTD**                    | ** ** | **YTD**                    | ** ** |
|                                                             |       |                       |       |                       |       |
| Increased payroll and related costs                              |       | $                          | 199        |                       | $          | 1,597 |   |
| Increased allocation-in of facility and  infrastructure expenses |       | 284                        |       | 801                        |       |
| Increased travel and entertainment                               |       | 281                        |       | 645                        |       |
| Increased depreciation and amortization                          |       | 146                        |       | 477                        |       |
| Decreased royalty                                                |       | (181                       | )          | (780                       | )          |
| Various other items                                              |       | 60                         |       | 397                        |       |
|                                                             |       |                       |       |                       |       |
| Total change                                                     |       | $                          | 789        |                       | $          | 3,137 |   |

 

Theincreases in absolute dollars for the three and nine months ended September 30,2010 were due primarily to an increase in compensation and related costsresulting from increases in salary costs and headcount which enables us todeliver the technical support services we provide to our growing number ofclients in their day-to-day use of our software. We allocate facility andinfrastructure expenses based on headcount and consistent with the increase indepartmental headcount, we allocated more of these costs to our term license,maintenance and other recurring departments. The increase in travel andentertainment costs resulted from increased travel associated with our clientconference and providing client support services. The impact of these increaseswas partially offset by lower royalty expenses resulting from decreased renewalactivity with third party subscription-based and transaction-based vendors.

 

***Cost of Perpetual License Fees***

*** ***
| ** **                                    | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                    | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
|                                          |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Cost of perpetual license fees (in thousands) |       | $                                                       | 61         |       | $          | 65                                                     |       | $          | (4         | ) | $ | 199 |   | $ | 255 |   | $ | (56 | ) |
| Percent of total perpetual license revenues   |       | 2                                                       | %          | 3          | %          |                                                   |       | 3          | %          | 3 | % |   |   |
|                                               |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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 decrease in cost of perpetuallicense fees for the three and nine months ended September 30, 2010compared with the same periods in 2009 resulted primarily from a reduction inroyalties and product media costs as we continue to transition away fromperpetual licensing.

 

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

 
| ** **                                                 | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Cost of professional services and other (in  thousands)    |       | $                                                       | 8,730      |       | $          | 7,628                                                  |       | $          | 1,102      |   | $ | 21,623 |   | $ | 23,190 |   | $ | (1,567 | ) |
| Percent of total professional services and other  revenues |       | 120                                                     | %          | 126        | %          |                                                   |       | 113        | %          | 121 | % |   |   |
|                                                            |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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, travel expenses and our client conference. Additionally, we deferdirect professional services costs until we have completed the term licenseimplementation services.

 

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

 
| ** **                                                      | ** ** | **Change From**       | ** ** | **Change From**       | ** ** |
|-----------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                      | ** ** | **2009 to 2010** | ** ** | **2009 to 2010** | ** ** |
| ** **                                                      | ** ** | **QTD**                    | ** ** | **YTD**                    | ** ** |
|                                                            |       |                       |       |                       |       |
| Increased marketing                                             |       | $                          | 1,569      |                       | $          | 1,557 |   |
| Increased outside contractors                                   |       | 706                        |       | 634                        |       |
| Increased travel and entertainment                              |       | 361                        |       | 539                        |       |
| Decreased payroll and related costs                             |       | (425                       | )          | (2,075                     | )          |
| Increased service cost deferral related to term implementations |       | (1,151                     | )          | (2,000                     | )          |
| Various other items                                             |       | 42                         |       | (222                       | )          |
|                                                            |       |                       |       |                       |       |
| Total change                                                    |       | $                          | 1,102      |                       | $          | (1,567 | ) |

 

In lieu of hosting theAdvent client conference in 2009, we elected to host a road show as customersand prospects were cautious about budgets during 2009. As the financial marketsstabilized, we returned to hosting the Advent client conference in September 2010resulting in the increases in marketing, and travel and entertainment costsduring the three and nine months ended September 30, 2010. Outsidecontractor costs also increased during these periods as we increased our usageof third-party consultants for implementation projects. These increases werepartially offset by decreases in payroll and related costs during the three andnine months ended September 30, 2010, as we redeployed consultingemployees to other areas of our business during the past year.

 

Wedefer direct costs associated with services performed on term licenseimplementations until a project reaches substantial completion. Indirect costssuch as management and other overhead expenses are recognized in the period inwhich they are incurred, with no revenue to offset them. At the pointprofessional services are substantially completed, we recognize a pro-rataamount of the term license revenue, professional services fees earned andrelated expenses, based on the elapsed time from the start of the term licenseto the substantial completion of professional services. Term license revenuefor the remaining contract years and the remaining deferred professionalservices revenue and related expenses are recognized ratably over the remainingcontract length.

 

Duringthe three and nine months ended September 30, 2010, we returned to ourprior trend of deferring costs. During the comparable periods of 2009, thecosts recognized from completed implementations exceeded the costs deferredfrom projects being implemented as several large implementations werecompleted. The impact of our term license implementations on the recognition ofprofessional services costs for the three and nine months ended September 30,2010 and 2009 was as follows (in thousands):

 
| ** **                                                                                         | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                                                                         | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Net (deferral) recognition of professional  services costs related to term license implementations |       | $                                                       | (359       | )          | $          | 792                                                    |       | $          | (1,151     | ) | $ | (562 | ) | $ | 1,438 |   | $ | (2,000 | ) |
|                                                                                                    |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Gross margins forprofessional services and other were (20)%, and (13)% during the three and ninemonths ended September 30, 2010, respectively, compared to (26)% and (21)%in the comparable periods of 2009. The gross margin improvement for the threeand nine months ended September 30, 2010 was primarily due to theredeployment of consulting employees to other areas of our business as we workmore through third party providers, and higher utilization of our currentconsulting employees.

 

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Weexpect cost of professional services and other in the fourth quarter of 2010 todecrease in dollar amount and decrease as a percentage of revenue, as comparedto the third quarter of 2010, as costs associated with our annual userconference in the third quarter of 2010 will not re-occur in the fourthquarter.

 

***Amortization of Developed Technology***

 
| ** **                                         | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                         | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Amortization of developed techology (in thousands) |       | $                                                       | 1,672      |       | $          | 1,416                                                  |       | $          | 256        |   | $ | 4,871 |   | $ | 4,145 |   | $ | 726 |   |
| Percent of total net revenues                      |       | 2                                                       | %          | 2          | %          |                                                   |       | 2          | %          | 2 | % |   |   |
|                                                    |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Amortization of developedtechnology represents amortization of acquisition-related intangibles, andamortization of capitalized software development costs previously capitalizedunder ASC 985. The increase during the three and nine months ended September 30,2010 resulted from additional amortization from software development costscapitalized during 2009 and 2010, and to a lesser extent, amortization fromtechnology related intangible assets associated with Goya AS which we acquiredin March 2010, partially offset by decreased amortization from otherdeveloped technology assets that were fully amortized during 2009.

 

**OPERATING EXPENSES**

 

***Sales and Marketing***

 
| ** **                         | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                         | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| ** **                         | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales and marketing (in thousands) |       | $                                                       | 16,763     |       | $          | 15,627                                                 |       | $          | 1,136      |   | $ | 50,671 |   | $ | 46,538 |   | $ | 4,133 |   |
| Percent of total net revenues      |       | 23                                                      | %          | 25         | %          |                                                   |       | 24         | %          | 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**       | ** ** | **Change From**       | ** ** |
|------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                       | ** ** | **2009 to 2010** | ** ** | **2009 to 2010** | ** ** |
| ** **                                                       | ** ** | **QTD**                    | ** ** | **YTD**                    | ** ** |
|                                                             |       |                       |       |                       |       |
| Increased travel and entertainment                               |       | $                          | 682        |                       | $          | 1,446 |   |
| Increased marketing                                              |       | 303                        |       | 778                        |       |
| Increased allocation-in of facility and  infrastructure expenses |       | 233                        |       | 877                        |       |
| Increased payroll and related costs                              |       | 97                         |       | 1,240                      |       |
| Various other items                                              |       | (179                       | )          | (208                       | )          |
|                                                             |       |                       |       |                       |       |
| Total change                                                     |       | $                          | 1,136      |                       | $          | 4,133 |   |

 

Theincrease in sales and marketing expenses for the three and nine months ended September 30,2010 reflects the growth of our sales and marketing efforts in 2010. In thethird quarter of 2010, we held our client conference and offsite meetings forour sales groups. The costs associated with these events contributed to theincrease in travel and entertainment and in marketing costs during the threeand nine months ended September 30, 2010. We have also grown our headcountto 202 at September 30, 2010 from 180 at September 30, 2009 as wecontinue to expand our sales and marketing efforts internationally, resultingin an increase in payroll related costs and allocation-in of facility andinfrastructure expenses.

 

Inthe fourth quarter of 2010, we expect sales and marketing expenses to increasein dollar amount, as we increase our sales and marketing activities and travelin support of expanding our international sales efforts, both in our currentmarkets and elsewhere.

 

***Product Development***

*** ***
| ** **                         | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                         | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
|                               |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Product development (in thousands) |       | $                                                       | 13,069     |       | $          | 12,179                                                 |       | $          | 890        |   | $ | 38,237 |   | $ | 35,528 |   | $ | 2,709 |   |
| Percent of total net revenues      |       | 18                                                      | %          | 19         | %          |                                                   |       | 18         | %          | 18 | % |   |   |
|                                    |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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

 

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

 
| ** **                                                       | ** ** | **Change From**       | ** ** | **Change From**       | ** ** |
|------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                       | ** ** | **2009 to 2010** | ** ** | **2009 to 2010** | ** ** |
| ** **                                                       | ** ** | **QTD**                    | ** ** | **YTD**                    | ** ** |
| ** **                                                       | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Increased payroll and related costs                              |       | $                          | 319        |                       | $          | 1,903 |   |
| Increased allocation-in of facility and  infrastructure expenses |       | 373                        |       | 1,108                      |       |
| Decreased capitalization of product development                  |       | 603                        |       | 434                        |       |
| Decreased outside services                                       |       | (352                       | )          | (889                       | )          |
| Various other items                                              |       | (53                        | )          | 153                        |       |
|                                                             |       |                       |       |                       |       |
| Total change                                                     |       | $                          | 890        |                       | $          | 2,709 |   |

 

Theincrease in total product development expenses for the three and nine monthsended September 30, 2010 reflects increases in payroll and related costs,and allocation-in of facility and infrastructure expenses resulted fromheadcount additions to help continue the enhancement of our existing productsuite including new versions of Geneva, APX, Moxy, Advent Rules Manager,Advent Revenue Center, Partner and Tamale RMS, and to a lesser extent,headcount additions in our China office during the fourth quarter of 2009 andin Norway where we acquired additional personnel from our acquisition of GoyaAS during the first quarter of 2010. The fluctuations in the capitalization ofour product development costs is attributable to timing of product releasesduring the three and nine months ended September 30, 2010 as wecapitalized $0.2 million and $1.7 million, respectively, primarily associatedwith Geneva 8.0, Partner 7.3 and Moxy 7.0, as compared to $0.8 million and $2.1million of costs associated in the comparable periods of 2009 primarilyassociated with Geneva 7.7, APX 3.0 and Partner 7.2. These increases in expensewere partially offset by the decrease in outside service costs which resultedfrom the conversion of third party contractors in China to employees during thefourth quarter of 2009.

 

***General and Administrative***

*** ***
| ** **                                | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| ** **                                | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| General and administrative (in thousands) |       | $                                                       | 8,893      |       | $          | 8,636                                                  |       | $          | 257        |   | $ | 28,316 |   | $ | 25,932 |   | $ | 2,384 |   |
| Percent of total net revenues             |       | 12                                                      | %          | 14         | %          |                                                   |       | 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**       | ** ** | **Change From**       | ** ** |
|-------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                        | ** ** | **2009 to 2010** | ** ** | **2009 to 2010** | ** ** |
| ** **                                                        | ** ** | **QTD**                    | ** ** | **YTD**                    | ** ** |
|                                                              |       |                       |       |                       |       |
| Increased facilities                                              |       | $                          | 633        |                       | $          | 2,341 |   |
| Increased payroll and related costs                               |       | 43                         |       | 843                        |       |
| Increased travel and entertainment                                |       | 121                        |       | 509                        |       |
| Increased allocation-out of facility and  infrastructure expenses |       | (573                       | )          | (1,770                     | )          |
| Various other items                                               |       | 33                         |       | 461                        |       |
|                                                              |       |                       |       |                       |       |
| Total change                                                      |       | $                          | 257        |                       | $          | 2,384 |   |

 

Theincrease in total general and administrative expenses in absolute dollarsduring the three and nine months ended September 30, 2010 is primarily dueto the increases in facilities costs. Subsequent to September 30, 2009, weopened new offices in Beijing and Singapore and relocated our operations in NewYork and Boston. During 2009, we signed lease agreements for our new facilitiesin New York City and Boston and commenced the build-out of those facilities inof the first quarter of 2010. We continued to occupy our former facilities inNew York and Boston until the build-out for our new facilities was completed;as a result, we incurred rent and utilities expense in both our former and newfacilities during 2010. We completed the build-out of our new facilities in NewYork and Boston in May and August 2010, respectively, and moved ouroperations to consolidate our facility space in both locations.

 

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Payrolland other related costs increased during the three and nine months ended September 30,2010 as a result of lower capitalization of payroll costs associated with ourinternally developed software projects, higher bonus costs and higher salaryexpense due to annual merit increases. The increase in travel and entertainmentcosts during the three and nine months ended September 30, 2010 isprimarily due to higher travel-related activity by our general andadministrative personnel associated with the growth of our business,international expansion and our client conference. These cost increases werepartially offset by the allocation-out of corporate expenses to otherdepartments. Corporate expenses, such as facility and information costs, areinitially recognized in our general and administrative department and thenallocated out to other departments based on headcount. As headcount in ourother departments grew at a higher rate during the past year than our generaland administrative department, we allocated-out more facility and informationtechnology costs resulting in less general and administrative expense duringthe first nine months of 2010.

 

Weanticipate facility expense to decrease slightly in the fourth quarter of 2010as we consolidated into our new facilities in Boston in August 2010.

 

***Amortization of Other Intangibles***

*** ***
| ** **                                       | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                       | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Amortization of other intangibles (in thousands) |       | $                                                       | 331        |       | $          | 438                                                    |       | $          | (107       | ) | $ | 977 |   | $ | 1,315 |   | $ | (338 | ) |
| Percent of total net revenues                    |       | 0                                                       | %          | 1          | %          |                                                   |       | 0          | %          | 1 | % |   |   |
|                                                  |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Amortizationof other intangibles represents amortization of non-technology relatedintangible assets. The decrease during 2010 is a result of an asset from aprior acquisition becoming fully amortized during 2009, partially offset byincreased amortization from intangible assets associated with Goya AS, which weacquired in March 2010.

 

***Restructuring Charges***

** **
| ** **                           | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                           | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
|                                 |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Restructuring charges (in thousands) |       | $                                                       | 26         |       | $          | 36                                                     |       | $          | (10        | ) | $ | 610 |   | $ | 92 |   | $ | 518 |   |
| Percent of total net revenues        |       | 0                                                       | %          | 0          | %          |                                                   |       | 0          | %          | 0 | % |   |   |
|                                      |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

During the nine months ended September 30,2010, we recorded a restructuring charge of $0.6 million which primarilyrelated to facility and exit costs associated with the relocation andconsolidation of one of our facilities in New York City in the second quarterof 2010. During the nine months ended September 30, 2009, we recorded arestructuring charge $0.1 million which related to the present valueamortization of facility exit obligations partially offset by adjustments tofacility exit assumptions.

 

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

 

Weexpect to incur a restructuring charge at approximately $0.3 million during thefourth quarter of 2010 related to facility and exit costs associated with ourformer facilities in Boston.

 

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

 
| ** **                                              | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                              | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Interest and other income (expense), net (in thousands) |       | $                                                       | 163        |       | $          | (194                                                   | )          | $          | 357        |   | $ | (772 | ) | $ | 1,585 |   | $ | (2,357 | ) |
| Percent of total net revenues                           |       | 0                                                       | %          | 0          | %          |                                                   |       | 0          | %          | 1 | % |   |   |
|                                                         |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

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

 

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

 
| ** **                                            | ** ** | **Change From**       | ** ** | **Change From**       | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **2009 to 2010** | ** ** | **2009 to 2010** | ** ** |
| ** **                                            | ** ** | **QTD**                    | ** ** | **YTD**                    | ** ** |
|                                                  |       |                       |       |                       |       |
| Decreased gain on sale of private equity  investments |       | $                          | —     |                       | $          | (2,062 | ) |
| Change in foreign exchange gains (losses)             |       | 265                        |       | (669                       | )          |
| Decreased interest expense                            |       | 82                         |       | 343                        |       |
| Increased interest income                             |       | 37                         |       | 66                         |       |
| Various other items                                   |       | (27                        | )          | (35                        | )          |
|                                                  |       |                       |       |                       |       |
| Total change                                          |       | $                          | 357        |                       | $          | (2,357 | ) |

 

InApril 2009, the Company received the final deferred contingent payment of$2.1 million as a result of the Company’s sale of its ownership in LatentZeroLimited (“LatentZero”) to Fidessa group plc (formerly royalblue group plc) inApril 2007. Total payments received by Advent from the sale of itsLatentZero ownership were $15.4 million.

 

Duringthe nine months ended September 30, 2010, the US dollar strengthenedagainst the Pound Sterling, the Euro and other foreign currencies compared tothe same period in 2009, resulting in the increase of $0.7 million in foreignexchange losses compared to the comparable period of 2009. During the threemonths ended September 30, 2010, the US dollar weakened against thesecurrencies resulting in a foreign exchange gain of $0.1 million compared to aforeign exchange loss of $0.2 million during the comparable period of 2009.

 

The decrease in interestexpense during the first nine months of 2010 resulted from zero debtoutstanding during the period, compared to a debt balance of up to $25 millionduring the nine months ended September 30, 2009. In February 2010,Advent’s Credit Facility expired in accordance with the terms of the seniorsecured facility agreement with the Lender and Advent elected not to renew theCredit Facility.

 

The increase in interestincome during the three and nine months ended September 30, 2010 reflectshigher cash and investment balances in 2010 compared to the same periods in2009.

 

***Provision for Income Taxes***

 
| ** **                                | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Provision for income taxes (in thousands) |       | $                                                       | 3,915      |       | $          | 1,741                                                  |       | $          | 2,174      |   | $ | 8,734 |   | $ | 6,612 |   | $ | 2,122 |   |
| Effective tax rate                        |       | 40                                                      | %          | 31         | %          |                                                   |       | 37         | %          | 29 | % |   |   |
|                                           |            |                                                         |            |            |            |                                                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Our effective tax rate was37% during the nine months ended September 30, 2010 compared to 29% duringthe same period of 2009. The increase in effective tax rate for the nine monthsended September 30, 2010 primarily reflects the impact of the suspensionof a federal research and development credit for 2010 and was partially offsetby an increase in the benefit recognized for employee disqualified dispositionsof incentive stock options. Additionally, the effective tax rate of 29% duringthe nine months ended September 30, 2009 includes the impact of a taxbenefit related to the release of the valuation allowance against capital losscarryforwards that resulted from our gain on the sale of our investment inLatentZero Limited.

 

We currently expect our annual effective tax ratefor 2010 to be between 35% and 40%. Should Congress retroactively reinstate thefederal research credit to the beginning of 2010, we would expect our effectivetax rate for fiscal 2010 to be between 30% and 35%.

 

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***Discontinued Operation***

*** ***
| ** **                                                                                                                         | ** ** | **Three Months Ended September 30** | ** ** | ** ** | ** ** | **Nine Months Ended September 30** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| **(in  thousands)**                                                                                                                | ** ** | **2010**                                                | ** ** | **2009**   | ** ** | **Change**                                             | ** ** | **2010**   | ** ** | **2009** | ** ** | **Change** | ** ** |
|                                                                                                                               |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Net revenues                                                                                                                       |       | $                                                       | —     |       | $          | 5,934                                                  |       | $          | (5,934     | ) | $ | — |   | $ | 18,859 |   | $ | (18,859 | ) |
|                                                                                                                               |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Income (loss) from operation of discontinued  operation (net of applicable taxes of $(19), $223, $(69), and $1,409,  respectively) |       | (23                                                     | )          | 770        |       | (793                                                   | )          | (68        | )          | 2,499 |   | (2,567 | ) |
|                                                                                                                               |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Loss on disposal of discontinued operation (net of  applicable taxes of $0, $0, $(20), and $0, respectively)                       |       | —                                                  |       | —     |       | —                                                 |       | (30        | )          | — |   | (30 | ) |
|                                                                                                                               |       |                                                    |       |       |       |                                                   |       |       |       |   |   |   |   |
| Net income (loss) from discontinued operation                                                                                      |       | $                                                       | (23        | )          | $          | 770                                                    |       | $          | (793       | ) | $ | (98 | ) | $ | 2,499 |   | $ | (2,597 | ) |

 

Net revenues from ourdiscontinued operation, MicroEdge, were $5.9 million and $18.9 million for thethree and nine months ended September 30, 2009, respectively.

 

On October 1, 2009, wecompleted the sale of MicroEdge and recorded an associated gain of $13.6million, net of tax, in our fourth quarter of 2009 results. Pursuant to theAgreement and Plan of Merger, the purchase price was subject to certain adjustmentsfor working capital. During the first quarter of 2010, the final workingcapital adjustment was settled, resulting in a downward adjustment to the gainon sale of MicroEdge of $30,000, net of tax.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Thefollowing is a summary of our cash, cash equivalents and marketable securities(in thousands):

 
| ** **                                     | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                     | ** ** | **2010**              | ** ** | **2009**             | ** ** |
| ** **                                     | ** ** | ** **            | ** ** | ** **           | ** ** |
| Cash and cash equivalents                      |       | $                     | 51,910     |                 | $          | 57,877 |   |
| Short-term and long-term marketable securities |       | $                     | 70,126     |                 | $          | 59,768 |   |

 

Cashand cash equivalents, and short-term and long-term marketable securitiesprimarily consist of money market mutual funds, US government and US GovernmentSponsored Entities (GSE’s) and high credit quality corporate debt securities.Cash and cash equivalents are comprised of highly liquid investments purchasedwith an original or remaining maturity of 90 days or less at the date ofpurchase. Our short-term and long-term marketable securities are classified asavailable-for-sale, with long-term investments having a maturity date greaterthan one year from the end of the period.

 

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

 
| ** **                                                                       | ** ** | **Nine Months Ended September 30** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2010**                                               | ** ** | **2009** | ** ** |
|                                                                             |       |                                                   |       |   |   |
| Net cash provided by operating activities from  continuing operations            |       | $                                                      | 51,860     |   | $ | 51,577 |   |
| Net cash used in investing activities from  continuing operations                |       | $                                                      | (31,313    | ) | $ | (1,233 | ) |
| Net cash used in financing activities from  continuing operations                |       | $                                                      | (26,351    | ) | $ | (32,340 | ) |
| Net cash (used in) provided by operating  activities from discontinued operation |       | $                                                      | (341       | ) | $ | 4,283 |   |
| Net cash used in investing activities from  discontinued operation               |       | $                                                      | —     |   | $ | (715 | ) |

 

***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 of $51.9 million during the nine months endedSeptember 30, 2010 was primarily the result of our net income and non-cashcharges including stock-based compensation and depreciation and amortization.Cash inflows resulting from changes in assets and liabilities includeddecreases in prepaid and other assets, and increases in accounts payable andincome taxes payable. The decrease in prepaid and other assets reflects thepayment received on our tenant improvement allowance from our Grace Buildinglandlord. Cash outflows resulting from changes in assets and liabilitiesincluded a decrease in deferred revenues and accrued liabilities. The decreasein accrued liabilities reflected cash payments of fiscal 2009 liabilitiesincluding year-end bonuses, commissions, and payroll taxes.

 

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

 

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. We also expect thatcash provided by operating activities will be between $25 million to $30million during the fourth quarter of 2010.

 

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

 

Net cash used in investingactivities from continuing operations of $31.3 million for the nine monthsended September 30, 2010 reflects net cash used of $4.7 million related tothe acquisition of Goya AS, purchases of marketable securities of $29.0million, capitalized software development costs of $1.6 million and capitalexpenditures of $15.0 million primarily related to the build-out of our newfacilities in New York and Boston and, to a lesser extent, computer andsoftware equipment purchases. These expenditures were partially offset byproceeds received from the sales and maturities of short-term marketablesecurities of $19.0 million.

 

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

 

As we completed our New York City and Bostonbuildouts during the nine months ended September 30, 2010, we expectcapital expenditures to be between $2 million and $3 million during the fourthquarter of 2010.

 

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

 

Netcash used in financing activities from continuing operations of $26.4 millionfor the nine months ended September 30, 2010 reflects the repurchase ofapproximately 836,000 shares of our common stock for $35.9 million and paymentstotaling $4.3 million to satisfy withholding taxes on equity awards that arenet share settled.  These financing cashoutflows were partially offset by cash received from the exercise of employeestock options of $10.9 million and proceeds from the issuance of common stockunder the employee stock purchase plan of $2.9 million.

 

Netcash used in investing activities from continuing operations of $1.2 millionfor the nine months ended September 30, 2009 reflects capital expendituresof $2.9 million primarily related to the purchase of external software andcapitalization of costs associated with internal use software, and capitalizedsoftware development costs of $2.0 million. These expenditures were partiallyoffset by the receipt of $2.1 million for the final deferred contingentconsideration from the sale of our ownership interest in LatentZero and adecrease in our restricted cash balance of $1.5 million due to the reduction inthe letter of credit associated with the lease of our San Francisco headquarters.

 

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

 

Our cash used in operating activities fromdiscontinued operation of $0.3 million during the nine months ended September 30,2010 was primarily the result of its net loss. Cash flows resulting fromchanges in assets and liabilities included decreases in prepaid and otherassets and accrued liabilities. The decrease in accrued liabilities primarilyreflects cash payments of sales taxes. Other changes in assets and liabilitiesinclude a decrease in income taxes payable.

 

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Our cash provided by operating activitiesfrom discontinued operation of $4.3 million during the nine months endedSeptember 30, 2009 was primarily the result of our net income and non-cashcharges including stock-based compensation and depreciation and amortization.Cash flows resulting from changes in assets and liabilities included decreasesin accounts receivable, prepaid and other assets, accounts payable, accruedliabilities and deferred revenues. The decrease in accounts receivableprimarily reflected an improvement in collections during the first nine monthsof 2009 of invoices billed in our previous fourth quarter. Days’ salesoutstanding were 51, 55 and 51 days during the first, second and third quartersof 2009, respectively, compared to 52, 52 and 52 days during the first, secondand third quarters of 2008. The decrease in accounts payable and accruedliabilities reflected cash payments of fiscal 2008 liabilities includingyear-end payables and bonuses, commissions and payroll taxes. The decrease indeferred revenue reflected the recognition of revenue and lower level ofbookings during the nine months ended September 30, 2009.

 

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

 

Net cash used in investing activities fromdiscontinued operation of $0.7 million for the nine months endedSeptember 30, 2009 reflects capital expenditures of $0.6 million primarilyrelated to the purchase of computer equipment and capitalization of costsassociated with internal use software, and capitalized software developmentcosts of $0.1 million.

 

***Working Capital***

 

AtSeptember 30, 2010, we had working capital of $17.3 million, compared tonegative working capital of $(6.7) million at December 31, 2009. Theincrease in our working capital at September 30, 2010 is primarily due tothe generation of operating cash flow of $51.9 million, and the shift of $28.5million of marketable securities from long-term to short-term, partially offsetby common stock repurchases of $35.9 million, capital expenditures of $15.0million, and cash paid to acquire Goya AS of $4.7 million. Our negative workingcapital at the end of fiscal 2009 was due to our historical common stockrepurchases and our deferred revenue balance. Excluding deferred revenues anddeferred taxes, we had working capital of $137.8 million at September 30,2010, compared to $118.4 million at December 31, 2009.

 

***Credit Facility and Expiration***

 

InFebruary 2007, Advent and certain of our domestic subsidiaries enteredinto a senior secured credit facility agreement (the “Credit Facility”) withWells Fargo Foothill, Inc. (the “Lender”). Under the Credit Facility, theLender provided the Company with a revolving line of credit up to an aggregateamount of $75 million, subject to a borrowing base formula, to provide backupliquidity for general corporate purposes, including stock repurchases, orinvestment opportunities for a period of three years. As of December 31,2009, there was no outstanding balance under the Credit Facility and theCompany was in compliance with all associated covenants.

 

Inthe past, we had utilized the Credit Facility to facilitate the timing of stockrepurchases. In February 2010, the Credit Facility expired and we electednot to renew the Credit Facility due to the limited expected use of the CreditFacility. We believe our existing cash, cash equivalents, short-term andlong-term marketable securities, together with cash expected to be generatedfrom operations, will be sufficient to fund our operating activities,anticipated capital expenditures and authorized stock repurchases. Although theexpiration of the Credit Facility may restrict our liquidity, we believe thecosts associated with the Credit Facility would exceed the anticipated benefitof the additional liquidity. For example, our interest expense and other feesrelated to the Credit Facility was approximately $2 million during thethree-year term of the Credit Facility.

 

***Common Stock Repurchases***

 

OnOctober 30, 2008, our Board authorized the repurchase of up to 3.0 millionshares of the Company’s common stock. In May 2010, Advent’s Boardauthorized the repurchase of up to an additional 1.0 million shares of theCompany’s common stock. During the nine months ended September 30, 2010,the Company repurchased approximately 836,000 shares of its common stock at acost of $35.9 million. At September 30, 2010, there remained approximately1.1 million shares authorized by the Board for repurchase.

 

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***Off-Balance Sheet Arrangements and Contractual Obligations***

 

Thefollowing table summarizes our contractual cash obligations, excluding cashobligations for our MicroEdge discontinued operation, as of September 30,2010 (in thousands):

 
| ** **                                            | ** ** | **Three**             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|--------------------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                            | ** ** | **Months Ended** | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **December 31**  | ** ** | **Years Ended December 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **2010**              | ** ** | **2011**                                   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Operating lease obligations, net of sub-lease  income | ** ** | $                     | 2,116      | ** **                                 | $          | 8,299      | ** ** | $          | 7,123      | ** ** | $          | 6,420          | ** ** | $          | 6,716      | ** ** | $ | 34,757 | ** ** | $ | 65,431 | ** ** |
|                                                       |            |                       |            |                                            |            |            |            |            |            |            |            |                |            |            |            |  |  |  |  |  |  |  |

 

Asof September 30, 2010, MicroEdge had operating lease commitments totaling$8.7 million, less sublease income of $1.0 million, which are not reflected inthe above table. On October 1, 2009, we completed the sale of ourMicroEdge subsidiary. In connection with the sale of MicroEdge, the Companyentered into a sublease agreement with Microedge LLC, whereby Microedge LLCwill sub-lease approximately 24,000 square feet of office space located at 619West 54th Street in New York, New York from the Company. Microedge LLC willsub-lease the premises for two years with the option to extend the sub-leaseterm through the end of the lease term in 2018. The sub-lease agreement becameeffective upon the close of sale of MicroEdge on October 1, 2009. With theexception of the MicroEdge facilities in New York City, the leases related toMicroEdge have been transferred to the Purchaser.

 

AtSeptember 30, 2010 and December 31, 2009, we had a gross liability of$7.8 million and $7.5 million for uncertain tax positions. Since almost all ofthis liability relates to reserves against deferred tax assets that we do notexpect to utilize in the short term, we cannot estimate the timing of potentialfuture cash settlements and have not included any estimates in the table ofcontractual cash obligations above. Additionally, our cash payments for incometaxes will continue to be nominal over the next few years as we havesignificant net operating losses, capital losses and tax credit carryforwardsto utilize.

 

AtSeptember 30, 2010 and December 31, 2009, we did not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes. As such,we are not materially exposed to any financing, liquidity, market or creditrisk that could arise if we had engaged in such relationships.

 

***Other Liquidity and Capital Resources Considerations***

 

Asnoted above, we expect our cash payments for federal income taxes to remainnominal over the next few years as we have significant net operating losses andtax credit carryforwards to utilize against current income taxes. However, ourcash payments for federal income 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 is negatively affected by anemployee’s vesting of restricted stock units and exercise of stock-settledstock appreciation rights, as cash is used to satisfy withholding taxes onthese equity awards which are net share settled. The resulting increase in thenumber of outstanding shares could also affect our per share results ofoperations. However, we cannot predict the timing or amount of proceeds fromthe exercise of these securities, or whether they will be exercised at all.

 

Weexpect that for the next year, our operating expenses will continue toconstitute a significant use of cash flow. In addition, we may use cash to fundother acquisitions, repurchase additional common stock, or invest in otherbusinesses, when opportunities arise. Based upon the predominance of ourrevenues from recurring sources, bookings performance and current expectations,we believe that our cash and cash equivalents, and cash generated fromoperations will be sufficient to satisfy our working capital needs, capitalexpenditures, investment requirements, stock repurchases and financingactivities for the next year.

 

Ifwe identify opportunities that exceed our current expectation, we may choose toseek additional capital resources through debt or equity financing. However,such financing may not be available at all, particularly in an uncertaineconomic environment, or if available may not be obtainable on terms favorableto us and could be dilutive.

 

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

 

Sincethe acquisitions of Advent Denmark, Advent Norway, Advent Sweden, AdventNetherlands, Goya AS and Advent Europe’s remaining distributors in the UnitedKingdom and Switzerland, and the opening of offices in Hong Kong, China andSingapore, whose service and certain license revenues and capital spending aretransacted in local country currencies, we have greater exposure to foreigncurrency fluctuations. As of September 30, 2010, approximately $43 millionof goodwill and intangible assets are denominated in foreign currency.Therefore, a hypothetical change of 10% could increase or decrease our assetsand equity by approximately $4 million. Additionally, as of September 30,2010, approximately $5 million of monetary assets and liabilities aredenominated in foreign currency. Therefore, a hypothetical change of 10% wouldcause the revaluation of these amounts resulting in a gain or loss ofapproximately $0.5 million on our consolidated results of operations.

 

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We maintain an investmentportfolio of various holdings, types, and maturities. Our interest rate riskrelates primarily to our investment portfolio, which consisted of $122.0million in cash and cash equivalents and short-term marketable securities as ofSeptember 30, 2010. Our short-term securities are generally classified asavailable-for-sale and, consequently, are recorded on our consolidated balancesheet at fair value with unrealized gains or losses reported as a separatecomponent of accumulated other comprehensive income.

 

Fluctuations in interestrates have a direct impact on the fair value of our investment portfolio. Asinterest rates increase, the fair value of our investment portfolio decreases,and conversely, as interest rates decrease, the fair value of our investmentportfolio increases. We do not currently hedge these interest rate exposures.

 

Thefollowing table presents hypothetical changes in fair value of our short-termsecurities of $70.1 million at September 30, 2010. For September 30,2010, the market changes reflect an immediate hypothetical parallel shifts inthe yield curve of plus or minus 25 basis points (“BPS”), 50 BPS and 100 BPS.For balances at September 30, 2010 the hypothetical fair values are asfollows (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** | ** ** |
| **Total Fair Value**       |       | $                                             | 70.5       |                                          | $          | 70.3 |   | $ | 70.3 |   | $ | 70.1 |   | $ | 70.0 |   | $ | 69.9 |   |
| **% Change in Fair Value** |       | 0.44                                          | %          | 0.22                                          | %          | 0.11 | % | -0.11 | % | -0.22 | % | -0.44 | % |
|                            |            |                                               |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Wehave also invested in several privately-held companies. These non-marketableinvestments are classified as other assets on our consolidated balance sheets.Our investments in privately-held companies could be affected by an adversemovement in the financial markets for publicly-traded equity securities,although the impact cannot be directly quantified. These investments areinherently risky as the market for the technologies or products theseprivately-held companies have under development are typically in the earlystages and may never materialize. It is our policy to review investments inprivately held companies on a regular basis to evaluate the carrying amount andeconomic viability of these companies. This policy includes, but is not limitedto, reviewing each of the companies’ cash position, financing needs,earnings/revenue outlook, operational performance, management/ownership changesand competition. The evaluation process is based on information that we requestfrom these privately held companies. This information is not subject to thesame disclosure regulations as US publicly traded companies, and as such, thebasis for these evaluations is subject to timing and the accuracy of the datareceived from these companies.

 

Ourinvestments in privately held companies are assessed for impairment when areview of the investee’s operations indicates that a decline in value of theinvestment is other-than-temporary. Such indicators include, but are notlimited to, limited capital resources, limited prospects of receivingadditional financing, and prospects for liquidity of the related securities.Impaired investments in privately held companies are written down to estimatedfair value. We estimate fair value using a variety of valuation methodologies.Such methodologies include comparing the private company with publicly tradedcompanies in similar lines of business, applying revenue and price/earningsmultiples to estimated future operating results for the private company andestimating discounted cash flows for that company. We could lose our entireinvestment in these companies. At September 30, 2010 and December 31,2009, our net investment in a privately-held company totaled $0.5 million.

 

**Item 4. Controls and Procedures**

 

**Evaluation of disclosure controls and procedures.**

 

TheCompany’s management evaluated, with the participation of the Chief ExecutiveOfficer and Chief Financial Officer, the effectiveness of the Company’sdisclosure controls and procedures, as such term is defined under Rule 13a-15(f) ofthe Securities and Exchange Act of 1934, as of the end of the period covered bythis Quarterly Report on Form 10-Q. Based on this evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded our disclosurecontrols and procedures were effective as of September 30, 2010 to ensurethat information we are required to disclose in reports that we file or submitunder the Securities Exchange Act of 1934 (i) is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms and (ii) is accumulated andcommunicated to Advent’s management, including our Chief Executive Officer andChief Financial Officer, as appropriate to allow timely decisions regardingrequired disclosure.

 

**Changesin internal control over financial reporting.**

 

Therewere no changes in our internal control over financial reporting which wereidentified in connection with the evaluation required by Rule 13a-15(e) ofthe Exchange Act that occurred during the third quarter ended September 30,2010 that has materially affected, or is reasonably likely to materiallyaffect, Advent’s internal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**Item 1.   LegalProceedings**

 

OnMarch 8, 2005, certain of the former shareholders of Kinexus Corporationand the shareholders’ representative filed suit against Advent in the DelawareChancery Court. The complaint alleges that Advent breached the Agreement andPlan of Merger dated as of December 31, 2001 pursuant to which Adventacquired all of the outstanding shares of Kinexus due principally to the factthat no amount was paid by Advent on an earn-out of up to $115 million. Theearn-out, which was payable in cash or stock at the election of Advent, wasbased upon Kinexus meeting certain revenue targets in both 2002 and 2003. Thecomplaint seeks unspecified compensatory damages, an accounting and restitutionfor unjust enrichment. 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 the plaintiffs’ claim and believes that it has meritoriousdefenses and intends to vigorously defend this action. Management believes thatany potential loss associated with this litigation is neither probable norreasonably estimable at this time and accordingly has not accrued any amountsfor any potential loss.

 

Fromtime to time, we are involved in claims and legal proceedings that arise in theordinary course of business. Based on currently available information,management does not believe that the ultimate outcome of these unresolvedmatters, individually or in the aggregate, is likely to have a material adverseeffect on the Company’s financial position or results of operations. However,litigation is subject to inherent uncertainties and our view of these mattersmay change in the future. Were an unfavorable outcome to occur, there existsthe possibility of a material adverse impact on our financial position andresults of operations for the 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 and our Annual Report on Form 10-K for the year ended December 31,2009.*

 

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

 

Total recurring revenues represented 87%, 86% and80% of total net revenues during the first nine months 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, performanceand functionality of competing products and services;

·                  The effectiveness of ourmaintenance and support services; and

·                  Our ability to developcomplementary products and services.

 

Mostof our perpetual license customers have historically renewed their annualmaintenance although our customers have no obligation to renew such maintenanceafter the first year of their license agreements. In addition, our customersmay select maintenance levels less advantageous to us upon renewal, which mayreduce recurring revenue from these customers. Market downturns, such as thedownturn beginning in the fall of 2008, caused, and may in the future cause,some clients not to renew their maintenance or reduce their level ofmaintenance, 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 and first twoquarters of 2010 were below the levels we disclosed for our quarterly periodsof 2008. The decrease in renewal rates reflects reduced maintenanceexpenditures, customer attrition, and reductions in products licensed or numberof users by clients, as well as from slower payments received from renewalclients.

 

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Since we commenced renewingterm license contracts in the third quarter of 2007, we only have limitedexperience with renewals of our term license contracts.  These were the first three-year term licensecontracts to be renewed by Advent since our transition to a term pricing modelbegan. Our customers have no obligation to renew their term license contractsand given the small number of contracts subject to renewal that were renewed inthe second half of 2007 through the first two quarters of 2010, 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.

 

**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 inuncertain economic environments, or to decrease their information technologybudgets as an expense reduction measure. The sales cycle associated with thepurchase of our solutions is typically between two and twelve months dependingupon the size of the client, and is subject to a number of significant risksover which we have little or no control, including broader financial marketvolatility, adverse economic conditions, customers’ budgeting constraints,internal selection procedures, and changes in customer personnel, among others.Ongoing volatility in the US and global financial markets has furtherexacerbated 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 fiscal 2009, our ACVbookings and perpetual license revenue decreased by 23% and 33%, respectively,compared to fiscal 2008. During the first nine months of 2010, our ACV bookingsand perpetual license revenue increased by 38% and 2%, respectively, comparedto the first nine months 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 nine months of 2010, fiscal 2009and 2008, we recognized 87%, 86% and 80%, respectively, of total net revenuesfrom recurring sources, which we define as revenues from term license,maintenance on perpetual licenses, and other recurring revenue. We generallyrecognize revenue from these sources ratably over the terms of theseagreements, which typically range from one to three years. As a result, almostall of our revenues in any quarter are generated from contracts entered intoduring previous 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 be unableto 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.

 

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The market downturn beginning in fall 2008 caused,and other downturns in the future may cause clients not to renew their termlicenses or perpetual license maintenance. Also, significant declines in marketvalue of our clients affect their Assets Under Administration (AUA) or AssetsUnder Management (AUM).  Consequently, wemay also experience a decline in the ACV of bookings since the pricing of someof our products is based upon our client’s AUA or AUM.  Furthermore, we have some contracts for whichclients pay us fees based on the greater of a negotiated annual minimum fee ora calculated fee that is determined by the client’s AUA or AUM. If a clientpreviously paid us based on the calculated fee, rather than the annual minimumfee, we would experience a decline in revenue as a result of any decline inthose clients’ AUA or AUM.

 

**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 forinvestment management systems and software products. For example, as a resultof the market downturn beginning in fall 2008, we experienced some clients andprospects delaying or cancelling additional license purchases and others wentout of business, reduced personnel, or were acquired, which we expect tocontinue 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 that reduceinvestor confidence in capital markets; outbreaks of hostilities or othergeopolitical instability; natural disasters or pandemics; or a combination ofthese 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 ofservices offered and platforms supported.

 

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Inrecent years, many of our competitors have merged with each other or with otherlarger third parties, and it is possible that even larger companies will emergethrough additional acquisitions of companies and technologies. Consolidationamong our competitors may result in stronger competitors in our markets and maytherefore either result in a loss of market share or harm our results ofoperations. In addition, we also face competition from potential new entrantsinto our markets that may develop innovative technologies or business models.Furthermore, competitors may respond to weak market conditions by loweringprices, offering better contractual terms and attempting to lure away ourcustomers and prospects to lower cost solutions. We cannot guarantee that wewill be able to compete successfully against current and future competitors orthat competitive pressure will not result in price reductions, reducedoperating margins or loss of market share, any one of which could seriouslyharm our business. We must continue to introduce new products and productenhancements.

 

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 and in March 2010, Advent Norway ASacquired Goya AS to allow us to provide transfer agency-related solutions tomutual fund managers and mutual fund distributors. However, it is too early toknow whether these products will meet anticipated sales or will be broadlyaccepted in the market, that a market will develop as expected for these newproducts or that we will continue to introduce more products.

 

Wemay not be successful in developing, introducing, marketing and licensing ournew products or product enhancements on a timely and cost effective basis, orat all, and our new products and product enhancements may not adequately meetthe requirements of the marketplace or achieve market acceptance. Delays in thecommencement of commercial shipments of new products or enhancements or delaysin client implementations or migrations may result in client dissatisfactionand delay or loss of product revenues. Additionally, existing clients may bereluctant to go through the 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 and to 87%in the first nine months of 2010. During the first nine months of 2010, term licenserevenues comprised approximately 44% 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. 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. During 2009, the revenue recognized from completedimplementations exceeded the revenue deferred from projects being implemented,resulting in a net recognition of revenue of $6.1 million for fiscal 2009,composed of $3.5 million of term license revenue and $2.6 million ofprofessional services revenue. Subsequently in 2010, we returned to our priortrend of net term license revenue deferral. In future periods, our revenuesrelated to completed implementations may vary depending on the number ofprojects that reach substantial completion during the quarter. Term license revenuefor the

 

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remainingcontract years and the remaining deferred professional services revenue andrelated expenses are recognized ratably over the remaining contract length. Theterm license component of the deferred revenue balance will increase ordecrease in the future depending on the amount of new term license bookingsrelative to the number of implementations that reach substantial completion ina particular quarter. Although our substantial revenue from  recurring sources under our term licensemodel provides us with longer term stability and more visibility in the shortterm,  our quarterly net revenues andoperating results may still fluctuate significantly depending on these andother factors. Our expense levels are relatively fixed in the short-term. Dueto the fixed nature of these expenses, combined with the relatively high grossmargin historically achieved on our products, an unanticipated decline in netrevenues in any particular quarter may adversely affect our operating results.

 

Inaddition, we experience seasonality in our licensing. We believe that thisseasonality results primarily from customer budgeting cycles and expect thisseasonality to continue in the future. The fourth quarter of the year typically has more licensingactivity.  That can result in term licensebookings and perpetual license fee revenue being the highest in the fourth quarter,followed by lower term license bookings and perpetual license revenue in thefirst quarter of the following year. This seasonality has been, and may be inthe future, adversely affected by market downturns we experienced and uncertaineconomic conditions.  Also, term licensesentered into during a quarter may not result in recognition of associatedrevenue until later quarters, as we begin recognizing revenue for such licenseswhen the related implementation services are substantially complete. In addition,we may incur commission and bonus expenses in the period in which we enter intoa license, 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 hasentered into contracts relating to our subscription, data management revenuestreams and outsourced services with contract values that are substantiallylarger than we have customarily entered into in the past, including ouragreement with TIAA-CREF.  It is too early to know whether we will be ableto continue to sign large recurring revenue contracts of this nature or if suchclients will renew their contracts at similar rates, if at all. Some of theseagreements are subject to milestones, acceptance and penalties and there is noassurance that these agreements will be fully implemented.  In addition, we have revenue sharing agreementswith other companies that provide revenue to Advent for our clients’ use ofthose companies’ services and products. Our operating results could beadversely impacted if these agreements are not fully implemented, terminated ornot renewed, or if we are unable to continue to generate similar opportunitiesand enter similar or larger sized contracts in the future.

 

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

 

Our clients rely on ouroutsourcing and data services to meet their operational needs, includingaccount aggregation and reconciliation. Because our services are complex, we utilize third party data and othervendors, and our clients use our services in a variety of ways, our servicesmay have undetected errors or defects, service disruptions, delays, orincomplete or incorrect data that could result in unanticipated downtime forour customers, failure to meet service levels and service disruptions.  In addition, our security measures could bebreached or unauthorized access to our information or our customers’information could occur.  Such potentialerrors, defects, delays, disruptions or other performance problems may damageour clients’ business, harm our reputation, result in losing future sales,cause clients to withhold payment or terminate or not renew their agreementswith us, and subject us to litigation and other possible liabilities.

 

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

 

We believe thatour future success is dependent on the continued employment of oursenior management and our ability to identify, attract, motivate andretain qualified technical, sales and other personnel. Members of ourexecutive management team have acquired specialized knowledge and skills withrespect to Advent. We need technical resources such as our product developmentengineers to develop new products and enhance existing products; we rely uponsales personnel to sell 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 and industryexperience.  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 ourability to grant equity compensation as one mechanism for recruiting andretaining such highly skilled personnel. In making employment decisions,particularly in the high-technology industries and San Francisco Bay Area, jobcandidates often consider the value of the equity awards they are to receive inconnection with their employment and market downturns may result in our equityincentives becoming less valuable. Additionally, accounting regulationsrequiring the expensing of equity compensation impair our ability to providethese incentives without reporting significant compensation costs.

 

We may also choose to createadditional performance and retention incentives in order to retain ouremployees, including the granting of additional stock options, restrictedstock, 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, we established a subsidiary ofAdvent Software (Asia), Ltd. in Beijing, China and established AdventSoftware Singapore Pte. Ltd., a subsidiary of Advent Software, Inc. in April 2010.In March 2010, our wholly-owned Norwegian subsidiary, Advent Norway AS,acquired the entire share capital of Goya AS, a Norwegian software company thatprovides transfer agency-related solutions to mutual fund managers and mutualfund 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, worldwide volatility infinancial markets may disrupt our sales efforts in overseas markets. Wecurrently have limited experience in developing localized versions of ourproducts and marketing and distributing our products internationally. In otherinstances, we may rely on the efforts and abilities of foreign businesspartners in such markets. For example, we previously outsourced certainengineering activities to a business partner located in China until Adventtransitioned those contract developers to become employees of Advent’s Beijingoffice. In addition, international operations are subject to other inherentrisks, including:

 

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

·                  Adverse changesin foreign currency exchange rates;

·                  Greaterdifficulty in accounts receivable collection and longer collection periods;

·                  Difficulty ofenforcement of contractual provisions in local jurisdictions;

·                  Unexpectedchanges in foreign laws and regulatory requirements;

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

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

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

·                  Difficulties inand costs of staffing and managing foreign operations;

·                  Reducedprotection for intellectual property rights in some countries;

·                  Foreign taxstructures and potentially adverse tax consequences; and

·                  Political andeconomic instability.

 

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

 

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

 

Periodicallywe seek to grow through the acquisition of additional complementary businesses.In October 2008, we completed the acquisition of Tamale Software, Inc.,which provides research management software. 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.

 

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 on sufficientlyadvantageous terms, or at all, and we have let our Credit Facility with WellsFargo Foothill lapse. The issuance of equity securities could dilute ourexisting 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 September 30,2010 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 September 30, 2010, we had no impairment chargesassociated with our short-term or long-term investment portfolio relating tosuch adverse financial market conditions. Although we believe our currentinvestment portfolio has very little risk of material impairment, we cannot predictfuture market conditions or market liquidity and can provide no assurance thatour investment 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 issuedpatents. Despite our efforts, existing intellectual property laws may affordonly limited protection. It may be possible for unauthorized third parties tocopy certain portions of our products or to reverse engineer or otherwiseobtain and use our proprietary information. In addition, we cannot be certainthat others will not develop or acquire substantially

 

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equivalentor superseding proprietary technology, equivalent or better products will notbe marketed in competition with our products, or others may not design aroundany patent that we have or that may be issued to us or other intellectualproperty rights of ours, thereby substantially reducing the value of ourproprietary rights. We cannot be sure that we will develop proprietary productsor technologies that are patentable, that any patent, if issued, would provideus with any competitive advantages or would not be challenged by third parties,or that the patents of others will not adversely affect our ability to dobusiness. Despite our efforts to protect our proprietary rights, unauthorizedparties may attempt to copy aspects of our products or to obtain and useinformation that we regard as proprietary. In addition, the laws of someforeign countries do not protect proprietary rights to as great an extent as dothe laws of the United States and so our expansion into international marketsmay expose our proprietary rights to increased risks. Litigation may benecessary to protect our proprietary technology which may be time-consuming andexpensive, with no assurance of success. As a result, we cannot be sure that our means of protecting ourproprietary rights will be adequate.

 

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

 

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

 

**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. For example, during the first nine months of 2010, wereleased new versions of Axys, Geneva, APX and Tamale RMS. Despite testing byus and by current and potential customers, errors may not be found in newproducts and services until after commencement of commercial shipments or use,resulting in a loss of or a delay in market acceptance, damage to ourreputation, customer dissatisfaction and reductions in revenues and margins,any of which could seriously harm our business. Additionally, our agreementswith customers that attempt to limit our exposure to liability claims may notbe enforceable in jurisdictions where we operate, particularly as we expandinto new international markets.

 

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**Two of our principal stockholdershave an influence over our business affairs and may make business decisionswith which you disagree and which may adversely affect the value of yourinvestment.**

 

OurChief Executive Officer and the Chairman of our board of directors own orcontrol, indirectly or directly, a substantial number of shares of our commonstock (approximately 6% and 30%, respectively, as of October 31, 2010). Asa result, if these parties were to act together, they would have the ability toexert significant influence on matters submitted to our stockholders forapproval, such as the election or removal of directors, amendments to ourcertificate of incorporation or the approval of a business combination. Theseactions may be taken even if they are opposed by other stockholders or it maybe difficult to approve these actions without their consent. This concentrationof ownership may also have the effect of delaying or preventing a change ofcontrol of our company or discouraging others from making tender offers for ourshares, which could prevent our stockholders from receiving a premium for theirshares.

 

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

 

Mostof our customers operate within a highly regulated environment. In light of therecent 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 Assets UnderManagement or Assets Under Administration, or diminished operations that wouldadversely affect our revenues and collection of receivables.

 

Ourcustomers must comply with governmental, self-regulatory organization and otherrules, regulations, directives and standards.  New legislation or changesin such rules, regulations, directives or standards may reduce demand for ourservices or increase our expenses. We develop, configure and market productsand services to assist customers in meeting these requirements. Newlegislation, or a significant change in rules, regulations, directives orstandards, could cause our services to become obsolete, reduce demand for ourservices or increase our expenses in order to continue providing services toclients.

 

Therecently enacted Dodd-Frank Wall Street Reform and Protection Act of 2010 (“Dodd-FrankAct”) represents a comprehensive overhaul of the financial services industrywithin the United States, establishes the new federal Bureau of ConsumerFinancial Protection (the “BCFP”), and will require the BCFP and other federalagencies to implement many new rules. While the general framework of thereforms is set forth in the Dodd-Frank Act, it provides for numerous studiesand reports and the adoption and implementation of rules and regulationsby regulatory agencies over the next four years to fully clarify and implementthe Act’s requirements.

 

Webelieve that it is too early to know the precise long-term impact on ourbusiness of the increased regulation of financial institutions. While it couldlead to increased demand for Advent’s products and services, demand could benegatively impacted by the deferral of purchase decisions by our customersuntil the new regulations have been adopted and the full impact and expense ofthe new regulatory environment is more clearly understood. The Dodd-Frank Actcontains numerous other provisions affecting financial institutions of alltypes, many of which may have an impact on our operating environment insubstantial and unpredictable ways. Accordingly, it is difficult to predict atthis time what specific impact the Dodd-Frank Act and the forthcomingimplementing rules and regulations will have on our business and thefinancial services industry.

 

Additionally,as a publicly-traded company, we are subject to significant regulationsincluding the Dodd-Frank Act and the Sarbanes-Oxley Act (“the Sarbanes-OxleyAct”) of 2002. There are significant corporate governance and executivecompensation-related provisions in the Dodd-Frank Act that require the SEC toadopt additional rules and regulations in these areas. Our efforts tocomply with these requirements could result in an increase of our operating andcompliance costs.

 

The Sarbanes-Oxley Act of 2002 required changes insome of our corporate governance and securities disclosure and/or compliancepractices. As part of the Act’s requirements, the SEC enacted new rules ona variety of subjects, and the Nasdaq Stock Market enacted new corporategovernance listing requirements. These developments have increased and may inthe future increase our accounting and legal compliance costs and could alsoexpose us to additional liability if we fail to comply with these or other new rules andreporting requirements. In fiscal 2009, 2008 and 2007, we incurredapproximately $0.5 million, $0.8 million and $0.9 million, respectively, inSarbanes-Oxley related expenses consisting of external consulting costs. Inaddition, such developments may make retention and recruitment of qualifiedpersons to serve on our board of directors, or as executive officers, moredifficult.

 

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

 

We prepare our consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America. These principles are subject to interpretation by us, the SEC andvarious bodies formed to interpret and create accounting principles. A changein these principles or a change in the interpretations of these principles canhave a significant effect on our reported results and may even retroactivelyaffect previously reported transactions. Some of our accounting principles thathave 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 beunfavorably affected by changes in, or interpretation of, tax rules andregulations in the jurisdictions in which we do business, by unanticipateddecreases in the amount of revenue or earnings in countries with low statutorytax rates, by lapses of the availability of the US research and development taxcredit, or by changes in the valuation of our deferred tax assets andliabilities.

 

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 requiring us to expend significant capital andother resources to protect against the threat of security breaches or toalleviate problems caused by such breaches.

 

**Potentialchanges in securities laws and regulations 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.

 

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

 

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**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.**

 

Effectiveinternal control is necessary for us to provide reliable financial reports. Ifwe cannot provide reliable financial reports, our business and operatingresults could be harmed. We have in the past discovered, and may in the futurediscover, areas of our internal control that need improvement including controldeficiencies that may constitute material weaknesses.

 

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

 

Any failure to implement ormaintain improvements in our internal control over financial reporting, ordifficulties encountered in the implementation of these improvements in ourcontrols, could cause significant deficiencies or material weaknesses in ourinternal controls and consequently cause us to fail to meet our reportingobligations. Any failure to implement or maintain required new or improvedinternal controls could also cause investors to lose confidence in our reportedfinancial information, which could have a negative impact on the trading priceof our stock. In addition, during 2009, we moved certain compliance functionsfrom external providers to internal resources, and we cannot be certain thatthese changes will be as effective or will control costs as anticipated.

 

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

 

**Issuer Purchases of Equity Securities**

 

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

 

OnOctober 30, 2008, Advent’s Board authorized the repurchase of up to 3.0million shares of the Company’s outstanding common stock. In May 2010,Advent’s Board authorized the repurchase of up to an additional 1.0 millionshares of the Company’s common stock. During the third quarter of 2010, theCompany repurchased approximately 32,000 shares of its common stock under thestock repurchase program approved by the Board in October 2008 for anaverage price per share of $45.89. At September 30, 2010, there remainedapproximately 1.1 million shares authorized by the Board for repurchase. Thefollowing table provides a month-to-month summary of the repurchase activityunder the stock repurchase program approved by the Board in October 2008and May 2010 during the three months ended September 30, 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)** | ** ** |
|                |       |                                |       |               |       |                                     |       |   |
| July 2010      |       | 32                                  |       | $                  | 45.89      |                                     | 1,143      |   |
| August 2010    |       | —                              |       | $                  | —     |                                     | 1,143      |   |
| September 2010 |       | —                              |       | $                  | —     |                                     | 1,143      |   |
|                |       |                                |       |               |       |                                     |       |
| Total               |       | 32                                  |       | $                  | 45.89      |                                     | 1,143      |   |

 

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Inaddition to the repurchases disclosed above, we withheld shares through netshare settlements during the three months ended September 30, 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 and exercise obligations during the three months endedSeptember 30, 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**          | ** ** |
|       |       |                   |       |               |       |                                  |       |
| July       |       | 8                      |       | $                  | 50.32      |                                  | —     |   |
| August     |       | 14                     |       | $                  | 48.12      |                                  | —     |   |
| September  |       | 2                      |       | $                  | 52.79      |                                  | —     |   |
|       |       |                   |       |               |       |                                  |       |
| Total      |       | 24                     |       | $                  | 49.32      |                                  | —     |   |

 

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(1)   These purchases representshares cancelled when surrendered in lieu of cash payments for tax and exerciseobligations due from employees. These shares were not purchased as part of apublicly announced program to purchase shares.

 

**Item 3.****   ****DefaultsUpon Senior Securities**

 

None.

 

**Item 5.****   ****OtherInformation**

 

None.

 

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

 
| 3.1    |   | Third  Amended and Restated Certificate of Incorporation of Registrant (incorporated  herein by reference to Exhibit 3.1 to the Registrant’s Current Report on  Form 8-K filed on June 8, 2010) |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                |
| 3.2    |   | Amended  and Restated Bylaws of Registrant (incorporated herein by reference to  Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on  June 8, 2010)                             |
|   |   |                                                                                                                                                                                                                |
| 10.1   |   | 2002  Stock Plan (incorporated herein by reference to Exhibit 10.1 to the  Registrant’s Current Report on Form 8-K filed on June 8, 2010)                                                       |
|   |   |                                                                                                                                                                                                                |
| 31.1   |   | Certification  of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                                 |
|   |   |                                                                                                                                                                                                                |
| 31.2   |   | Certification  of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                                 |
|   |   |                                                                                                                                                                                                                |
| 32.1   |   | Certification  of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                 |
|   |   |                                                                                                                                                                                                                |
| 32.2   |   | Certification  of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                 |

 

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**SIGNATURES**

 

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

 

 
|                          | ADVENT  SOFTWARE, INC. |
|-------------------------------|-----------------------------|
|                          |                        |   |
|                          |                        |   |
| Dated:  November 8, 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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