Advent Software 10Q 2007 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2007

or

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

Commission file number: 0-26994

ADVENT SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

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

600 Townsend Street, San Francisco, California 94103
(Address of principal executive offices and zip code)

(415) 543-7696
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer x Non-accelerated filer o

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

The number of shares of the registrant’s Common Stock outstanding as of October 31, 2007 was 26,310,161.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	September 30				December 31
	2007				2006
ASSETS
Current assets:
Cash and cash equivalents	$	42,803			$		30,187
Marketable securities	—				24,881
Accounts receivable, net	40,531				41,336
Deferred taxes, current	7,954				7,950
Prepaid expenses and other	14,358				11,828
Total current assets	105,646				116,182
Property and equipment, net	28,243				27,338
Goodwill	101,183				98,382
Other intangibles, net	6,579				6,294
Deferred taxes, long-term	75,591				75,594
Other assets, net	9,181				15,857

Total assets	$	326,423			$	339,647

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$		3,066		$	5,083
Accrued liabilities	22,676				22,992
Deferred revenues	94,716				82,118
Income taxes payable	4,482				4,989
Total current liabilities	124,940				115,182
Deferred income taxes	32				225
Deferred revenues, long-term	5,112				3,195
Long-term debt	20,000				—
Other long-term liabilities	15,888				11,418

Total liabilities	165,972				130,020

Commitments and contingencies (See Note 12)

Stockholders’ equity:
Common stock	259				272
Additional paid-in capital	311,841				309,993
Accumulated deficit	(165,486			)	(111,387			)
Accumulated other comprehensive income	13,837				10,749
Total stockholders’ equity	160,451				209,627

Total liabilities and stockholders’ equity	$	326,423			$		339,647

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

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30							Nine Months Ended September 30
	2007				2006			2007			2006
Net revenues:
Term license, maintenance and other recurring	$	43,046			$	36,084		$	122,782		$	101,441
Perpetual license fees	6,054				5,061			17,670			19,269
Professional services and other	6,449				4,732			15,452			13,183

Total net revenues	55,549				45,877			155,904			133,893

Cost of revenues:
Term license, maintenance and other recurring	9,757				7,915			27,837			24,214
Perpetual license fees	218				181			632			607
Professional services and other	7,662				6,894			19,950			16,967
Amortization of developed technology	332				251			1,018			909

Total cost of revenues	17,969				15,241			49,437			42,697

Gross margin	37,580				30,636			106,467			91,196

Operating expenses:
Sales and marketing	13,482				12,115			40,356			36,466
Product development	9,334				8,849			30,006			25,599
General and administrative	8,393				8,262			25,014			23,911
Amortization of other intangibles	463				1,028			1,403			3,027
Restructuring charges	113				54			902			320

Total operating expenses	31,785				30,308			97,681			89,323

Income from operations	5,795				328			8,786			1,873
Interest and other income (expense), net	(138			)	656			4,248			3,054

Income before income taxes	5,657				984			13,034			4,927
Provision for (benefit from) income taxes	2,361				32			4,204			(1,030		)

Net income	$		3,296		$		952	$		8,830	$	5,957

Net income per share:
Basic	$		0.13		$		0.03	$		0.33	$	0.20
Diluted	$		0.12		$		0.03	$		0.32	$	0.19

Weighted average shares used to compute net income per share:
Basic	25,781				27,937			26,541			29,491
Diluted	27,401				29,448			27,911			30,882

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

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30
	2007			2006
Cash flows from operating activities:
Net income	$	8,830		$	5,957
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	10,047			10,097
Depreciation and amortization	8,170			10,109
Loss on dispositions of fixed assets	444			138
Provision for doubtful accounts	121			618
Reduction of allowance for sales returns	(67		)	(1,390		)
(Gain) loss on investments	(4,265		)	210
Other-than-temporary loss on private equity investments	585			—
Deferred income taxes	(195		)	(706		)
Other	54			(91		)
Changes in operating assets and liabilities:
Accounts receivable	685			(1,041		)
Prepaid and other assets	(3,385		)	(1,850		)
Accounts payable	(1,017		)	1,297
Accrued liabilities	(149		)	1,389
Deferred revenues	14,582			8,992
Income taxes payable	3,763			(1,977		)

Net cash provided by operating activities	38,203			31,752

Cash flows from investing activities:
Net cash used in acquisitions	(1,022		)	—
Purchases of property and equipment	(7,138		)	(15,474		)
Capitalized software development costs	(2,447		)	(800		)
Proceeds from sale of private equity investments	11,621			—
Purchases of marketable securities	—			(42,952		)
Sales and maturities of marketable securities	24,921			107,420
Change in restricted cash	(372		)	(1,256		)

Net cash provided by investing activities	25,563			46,938

Cash flows from financing activities:
Proceeds from common stock issued from exercises of stock options	17,937			9,418
Proceeds from common stock issued under the employee stock purchase plan	1,829			1,427
Repurchase of common stock	(91,157		)	(127,933		)
Proceeds from long-term borrowing	25,000			—
Repayment of long-term borrowing	(5,000		)	—

Net cash used in financing activities	(51,391		)	(117,088		)

Effect of exchange rate changes on cash and cash equivalents	241			85

Net change in cash and cash equivalents	12,616			(38,313		)
Cash and cash equivalents at beginning of period	30,187			70,941

Cash and cash equivalents at end of period	$	42,803		$	32,628

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

ADVENT SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Basis of Presentation

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

Advent has prepared these condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in these interim statements pursuant to such SEC rules and regulations. These interim financial statements should be read in conjunction with the audited financial statements and related notes included in Advent’s Annual Report on Form 10-K/A for the year ended December 31, 2006. Interim results are not necessarily indicative of the results to be expected for the full year, and no representation is made thereto.

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

Certain prior year amounts have been reclassified to conform to the current presentation. These reclassifications do not affect total net revenues, net income or stockholders’ equity. Specifically, the Company changed its presentation of revenues and associated cost of revenues during the first quarter of 2007 to more clearly show the nature and components of the Company’s revenues under a term licensing model and the predominance of revenue from recurring sources. Historically, the Company separated term license arrangement fees between license and maintenance revenues and allocated those revenues on a 55%/45% basis, respectively. As a result of the increasing significance of term license revenues for the Company, Advent discontinued this practice during the first quarter of 2007, and now classifies all term license revenues, along with perpetual maintenance and other recurring revenues, in the caption “Term license, maintenance and other recurring” revenues.

Advent currently categorizes its revenues as follows: “Term license, maintenance and other recurring,” “Perpetual license fees” and “Professional services and other.” Prior period amounts have been reclassified to conform to this current presentation.

Additionally, the Company reclassified certain of the deferred revenues and direct costs associated with its term service deferral from current to long-term during the third quarter of 2007. With the evolution of the term service deferral model, Advent is able to isolate amounts that will be recognized as revenue over 12 months from the balance sheet date. Advent has reclassified those deferred revenues and prepaid expense amounts that will be recognized more than 12 months from the balance sheet date from current to long term on the balance sheets. Prior period amounts, previously deemed not significant, have been reclassified to conform to the current presentation as follows (in thousands):

	December 31, 2006
	As Previously		Reclassification
	Reported		Adjustment			As Reclassified

Prepaid expenses and other	$	12,685	$	(857	)	$	11,828
Other assets, net	$	15,000	$	857		$	15,857
Deferred revenues	$	84,260	$	(2,142	)	$	82,118
Deferred revenues, long-term	$	1,053	$	2,142		$	3,195

Note 2—Recent Accounting Pronouncements

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

Note 3—Stock-Based Compensation

Equity Award Activity

A summary of the status of the Company’s stock option and stock appreciation right (“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, 2006	5,292		$	20.08
Options & SARs granted	644		$	35.86
Options & SARs exercised	(1,199	)	$	15.30
Options & SARs canceled	(380	)	$	24.90
Outstanding at September 30, 2007	4,357		$	23.31	6.45	$	103,273
Exercisable at September 30, 2007	2,430		$	20.52	5.17	$	64,434

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s closing stock price of $46.97 as of September 28, 2007 for options that were in-the-money as of that date.

The weighted average grant date fair value of options and SARs granted during the nine months ended September 30, 2007 was $12.67 per share. The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $16.4 million and $7.7 million, respectively. The total cash received resulting from stock option exercises during the nine months ended September 30, 2007 and 2006 was approximately $17.9 million and $9.4 million, respectively.

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

A summary of the status of the Company’s restricted stock unit (“RSU”) activity for the nine months ended September 30, 2007 is as follows:

			Weighted
	Number of		Average
	Shares		Grant Date
	(in thousands)		Fair Value

Outstanding at December 31, 2006	266		$	29.81
RSUs granted	328		$	36.73
RSUs vested and released	(1	)	$	33.51
RSUs canceled and returned	(34	)	$	32.55
Outstanding at September 30, 2007	559		$	33.70

The weighted average grant date fair value was determined based on the closing market price of the Company’s common stock on the date of the award. The aggregate intrinsic value of RSUs outstanding at September 30, 2007 was $26.2 million, based on the closing price of $46.97 per share as of September 28, 2007.

RSUs are subject to Section 451 of the Internal Revenue Code, under which a RSU holder recognizes income upon vesting of the underlying stock. The Company’s 2002 Stock Plan (as amended and restated May 18, 2005) and agreement provide that Advent has the right to satisfy the RSU holder’s tax withholding obligations that arise in connection with the vesting by withholding an equivalent number of common shares from the amount released. The equivalent number of common shares withheld for taxes are determined based on the closing market price of the Company’s common stock on the date of vesting and are returned to the Company’s 2002 Stock Plan.

Employee Stock Purchase Plan (“ESPP”)

During the nine months ended September 30, 2007, the Company issued 59,677 additional shares under the ESPP. A total of 1,757,374 shares were reserved for future issuance under the ESPP as of September 30, 2007.

Stock-Based Compensation Expense

The effect of stock-based employee compensation expense recognized on Advent’s condensed consolidated statement of operations for the three and nine months September 30, 2007 and 2006 were as follows (in thousands):

	Three Months Ended September 30					Nine Months Ended September 30
	2007			2006		2007			2006
Statement of operations classification
Cost of term license, maintenance and other recurring revenues	$	295		200		$	870		729
Cost of professional services and other revenues	189			172		546			593
Total cost of revenues	484			372		1,416			1,322

Sales and marketing	998			1,291		3,134			3,676
Product development	749			692		2,386			2,217
General and administrative	988			1,093		3,111			2,882
Total operating expenses	2,735			3,076		8,631			8,775

Total stock-based employee compensation expense	$	3,219		$	3,448	$	10,047		$	10,097

Tax effect on stock-based employee compensation (1)	$	(1,232	)	$	—	$	(3,561	)	$	—

Net effect on net income	$	1,987		$	3,448	$	6,486		$	10,097

(1) Assumes an effective tax rate of 0% for the three and nine months ended September 30, 2006 due to the full valuation allowance established against the Company’s deferred tax assets during the fourth quarter of 2003. The valuation allowance was subsequently released during the fourth quarter of 2006.

During the third quarter of 2007, Advent modified its forfeiture calculation for RSU awards to better reflect both the recent experience with RSU forfeitures and the longer cliff vesting periods. The effect of these modifications was to reduce stock-based compensation expense by $137,000 during the third quarter of 2007. Refer to “Critical Accounting Policies and Estimates” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.

Approximately $283,000 and $123,000 of stock-based compensation was capitalized during the nine months ended September 30, 2007 and 2006, respectively, related to internal use software, software development, and term license implementation projects.

As of September 30, 2007, total unrecognized compensation cost related to unvested awards under all equity compensation plans, adjusted for estimated forfeitures, was $27.0 million and is expected to be recognized through the remaining vesting period of each grant, with a weighted average remaining period of 3.8 years.

Valuation Assumptions

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following assumptions:

	Three Months Ended September 30		Nine Months Ended September 30
	2007	2006	2007	2006
Stock Options & SARs
Expected volatility	33.1% - 35.5%	45.1% - 46.4%	32.9% - 38.4%	43.5% - 48.5%
Expected life (in years)	4.58	5	4.58	5
Risk-free interest rate	4.2% - 5.0%	4.8% - 5.1%	4.2% - 5.2%	4.3% - 5.1%
Expected dividends	None	None	None	None

Employee Stock Purchase Plan
Expected volatility	35.5%	36.5%	35.5% - 36.5%	36.5%
Expected life (in months)	6	6	6	6
Risk-free interest rate	5.0%	4.2%	4.2% - 5.0%	4.2%
Expected dividends	None	None	None	None

The expected stock price volatility was determined based on an equally weighted average of historical and implied volatility of the Company’s common stock. Advent determined that a blend of implied volatility and historical volatility is more reflective of the market conditions and a better indicator of expected volatility than using purely historical volatility. The expected life was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The dividend yield assumption is based on the Company’s history of not paying dividends and the resultant future expectation of dividend payouts.

Note 4—Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the sum of the weighted average number of common shares outstanding and the potential number of dilutive common shares outstanding during the period, excluding the effect of any anti-dilutive securities. Potential common shares consist of the shares issuable upon the exercise of stock options and SARs, the vesting of restricted stock awards and from withholdings associated with the Company’s employee stock purchase plan. Potential common shares are reflected in diluted earnings per share by application of the treasury stock method, which in the current period includes consideration of unamortized stock-based compensation and windfall tax benefits, as a result of the implementation of SFAS 123R.

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

	Three Months Ended September 30				Nine Months Ended September 30
	2007		2006		2007		2006
Numerator:
Net income	$	3,296	$	952	$	8,830	$	5,957

Denominator:
Denominator for basic net income per share-weighted average shares outstanding	25,781		27,937		26,541		29,491

Dilutive common equivalent shares:
Employee stock options, unvested RSUs and other	1,620		1,511		1,370		1,391

Denominator for diluted net income per share-weighted average shares outstanding	27,401		29,448		27,911		30,882

Basic net income per share	$	0.13	$	0.03	$	0.33	$	0.20
Diluted net income per share	$	0.12	$	0.03	$	0.32	$	0.19

Weighted average stock options, SARs and RSUs of approximately 0.8 million and 1.4 million for the three and nine months ended September 30, 2007, respectively, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive. Similarly, weighted average stock options, SARs, RSUs and warrants of approximately 1.2 million and 1.1 million for the three and nine months ended September 30, 2006, respectively, were excluded from the calculation of diluted net income per share.

Note 5—Goodwill

The changes in the carrying value of goodwill for the nine months ended September 30, 2007 were as follows (in thousands):

	Goodwill

Balance at December 31, 2006	$	98,382
Translation adjustments	2,779
Additions	22

Balance at September 30, 2007	$	101,183

Foreign currency translation adjustments totaling $2.8 million reflect the weakening of the U.S. dollar versus European currencies during the nine months ended September 30, 2007. Additions to goodwill of $22,000 reflected an additional payment related to the acquisition of East Circle Solutions, Inc.

Note 6—Other Intangibles

The following is a summary of other intangibles as of September 30, 2007 (in thousands):

	Average
	Amortization	Other					Other
	Period	Intangibles,		Accumulated			Intangibles,
	(Years)	Gross		Amortization			Net

Purchased technologies	4.9	$	13,556	$	(12,899	)	$	657
Product development costs	3.0	5,664		(1,631		)	4,033

Developed technology sub-total		19,220		(14,530		)	4,690

Customer relationships	5.6	22,463		(20,574		)	1,889
Other intangibles	2.5	307		(307		)	—

Other intangibles sub-total		22,770		(20,881		)	1,889

Balance at September 30, 2007		$	41,990	$	(35,411	)	$	6,579

The following is a summary of other intangibles as of December 31, 2006 (in thousands):

	Average
	Amortization	Other					Other
	Period	Intangibles,		Accumulated			Intangibles,
	(Years)	Gross		Amortization			Net

Purchased technologies	4.9	$	13,556	$	(12,665	)	$	891
Product development costs	3.0	3,001		(847		)	2,154

Developed technology sub-total		16,557		(13,512		)	3,045

Customer relationships	5.6	22,175		(18,952		)	3,223
Other intangibles	2.5	307		(281		)	26

Other intangibles sub-total		22,482		(19,233		)	3,249

Balance at December 31, 2006		$	39,039	$	(32,745	)	$	6,294

The changes in the carrying value of other intangibles during the nine months ended September 30, 2007 were as follows (in thousands):

	Other					Other
	Intangibles,		Accumulated			Intangibles,
	Gross		Amortization			Net

Balance at December 31, 2006	$	39,039	$	(32,745	)	$	6,294
Additions	2,447		—			2,447
Capitalized stock-based compensation	216		—			216
Amortization	—		(2,421		)	(2,421		)
Translation adjustments	288		(245		)	43

Balance at September 30, 2007	$	41,990	$	(35,411	)	$	6,579

Based on the carrying amount of intangible assets as of September 30, 2007, the estimated future amortization is as follows (in thousands):

	Three
	Months Ended
	December 31		Years Ended December 31
	2007		2008		2009		2010		Total
Estimated future amortization of:
Developed technology	$	524	$	1,959	$	1,381	$	826	$	4,690
Other intangibles	465		969		448		7		1,889
Total	$	989	$	2,928	$	1,829	$	833	$	6,579

Note 7—Balance Sheet Detail

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

	September 30		December 31
	2007		2006

Prepaid commission	$	3,849	$	3,121
Prepaid contract expense	3,976		1,847
Prepaid royalty	2,247		2,027
Other	4,286		4,833
Total prepaid expenses and other	$	14,358	$	11,828

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

	September 30		December 31
	2007		2006

Long-term investments	500		8,459
Long-term prepaid commissions	3,349		3,013
Deposits	3,404		2,443
Prepaid contract expense, long-term	1,424		857
Other	504		1,085
Total other assets	$	9,181	$	15,857

Long-term investments include equity investments in several privately held companies. These equity investments are carried at the lower of cost or fair value at September 30, 2007 and December 31, 2006.

On April 30, 2007, the Company, together with other LatentZero Limited (“LatentZero”) shareholders, sold their ownership in LatentZero to royalblue group plc. The maximum possible consideration due to the Company from the sale of its ownership interest in LatentZero is approximately $17 million, which is comprised of initial consideration of $10 million, paid at completion of the sale transaction and up to an aggregate $7 million of deferred contingent consideration for fiscal years 2007 and 2008. For fiscal 2007 and 2008, the payment of the deferred contingent consideration is dependent on LatentZero achieving certain performance objectives related to revenue and operating profit. Consideration is denominated in Pounds Sterling (GBP) and the actual amounts of consideration in U.S. dollars to be received by the Company may differ depending on foreign exchange rates at the time of payment. At the time of sale, the carrying value of Advent’s investment in LatentZero was $6.6 million resulting in a gain on sale of $3.4 million during the second quarter of 2007.

Another privately held company, Investment Scorecard Inc. (“Scorecard”), was sold during the second quarter of 2007. Advent received proceeds of $1.6 million from the sale of its interest in Scorecard, resulting in a gain of $0.9 million. Additionally, Advent determined that the carrying value of its investment in another private held company was fully impaired, resulting in an impairment loss of $585,000 during the second quarter of 2007. The Company’s review of this investee’s operations during the second quarter of 2007 indicated a decline in value that is other-than-temporary.

At December 31, 2006, deposits included restricted cash of $1.3 million to secure a bank letter of credit associated with the Company’s lease agreement with Toda Development, Inc. (“Toda”) for its headquarters facility. During the nine months ended September 30, 2007, the Company executed amendments to this lease agreement whereby the Company will lease additional facility space of 29,000 square feet. Due to these amendments, the restricted cash required for the lease increased to $1.6 million at September 30, 2007.

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

	September 30		December 31
	2007		2006

Salaries and benefits payable	$	11,369	$	13,624
Accrued restructuring	3,081		2,650
Other	8,226		6,718
Total accrued liabilities	$	22,676	$	22,992

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

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

	September 30		December 31
	2007		2006

Deferred rent	$	8,508	$	6,451
Accrued restructuring, long-term	2,077		3,941
Long-term income taxes payable	4,270		—
Other	1,033		1,026
Total other long-term liabilities	$	15,888	$	11,418

Note 8—Comprehensive Income

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

	Three Months Ended September 30				Nine Months Ended September 30
	2007		2006		2007		2006

Net income	$	3,296	$	952	$	8,830	$	5,957
Unrealized gain on marketable securities	—		334		8		524
Foreign currency translation adjustment	2,014		332		3,080		2,680
Total comprehensive income	$	5,310	$	1,618	$	11,918	$	9,161

The components of accumulated other comprehensive income were as follows (in thousands):

	September 30		December 31
	2007		2006

Accumulated foreign currency translation adjustments	$	13,837	$	10,757
Accumulated net unrealized loss on marketable securities	—		(8		)
Total accumulated other comprehensive income	$	13,837	$	10,749

Note 9—Restructuring Charges

Restructuring initiatives have been implemented in the Company’s Advent Investment Management and Other operating segments to reduce costs and improve operating efficiencies by better aligning the Company’s resources to its near-term revenue opportunities. These initiatives have resulted in restructuring charges comprised primarily of costs related to properties abandoned in connection with facilities consolidation, related write-down of leasehold improvements and severance and associated employee termination costs related to headcount reductions. Advent’s restructuring charges included accruals for estimated losses on facility costs based on the Company’s contractual obligations net of estimated sublease income. Advent reassesses this liability periodically based on market conditions.

During the nine months ended September 30, 2007, Advent recorded a net restructuring charge of $902,000 due to the update of certain sub-lease assumptions for Advent’s prior San Francisco headquarters facility located at 301 Brannan Street, which the Company exited in October 2006, and interest accretion. During the nine months ended September 30, 2006, Advent recorded a net restructuring charge of $320,000 primarily to record interest and adjust original estimates for facilities in San Francisco, California and New York, New York.

The following table sets forth an analysis of the components of the payments and restructuring charges made against the accrual during the nine months ended September 30, 2007 (in thousands):

	Facility Exit			Severance &
	Costs			Benefits			Total

Balance of restructuring accrual at December 31, 2006	$	6,587		$	4		$	6,591
Restructuring charges	681			—			681
Cash payments	(2,331		)	(4		)	(2,335		)
Accretion adjustment	221			—			221
Balance of restructuring accrual at September 30, 2007	$	5,158		$	—		$	5,158

The remaining excess facility exit costs of $5.2 million are stated at estimated fair value, net of estimated sublease income of approximately $6.3 million. Advent expects to pay the remaining obligations associated with the vacated facilities over their remaining lease terms, which expire on various dates through 2012.

Note 10—Common Stock Repurchase Program

Advent’s Board has approved common stock repurchase programs authorizing management to repurchase shares of the Company’s common stock. The timing and actual number of shares subject to repurchase have been made at the discretion of Advent’s management and are contingent on a number of factors and limitations, including the price of Advent’s stock, corporate and regulatory requirements, alternative investment opportunities and other market conditions. The stock repurchase programs specify a maximum number of shares subject to repurchase, do not have an expiration date and may be limited or terminated at any time without prior notice. Repurchased shares are returned to the status of authorized and un-issued shares of common stock.

The following table provides a summary of the quarterly repurchase activity during the nine months ended September 30, 2007 under the stock repurchase programs approved by the Board (in thousands, except per share data):

	Total			Average
	Number			Price
	of Shares			Paid
	Purchased	Cost		Per Share

Q1 2007	837	$	30,120	$	36.00
Q2 2007	1,743	$	61,037	$	35.01
Q3 2007	—	$	—	$	—
Total (1)	2,580	$	91,157	$	35.33

(1) Total shares repurchased of 2.6 million include 2.25 million shares repurchased under the February 2007 authorization and 330,000 shares repurchased under the July 2006 authorization.

Note 11—Line of Credit

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

In June 2007, the Company drew down $25.0 million against this Facility which bears interest at an aggregate rate of 6.86%, consisting of a three month LIBOR contract rate of 5.36% and an applicable margin of 1.5%. In September 2007, the LIBOR contract expired and the Company paid down the credit facility by $5.0 million. Advent re-entered into another LIBOR rate contract on the remaining $20.0 million which bears a three month LIBOR contract rate of 5.58% and an applicable margin of 1.5% for an aggregate rate of 7.08%. As of September 30, 2007, Advent was in compliance with all associated covenants.

Note 12—Commitments and Contingencies

Lease Obligations

Advent leases office space and equipment under non-cancelable operating lease agreements, which expire at various dates through December 2018. Some operating leases contain escalation provisions for adjustments in the consumer price index. Under some leases, Advent is responsible for maintenance, insurance, and property taxes. During the nine months ended September 30, 2007, the Company executed several amendments to the lease agreement for its 600 Townsend Street headquarters facility whereby the Company will lease additional facility space of 29,000 square feet. As of September 30, 2007, Advent’s remaining operating lease commitments through 2018 were approximately $51.4 million, net of future minimum rental receipts of $7.2 million to be received under non-cancelable sub-leases.

Indemnifications

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

Legal Contingencies

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

Merger dated as of December 31, 2001 pursuant to which Advent acquired all of the outstanding shares of Kinexus due principally to the fact that no amount was paid by Advent on an earn-out of up to $115 million. The earn-out, which was payable in cash or stock at the election of Advent, was based upon Kinexus meeting certain revenue targets in both 2002 and 2003. The complaint seeks unspecified compensatory damages, an accounting and restitution for unjust enrichment. Advent advised the shareholders’ representative in January 2003 that the earn-out terms had not been met in 2002 and accordingly no earn-out was payable for 2002 and would not be payable for 2003. Some discovery was conducted by plaintiffs in 2005, but no further discovery has been conducted since December 2005 and Advent has received no further communication from plaintiffs since that time. Advent disputes the plaintiffs’ claims and believes that it has meritorious defenses and intends to vigorously defend this action. Management believes that any potential loss associated with this litigation is neither probable nor reasonably estimable at this time and accordingly has not accrued any amounts for any potential loss.

Note 13—Segment Information

Description of Segments

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” established standards for reporting information about operating segments in annual financial statements and requires disclosure of selected information about operating segments in interim reports. It also established standards for related disclosures about products and services, major customers and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. Advent’s CODM is the Chief Executive Officer.

Advent’s organizational structure is based on a number of factors that the Chief Executive Officer (CEO) uses to evaluate, view and run its business operations which include, but are not limited to, customer base, homogeneity of products and technology. Advent’s operating segments are based on this organizational structure and information reviewed by Advent’s CEO to evaluate the operating segment results. Advent has determined that its operations are organized into two reportable segments: 1) Advent Investment Management; and 2) MicroEdge. Future changes to this organizational structure may result in changes to the business segments disclosed. A description of the types of products and services provided by each operating segment follows.

Advent Investment Management is the Company’s core business and derives revenues from the development, marketing and sale of software products, data interfaces and related maintenance and services that automate, integrate and support certain mission critical functions of investment management organizations. MicroEdge derives revenues from the sale of software and services for grant management, matching gifts and volunteer tracking for the grantmaking community.

Segment Data

The results of the operating segments are derived directly from Advent’s internal management reporting system. The accounting policies used to derive operating segment results are substantially the same as those used by the consolidated company. Management measures the performance of each operating segment based on several metrics, including income from operations. These results are used, in part, to evaluate the performance of, and to assign resources to, each of the operating segments. Certain operating expenses, including stock-based employee compensation expense, and amortization of developed technology and other intangibles, which Advent manages separately at the corporate level, are not allocated to the operating segments. Advent does not separately accumulate and review asset information by segment.

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

	Three Months Ended September 30						Nine Months Ended September 30
	2007			2006			2007			2006
Net revenues:
Advent Investment Management	$	49,892		$	40,975		$	138,992		$	118,573
MicroEdge	5,657			5,121			16,912			14,822
Other	—			(219		)	—			498

Total net revenues	$	55,549		$	45,877		$	155,904		$	133,893

Income from operations:
Advent Investment Management	$	8,522		$	4,210		$	17,029		$	13,883
MicroEdge	1,287			1,418			4,225			3,541
Other	—			(573		)	—			(1,518		)
Unallocated corporate operating costs and expenses:
Stock-based employee compensation	(3,219		)	(3,448		)	(10,047		)	(10,097		)
Amortization of developed technology	(332		)	(251		)	(1,018		)	(909		)
Amortization of other intangibles	(463		)	(1,028		)	(1,403		)	(3,027		)

Total income from operations	$	5,795		$	328		$	8,786		$	1,873

Major Customers

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

Note 14—Related Party Transactions

As of December 31, 2006, Legg Mason owned approximately 17% of the voting stock of Advent. Advent recognized approximately $139,000 and $337,000 of revenue from Legg Mason during the three and nine months ended September 30, 2007, respectively. The Company’s accounts receivable from Legg Mason were $28,000 and $10,000 as of September 30, 2007 and December 31, 2006, respectively.

Advent acts as trustee for the Company’s short-term disability plan—Advent Software California Voluntary Disability Plan (“VDI”). Employee withholdings were $59,000 and $226,000 during the three and nine months ended September 30, 2007, respectively. Disbursements were $79,000 and $257,000 during the three and nine months ended September 30, 2007, respectively. Cash held by Advent related to the VDI was $274,000 and $305,000 as of September 30, 2007 and December 31, 2006, respectively, and are included in “Other assets, net” on the condensed consolidated balance sheets.

Note 15—Income Taxes

On January 1, 2007, Advent adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). As of January 1, 2007, Advent accrued $4.9 million of unrecognized tax benefits. If recognized, the portion of unrecognized tax benefits that would decrease the Company’s provision for income taxes and increase net income is $4.1 million. The impact on net income reflects the liabilities for unrecognized tax benefits net of the federal tax benefit of state income tax items. The adoption resulted in no significant cumulative impact to accumulated deficit. As of September 30, 2007, Advent’s unrecognized tax benefits totaled $5.3 million and are primarily included in “Other long-term liabilities” on the condensed consolidated balance sheet. The total unrecognized tax benefits at September 30, 2007 and December 31, 2006 relate primarily to federal research and California research and enterprise zone tax credits, various state net operating losses, and potential penalties and interest on amended state and local tax returns.

Advent recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within “Provision for (benefit from) income taxes” on the condensed consolidated statement of operations. As of September 30, 2007, the Company had $0.2 million of interest and penalties accrued associated with unrecognized tax benefits.

Advent is subject to taxation in the U.S. and various states and foreign jurisdictions. Advent is not under examination in any income tax jurisdiction at the present time and does not anticipate the total amount of its unrecognized tax benefits to significantly change over the next 12 months. The material jurisdictions that are subject to examination by tax authorities include California for tax years after fiscal 2001 and the U.S. and New York for tax years after 2002.

Note 16—Subsequent Event

On November 6, 2007, Advent’s Board elected Robert Ettl to the Company’s Board of Directors. Also, effective on this date, the Board approved an amendment to Section 3.2 of the Company’s Bylaws to increase the membership of the Board from six to seven members in connection with the election of Mr. Ettl to the Company’s Board.

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, including, but not limited to statements referencing our expectations relating to future revenues and expenses. Forward-looking statements can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “plan” “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or other similar terms and the negative of such terms regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include, among others: statements regarding growth in the investment management market and opportunities for us related thereto; continued market acceptance of our Geneva, APX and Moxy products, future expansion, acquisition or investment in other businesses; our move to a predominantly term licensing model, projections of revenues, future cost and expense levels (including for the fourth quarter of 2007); expected timing and amount of amortization expenses related to past acquisitions; the adequacy of resources to meet future cash requirements; estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities; future client wins; future hiring; and future product introductions. Such forward-looking statements are based on our current plans and expectations, and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from any results or performance expressed or implied by such forward-looking statements. Such factors include, but are not limited to, those set forth in “Item 1A. Risk Factors” in this Form 10-Q, as well as other risks identified from time to time in other Securities and Exchange Commission (“SEC”) reports. You should not place undue reliance on our forward-looking statements, as they are not guarantees of future results, levels of activity or performance and represent our expectations only as of the date they are made.

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

Overview

Our business is organized into two reportable segments, Advent Investment Management (“AIM”) and MicroEdge. Advent Investment Management is our core business and derives revenues from the development, marketing and sale of software products, data interfaces and related maintenance and services that automate, integrate and support certain mission-critical functions of investment management organizations principally in the United States and the Europe, Middle East and Africa (EMEA) region. MicroEdge derives revenues from the sale of software and services for grant management, matching gifts and volunteer tracking for the grant-making community. For additional information regarding our reportable segments, see Note 13, “Segment Information,” to our condensed consolidated financial statements.

We offer integrated software solutions for automating and integrating data and work flows across the investment management organization, as well as the information flows between the investment management organization and external parties. Each solution focuses on specific mission-critical functions of the investment management organization and is tailored to meet the needs of the particular client, as determined by size, assets under management and complexity of the investment environment. Our products are intended to increase operational efficiency, improve the accuracy of client information and enable better decision-making.

Operating Overview

During the third quarter of 2007, we continued to execute on our strategy of strengthening and growing our core business of delivering mission-critical software and services to the investment management community by winning new customers, expanding our product footprint with existing customers, growing our services organization and investing in innovation to increase the reach of our product suite.

We grew our core business by signing 14 new customers for Geneva and 26 new contracts for Advent Portfolio Exchange (“APX”). Term contract bookings were $18.3 million, representing growth of 73% from the third quarter of 2006.

The average term of our third quarter bookings was 3.6 years, reflecting four large Geneva contracts signed with prime brokers and hedge fund administrators, which had 5-year terms. We also held our Advent Client Conference in September 2007. This was our largest annual Client Conference with nearly 1,200 participants, including executives from the many market segments we serve including: asset managers, financial advisors, hedge funds, prime brokers, fund administrators, family offices, banks, broker dealers and trusts.

We also launched two major new releases of our most important accounting platforms. We launched APX 2.0 with enhanced fixed income functionality and new performance analytics functionality which includes performance attribution, contribution and ex-post risk statistics. We believe this added functionality will provide our clients the tools to deliver robust reporting and client service without increasing operational costs or overhead. Additionally, we released Geneva 7.0 during the third quarter which provides a completely new user interface, data browser, and reporting infrastructure.

During the third quarter, we continued the expansion of our services organization to address the general increase in the volume of consulting and training services demanded as a result of higher license bookings. Gross margins are negatively affected by headcount additions in our client services and consulting groups as new employees undergo a training period, typically of six months before becoming fully billable. Additionally, the deferral of professional services revenues and costs associated with our term license implementations also negatively affects our gross margin as we defer only the direct costs associated with the services performed. However, we believe our gross margins will improve as the deferred professional services revenue and expense associated with term licenses flow back into our operating results.

We continued to invest in innovation to increase the breadth of our product suite during the three months ended September 30, 2007. Product development expenses, net of capitalized costs of $2.1 million, were $9.3 million during the third quarter of 2007, which represented 17% of total net revenues, as compared to $8.8 million (net of capitalized costs of $4,000), or 19% of total net revenues, in the same quarter of 2006. We are currently preparing for the fourth quarter release of Advent Rules Manager, our new solution for pre- and post-trade compliance, which is in beta testing at several client sites.

We will continue to increase headcount and invest in product development, sales, implementation and client services capacity to support our new bookings.

Financial Overview

A financial summary of our third quarter of 2007 includes:

• Revenues were $55.5 million, representing growth of 21% from $45.9 million in the third quarter of 2006;

• Revenues recognized from recurring sources represented 77% of total revenues for the third quarter of 2007, compared to 79% in the third quarter of 2006;

• Operating expenses, including the cost of revenues, were $49.8 million, which was a 9% increase from $45.5 million in the third quarter of 2006. Operating expenses benefited from the capitalization of $2.1 million of product development costs in the third quarter of 2007 as compared with $4,000 in the same period of 2006;

• Net income was $3.3 million, or $0.12 earnings per diluted share;

• Cash provided by operating activities was $12.4 million, representing a 20% increase from $10.4 million in the third quarter of 2006; and

• Repayment of $5.0 million on our outstanding loan, reducing the loan balance to $20.0 million as of September 30, 2007.

Term License and Term License Deferral

We are continuing the process of converting the Company’s license revenues from a perpetual model to a term model. Under a perpetual pricing model, customers purchase a license to use our software indefinitely and generally we recognize all license revenue at the time of sale; maintenance is purchased under an annual renewable contract, and recognized ratably over the contract period. Under a term pricing model, customers purchase a license to use our software and receive maintenance for a limited period of time and we recognize all of the revenue ratably over the length of the contract. This has the effect of lowering revenues in the early stages of the transition, but increasing the total potential value of the customer relationship. Moving AIM’s new customer sales from a perpetual to a term licensing model has had the effect of lowering our reported revenue growth rates over the past two years and will, depending on our new term license bookings, continue to have an impact through 2008. However, because our products are used by customers for an average of approximately eight years, we believe this change to our business model is extremely significant for the long-term growth and value of the business. For example,

over an eight-year period, a customer may enter into two or more contracts for the same software product and services under a term license model.

When a customer purchases a term license together with implementation services, we do not recognize any revenue under the contract until the implementation services are substantially complete. If the implementation services are still in progress as of quarter-end, we will defer all of the contract revenues to a subsequent quarter. At the point professional services are substantially completed, we recognize a pro-rata amount of the term license revenue, professional services fees earned and related expenses, based on the elapsed time from the start of the term license to the substantial completion of professional services. Term license revenue for the remaining contract years and the remaining deferred professional services revenue and related expenses are recognized ratably over the remaining contract length.

During the third quarter of 2007, we deferred net revenues of $3.0 million and directly-related expenses of $0.9 million associated with our term licensing model. The impact of these deferrals on our operating income was approximately $2.1 million. The $3.0 million net deferral of revenue is composed of a net deferral of $2.2 million of professional services revenue and a net deferral of $0.8 million of term license revenue. Professional services and term license revenue deferrals continued to increase as the deferral for current projects exceeded the amount recognized from completed past projects. We expect that the term license component of the deferred revenue balance will increase or decrease in the future based on the number of implementations that reach substantial completion in a particular quarter. We currently expect that the professional services component of the deferred revenue balance will continue to increase through at least 2008.

Amounts of revenues and directly-related expenses deferred as of September 30, 2007 and December 31, 2006 associated with our term licensing deferral were as follows (in millions):

					Prior
	Current Classification				Classification
	September 30		December 31		December 31
	2007		2006		2006
Deferred revenues
Short-term	$	13.4	$	7.2	$	9.3
Long-term	3.6		2.1		—

Total	$	17.0	$	9.3	$	9.3

Directly-related expenses
Short-term	$	4.3	$	2.0	$	2.9
Long-term	1.4		0.9		—

Total	$	5.7	$	2.9	$	2.9

Deferred net revenues and directly-related expenses are classified as “Deferred revenues” (short-term and long-term), and “Prepaid expenses and other,” and “Other assets, net,” respectively, on the condensed consolidated balance sheets. In the third quarter of 2007, we reclassified certain of the deferred revenues and direct costs associated with our term service deferral from current to long-term. With the evolution of the term service deferral model, we are now able to determine the amounts that will be recognized as revenue more than 12 months from the balance sheet date. We have reclassified those deferred revenues and prepaid expense amounts that will be recognized more than 12 months from the balance sheet date from current to long-term on the balance sheets. Prior period amounts have been reclassified to conform to the current presentation.

The transition to a term model also has the effect of decreasing operating cash flows in the early stages of the transition. Under perpetual pricing, the entire license fee and the first year of maintenance is generally billed and collected at the commencement of the arrangement. Under term pricing, a typical contract term is three years. We generally bill and collect term license fee installments in advance of each annual period. The amount of the annual term billing is less than the perpetual billing, resulting in lower cash flows in the initial annual term license period. Annual term billing results in an increase in deferred revenues and an increase in operating cash flows at the commencement of each annual billing period.

Recurring Revenue Model and Revenue Presentation

During the third quarter of 2007, we recognized approximately 77% of total net revenue from recurring sources, which we define as revenues from term license, maintenance on perpetual licenses and other recurring. This high proportion of recurring revenues allows us to take a long-term view and invest in our business while remaining confident that our operating results will be reasonably predictable.

During the first quarter of 2007, we changed our presentation of revenue and associated cost of revenues to more clearly show the nature and components of our revenues under a term licensing model and the predominance of revenue from recurring sources. We believe the current presentation more clearly reflects our business as well as the principal underlying factors impacting our long-term growth and predictability. We currently categorize our revenues as follows: “Term license, maintenance and other recurring,” “Perpetual license fees” and “Professional services and other.” Please refer to Note 1, “Basis of Presentation,” to our condensed consolidated financial statements for a complete description of the changes.

Non-Cash Operating Expenses

We recorded stock-based compensation expense of $3.2 million, total amortization expense of $0.8 million, and restructuring charges of $0.1 million in the third quarter of 2007; these expenses totaled $4.1 million or 7% of revenues.

Capital Structure

In February 2007, we and certain of our domestic subsidiaries entered into a senior secured credit facility agreement (the “Facility”) with Wells Fargo Foothill, Inc. (the “Lender”). Under the Facility, we have a revolving line of credit up to an aggregate amount of $75.0 million, subject to a borrowing base formula, to provide backup liquidity for a period of three years for general corporate purposes, including stock repurchases, or investment opportunities. This Facility provides us with the flexibility to run our business with lower cash balances. During the second quarter of 2007, we drew down $25.0 million on the Facility at a three-month borrowing rate of 6.86% to help fund the repurchase of shares. In the third quarter of 2007, we repaid $5.0 million of our outstanding loan leaving a $20.0 million balance as of September 30, 2007, which bears interest at 7.08%. See Note 11, “Line of Credit” for further description of our credit facility.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements and related notes, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities.

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

We believe the following accounting policies contain the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

• Goodwill;

• Revenue recognition and deferred revenues;

• Income taxes;

• Stock-based compensation;

• Restructuring charges and related accruals;

• Impairment of long-lived assets;

• Legal contingencies; and

• Sales returns and accounts receivable allowances

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2007 as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K/A for the year ended December 31, 2006, except as described below.

Revenue recognition. We recognize revenue from term license, maintenance and other recurring; perpetual license fees, and professional services and other. We offer a wide variety of products and services to a large number of financially sophisticated customers. While many of our lower-priced license transactions, maintenance contracts, subscription-based transactions and professional services projects conform to a standard structure, many of our larger transactions are complex and may require significant review and judgment in our application of generally accepted accounting principles.

Software licenses. We recognize revenue from the licensing of software when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable and collection of the resulting receivable is reasonably assured. We generally use a signed license agreement as evidence of an arrangement. Sales through our distributors are evidenced by a master agreement governing the relationship together with binding order forms and signed contracts from the distributor’s customers. Revenue is recognized once shipment to the distributor’s customer has taken place and when all other revenue recognition criteria have been met. Delivery occurs when a product is delivered to a common carrier F.O.B shipping point. Some of our arrangements include acceptance provisions, and if such acceptance provisions are present, delivery is deemed to occur upon acceptance. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction. We assess whether the collectibility of the resulting receivable is reasonably assured based on a number of factors, including the credit worthiness of the customer determined through review of credit reports, our transaction history with the customer, other available information and pertinent country risk if the customer is located outside the United States. Our standard payment terms are due at 180 days or less, but payment terms may vary based on the country in which the agreement is executed. Software licenses are sold with maintenance and, frequently, professional services.

Licenses. We typically license our products on a per server, per user basis with the price per customer varying based on the selection of the products licensed, the number of site installations and the number of authorized users. We have continued our transition from selling mostly perpetual licenses to selling a mix of term and perpetual licenses, and we expect term license revenue to increase as a proportion of total recurring revenues (which we define as term license, maintenance and other recurring revenues) in the future. Term license revenue comprised approximately 22% and 12% of term license, maintenance and other recurring revenues during the first nine months of 2007 and 2006, respectively. Revenue recognition for software licensed under term and perpetual license models differs depending on which type of contract a customer signs:

• Term licenses

Term license contract prices include fees for both the software license and maintenance. We offer multi-year term licenses by which a customer makes a binding commitment that typically spans three years. For multi-year term licenses, we have not established VSOE of fair value for the software license and maintenance components and, as a result, in situations where we are also performing related professional services, we defer all revenue and directly related expenses under the arrangement until the professional services are substantially complete. At the point professional services are substantially completed, we recognize a pro-rata amount of the term license revenue, professional services fees earned and related expenses, based on the elapsed time from the start of the term license to the substantial completion of professional services. Term license revenue for the remaining contract years and the remaining deferred professional services revenue and related expenses are recognized ratably over the remaining contract length. When multi-year term licenses are sold and do not include related professional services, we recognize the entire term license revenue ratably over the period of the contract term from the effective date of the license agreement assuming all other revenue recognition criteria have been met. Revenues from term licenses are included in “Term license, maintenance and other recurring” revenues on the condensed consolidated statement of operations.

• Perpetual licenses

We allocate revenue to delivered components, normally the license component of the arrangement, using the residual method, based on vendor specific objective evidence, or VSOE, of fair value of the undelivered elements (generally the maintenance and professional services components), which is specific to us. We determine the fair value of the undelivered elements based on the historical evidence of the Company’s stand-alone sales of these elements to third parties. If VSOE of fair value does not exist for any undelivered elements, then the entire arrangement fee is deferred until delivery of that element has occurred. Revenues from perpetual licenses are included in “Perpetual license fees” revenue on the condensed consolidated statement of operations.

Certain of our perpetual and term license contracts include asset-based fee structures that provide additional revenues based on the assets that the client manages using our software (“Assets Under Administration” or “AUA”). Contracts containing an AUA fee structure have a defined measurement period which requires the client to self-report actual AUA in arrears of the specified period. AUA fees above the stated minimum fee for the same period are considered incremental fees. Because incremental fees are not determinable until the conclusion of the measurement period, they are both earned and

recognized in arrears, on a quarterly or annual basis. Incremental fees from perpetual AUA contracts are included in “Perpetual license fees” on the condensed consolidated statement of operations. Incremental fees from term AUA contracts are included in “Term license, maintenance and other recurring revenue” revenue on the condensed consolidated statement of operations.

For certain term AUA contracts signed in 2006, which will be entering the second year of the arrangement in 2007, we began accruing the minimum AUA component of the fees in the applicable period during the first quarter of 2007 rather than in arrears as was the treatment for earlier contracts. We have gained more experience in working with these types of arrangements and are able to conclude that the minimum fees are fixed and determinable. The change in the first quarter of 2007 to our revenue recognition practice to start to accrue for minimum fees is based on an overall affirmative experience with our existing AUA-based arrangements where our historical experience has shown that we have received the AUA report, invoiced the client for both the minimum and incremental amounts, and received payment. Therefore, beginning in the first quarter of 2007, we are recognizing AUA contract minimum fees in the period to which they are applicable, whereas we continue to recognize incremental fees in arrears once our clients contractually report them to us, because the incremental fees are not determinable until reported. The impact of this change for the third quarter of 2007 was an increase to term license revenue of approximately $56,000.

For existing term license arrangements signed prior to 2006 which are in their second or third year where we had previously begun billing in arrears of the measurement period, we will continue to recognize revenue for the minimum (and incremental) value of the AUA fees upon receipt of the customer’s AUA report.

Maintenance and other recurring revenues. We offer annual maintenance programs on perpetual licenses that provide for technical support and updates to our software products. Maintenance fees are bundled with perpetual license fees in the initial licensing year and charged separately for renewals of annual maintenance in subsequent years. Fair value for maintenance is based upon either renewal rates stated in the perpetual license contracts or, separate sales of renewals to customers. Generally, we recognize maintenance revenue ratably over the contract term.

We offer other recurring revenue services that are either subscription-based or transaction-based, and primarily include the provision of software interfaces to, and the capability to download securities information from, third party data providers. We recognize revenue from recurring revenue transactions either ratably over the subscription period or as the transactions occur.

Professional services and other revenues. We offer a variety of professional services that include project management, implementation, data conversion, integration, custom report writing and training. We base fair value for professional services upon separate sales of these services to customers. Our professional services are generally billed based on hourly rates together with reimbursement for travel and accommodation expenses. We recognize revenue as professional services are performed, except in the case of multi-year term license contracts which are described in the “term licenses” section above. Certain professional services arrangements involve acceptance criteria and in these cases, revenue and related expenses are recognized upon acceptance. Professional services and other revenues also include revenue from our user conferences.

Sales returns and accounts receivable allowances. Our standard practice is to enforce our contract terms and not allow our customers to return software. We have, however, allowed customers to return software on a limited case-by-case basis and have recorded sales returns provisions as offsets to revenue in the period the sales return becomes probable. We use our judgment in estimating our sales returns. We analyze customer demand, acceptance of products and historical returns when evaluating the adequacy of the allowance for sales returns, which are not generally provided to customers. Beginning in 2004, we used an algorithm to supplement our judgment for calculating the value of reserves that considered the last 18 months of experience into account. Beginning in the second quarter of 2007, we changed our algorithm to include the last 12 months of experience. The change to using 12 months of experience reflects ongoing improvements in collections as our accounts receivables are materially collected within one year. Under our term arrangements, we generally bill and collect in advance of each annual period and therefore, our revenue risk rarely exceeds 12 months.

Our ability to estimate returns is based on our long history of experience with relatively homogenous transactions and the fact that the return period is short. The estimates for returns are adjusted periodically based upon changes in historical rates of returns and other related factors.

We use our judgment in estimating our allowance for doubtful accounts. In order to estimate our allowance for doubtful accounts, we analyze specific accounts receivables, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms.

Income taxes. We account for worldwide income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities to be

recognized as deferred tax assets and liabilities. Significant judgment is required to determine our worldwide income tax provision. In the ordinary course of business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of cost reimbursement arrangements among related entities, the process of identifying items of revenue and expense that have differing or preferential tax treatment and segregation of foreign and domestic income and expense to the appropriate taxing jurisdictions to reasonably allocate earnings. Additionally, the projections of pre-tax income for the year by legal entity can vary significantly from quarter-to-quarter which can have a significant impact on our projected effective tax rate. Although we believe that our judgments and estimates are reasonable, the final outcome could be different from that which is reflected in our income tax provision and accruals.

A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in the jurisdiction where the tax asset is located. We consider forecasted earnings, future taxable income and prudent and reasonable tax planning strategies in determining the need for a valuation allowance.

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the return is filed and the tax implication is known.

We recognize interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within “Provision for (benefit from) income taxes” on the condensed consolidated statement of operations. We are subject to audits by state, federal and foreign tax authorities. Our estimates for the potential outcome of any uncertain tax matter are judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include adjustments to our estimated tax liabilities. We do not currently expect to make payments related to uncertain tax positions in the next 12 months. Accordingly, we have reclassified amounts related to uncertain tax positions as long-term liabilities.

Stock-based compensation. The calculation of stock-based compensation requires reliance on significant assumptions, judgments and estimates. Management judgment was required in the initial selection and implementation of policies to conform with the requirements of SFAS 123R. Management elected to adopt the standard using the modified prospective method, to utilize the Black-Scholes option pricing model to determine the fair value of expense and to recognize the stock-based compensation expense on a straight-line basis over the service period. Had management selected other implementation, valuation or recognition methodologies, the presented result could vary significantly.

We currently use the Black-Scholes option pricing model to determine the fair value of stock options, stock appreciation rights (“SAR”) and employee stock purchase plan shares. The fair value of our restricted stock units is calculated based on the fair market value of our stock on the date of grant. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee exercise behavior, the risk-free interest rate and expected dividends. We use an external service provider to assist us in making reasonable estimates.

We estimate the volatility of our common stock based on an equally weighted average of historical and implied volatility of the Company’s common stock. We determined that a blend of historical and implied volatility is more reflective of the market conditions and a better indicator of expected volatility than using purely historical volatility. We estimate the expected life of options and SAR’s granted based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. We base the risk-free interest rate on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option and SAR. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model.

These variables are sensitive and change on a daily basis. As a result, the financial result from issuing the same number of options or SAR’s can vary significantly over time. The following table reflects the change in the fair value of a hypothetical option or SAR as a result of a hypothetical change in the underlying assumptions:

				Assumption	Value			Assumption	Value
Assumption	Base Case			Change	Change			Change	Change

Grant and stock price	$	50.00		+$1	$	0.37		-$1	$	(0.37	)
Risk-free interest rate	4.2		%	+0.5%	$	0.43		-0.5%	$	(0.42	)
Volatility	35.5		%	+5%	$	1.73		-5%	$	(1.75	)
Expected life (years)	4.6			+ 1 year	$	2.02		- 1 year	$	(2.27	)
Expected dividend yield	0.0		%	+2%	$	(3.14	)	n/a		n/a

Base Option Value	$	18.30

Our SAR and stock option awards granted to employees cliff vest 20% after one year. Our RSU awards cliff vest 50% after two years and 50% after four years. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on our annual forfeiture rate. The annual forfeiture rate is based on our historical forfeiture experience over the last ten years. We use an external service provider to assist us in making reasonable estimates of the annual forfeiture rate. During the third quarter, we modified our forfeiture calculation for RSU awards to better reflect both the recent experience with RSU forfeitures and to reflect the longer cliff vesting periods. The effect of these modifications was to reduce stock-based compensation expense by $137,000 during the third quarter of 2007.

Recent Developments

On November 6, 2007, our Board of Directors (the “Board”) elected Robert Ettl to the Company’s Board.

Recent Accounting Pronouncements

No recent accounting pronouncements have been issued which would currently have a material effect on our condensed consolidated financial position, results of operations, or cash flows.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

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

	Three Months Ended September 30				Nine Months Ended September 30
	2007		2006		2007		2006
Net revenues:
Term license, maintenance and other recurring	77	%	79	%	79	%	76	%
Perpetual license fees	11		11		11		14
Professional services and other	12		10		10		10

Total net revenues	100		100		100		100

Cost of revenues:
Term license, maintenance and other recurring	18		17		18		18
Perpetual license fees	0		0		0		0
Professional services and other	14		15		13		13
Amortization of developed technology	1		1		1		1

Total cost of revenues	32		33		32		32

Gross margin	68		67		68		68

Operating expenses:
Sales and marketing	24		26		26		27
Product development	17		19		19		19
General and administrative	15		18		16		18
Amortization of other intangibles	1		2		1		2
Restructuring charges	0		0		1		0

Total operating expenses	57		66		63		67

Income from operations	10		1		6		1
Interest and other income (expense), net	0		1		3		2

Income before income taxes	10		2		8		4
Provision for (benefit from) income taxes	4		0		3		(1	)

Net income	6	%	2	%	6	%	4	%

NET REVENUES

	Three Months Ended September 30						Nine Months Ended September 30
	2007		2006		Change		2007		2006		Change

Total net revenues (in thousands)	$	55,549	$	45,877	$	9,672	$	155,904	$	133,893	$	22,011

Our net revenues are made up of three components: term license, maintenance and other recurring; perpetual license fees; and, professional services and other.

Historically, our components of revenue varied as a percentage of net revenues due principally to the relative size and timing of individual perpetual software licenses and the timing of new product introductions. In addition, our components of revenue can vary based on the timing of client implementations and the amount of our data used by clients. We are now more than halfway through our transition to a term licensing model, and we expect that for the remainder of 2007 and beyond, approximately 80% of our net revenues will come from our recurring revenue sources and that perpetual license fees will decrease as a percentage of net revenues. As we substantially complete our transition to term licensing, we expect less variability between our major categories of revenues because the variation from large perpetual license deals will decrease.

We expect total net revenues for the fourth quarter of 2007 to be between $56 million and $59 million.

Term License, Maintenance and Other Recurring Revenues

(in thousands, except percent of	Three Months Ended September 30								Nine Months Ended September 30
total net revenues)	2007			2006			Change		2007			2006			Change

Term license revenues	$	10,179		$	6,077		$	4,102	$	27,312		$	12,451		$	14,861
Maintenance revenues	21,500			20,368			1,132		63,278			60,254			3,024
Other recurring revenues	11,367			9,639			1,728		32,192			28,736			3,456
Total term license, maintenance and other recurring revenues	$	43,046		$	36,084		$	6,962	$	122,782		$	101,441		$	21,341
Percent of total net revenues	77		%	79		%			79		%	76		%

Term license revenues, which include software license and maintenance fees for term licenses, represented 24% of total term license, maintenance and other recurring revenues in the third quarter of 2007, up from 17% in the third quarter of 2006. Term license revenues continue to grow as we sign more contracts on a term basis. Term license bookings were $18.3 million in the third quarter of 2007, an increase of 73% from $10.6 million in the same period of 2006. As a percentage of total net revenues, total term license, maintenance and other recurring revenues decreased to 77% during the third quarter of 2007 from 79% in the third quarter of 2006. This decrease as a percentage of total net revenues was attributable to the 36% increase in our professional services revenue associated with growth in our implementation projects and client conference revenues.

Maintenance revenues increased $1.1 million and $3.0 million during the three and nine months ended September 30, 2007, respectively, compared to the same periods of 2006. These increases are attributable to the impact of price increases on annual perpetual maintenance renewals purchased by our installed customer base and, to a lesser extent, an increase in new perpetual maintenance support contracts, partially offset by maintenance de-activations and downgrades. We disclose our maintenance renewal rate one quarter in arrears in order to include substantially all payments received against the maintenance invoices for that quarter. Our maintenance renewal rate has been in the range of 89% to 94% over the previous four quarters and was 94% for the second quarter of 2007.

Other recurring revenues increased $1.7 million and $3.5 million during the three and nine months ended September 30, 2007, respectively, mainly as a result of growth in our subscription, data management revenue streams and outsourced services including Advent Back Office Service (ABOS).

During the third quarter of 2007, we also recognized a net benefit of $67,000 to term license, maintenance and other recurring revenues resulting from the correction of errors associated with the first and second quarters of 2007.

Perpetual License Fees

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change

Perpetual license fees (in thousands)	$	6,054		$	5,061		$	993	$	17,670		$	19,269		$	(1,599	)
Percent of total net revenues	11		%	11		%			11		%	14		%

Perpetual license fees increased $1.0 million or 20% during the three months ended September 30, 2007 compared to the same period of 2006. For our customers who have licensed our products on a perpetual basis, we allow them to purchase additional seats on a perpetual basis. Additionally, the vast majority of our MicroEdge product sales are on a perpetual basis. The increase in the third quarter of 2007 is a result of increased activity within these customer groups. Despite the increase in perpetual license fees in the third quarter of 2007, the transition of our core products to a term pricing model has resulted in a decrease in perpetual license fees of $1.6 million during the nine months ended September 30, 2007 as compared to the same period of 2006. Incremental AUA fees from perpetual licenses included in the “Perpetual license fees” caption were $1.5 million and $4.8 million for the three and nine months ended September 30, 2007, respectively, and were flat as compared to the same periods in 2006.

We expect perpetual license fees will increase in the fourth quarter of 2007 compared to the third quarter, primarily as a result of two perpetual AUA contracts that are measured annually in the fourth quarter of each year.

Professional Services and Other Revenues

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change
Professional services and other revenues (in thousands)	$	6,449		$	4,732		$	1,717	$	15,452		$	13,183		$	2,269
Percent of total net revenues	12		%	10		%			10		%	10		%

Professional services and other revenues primarily include consulting, project management, custom integration, custom work, and training. Professional services projects related to Axys, Moxy and Partner products generally can be

completed in a two- to six-month time period, while services related to Geneva and APX products may require a four- to nine-month implementation period.

During the three and nine months ended September 30, 2007, professional services revenue increased as we experienced growth in our project management, data conversion and custom reporting revenues associated with implementations of our APX and Geneva products.

These increases were partially offset by lower services revenues associated with Axys implementations and an increase in the net deferral of professional services revenue for services performed on term license implementations. When services are performed with term license implementations, service revenue is deferred until the implementation is substantially complete. Then service revenues are recognized over the remaining license term. We have experienced an increase in implementation services after the launch of our APX product and the sales success of our Geneva product, which are both sold under a term license model. We deferred professional services revenue of $2.2 million in the third quarter of 2007, which represented a $1.2 million increase from the revenue deferral of $0.9 million in the comparable period of 2006 and was the result of having more term license implementation projects in progress, primarily related to Geneva. Also, included in professional services revenue were $1.4 million of revenues from the Advent Client Conference which was an increase of $0.5 million from the prior year.

We expect that revenues from professional services and other will decrease in the fourth quarter of 2007 relative to the third quarter, primarily due to our annual client conference that occurred in the third quarter of 2007.

Revenues by Segment

	Three Months Ended September 30							Nine Months Ended September 30
(in thousands)	2007		2006			Change		2007		2006		Change

Advent Investment Management	$	49,892	$	40,975		$	8,917	$	138,992	$	118,573	$	20,419
MicroEdge	5,657		5,121			536		16,912		14,822		2,090
Other	—		(219		)	219		—		498		(498		)

Total net revenues	$	55,549	$	45,877		$	9,672	$	155,904	$	133,893	$	22,011

We have two reportable segments: Advent Investment Management (“AIM”) and MicroEdge. AIM derives revenues from the development, marketing and sale of software products, data interfaces and related maintenance and services that automate, integrate and support certain mission critical functions of investment management organizations. MicroEdge derives revenues from the sale of software and services for grant management, matching gifts and volunteer tracking for the grant-making community.

The 22% and 17% increase in AIM’s revenue in the three and nine months ended September 30, 2007 primarily reflects generally healthy economic conditions and growth in financial markets, as well as the continued focus on selling our Axys, APX, Moxy, Partner and Geneva products. AIM’s revenue increase in the first nine months of 2007 also reflected an increase in new maintenance support contracts as a result of new license deals and price increases for maintenance contracts from our installed customer base, partially offset by attrition from within our existing installed customer base.

The technology spending patterns of organizations in MicroEdge’s primary markets (independent foundations, community foundations and corporations) are directly affected by economic fluctuations as foundation budgets are largely driven by endowment income which often contains market-exposed components. Foundation spending typically decreases in an economic downturn. Community foundations are subject to similar influences, compounded by the fact that in many cases much of their ongoing funding and endowment comes from active donors who may increase or reduce their giving depending on the economic climate and the related effect on their income and wealth. Corporations typically fund charitable activities from operating budgets, and the allocation to charitable donations and supporting company charitable operations is often closely tied to a company’s performance. Thus, corporate philanthropy and spending on related technology are correlated with company and overall economic performance.

The 10% and 14% increase in MicroEdge’s revenue during the three and nine months ended September 30, 2007 reflects the generally healthy economic conditions and general trend of increased charitable contributions that has persisted for the past few years. This increase in charitable contributions received by the foundations sector has enabled foundations to increase their information technology expenditures which resulted in the increase in MicroEdge revenue in the first nine months of 2007.

The elimination of revenue in our “Other” segment resulted from the winding down of the soft dollar component of our broker/dealer subsidiary in fiscal 2006.

TOTAL EXPENSES

We expect total expenses, including cost of revenues, for the fourth quarter of 2007 to be between $52 million and $53 million as compared to $49.8 million during the third quarter of 2007.

COST OF REVENUES

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change

Total cost of revenues (in thousands)	$	17,969		$	15,241		$	2,728	$	49,437		$	42,697		$	6,740
Percent of total net revenues	32		%	33		%			32		%	32		%

Our cost of revenues is made up of four components: cost of term license, maintenance and other recurring; cost of perpetual license fees; cost of professional services and other; and amortization of developed technology.

Cost of Term License, Maintenance and Other Recurring

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change
Cost of term license, maintenance and other recurring (in thousands)	$	9,757		$	7,915		$	1,842	$	27,837		$	24,214		$	3,623
Percent of total term license, maintenance and recurring revenue	23		%	22		%			23		%	24		%

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

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

		Change From		Change From
		2006 to 2007		2006 to 2007
		QTD		YTD

Increased payroll and related		$	1,112	$	3,354
Increased (decreased) royalty		278		(132		)
Increased travel and entertainment		8		125
Increased maintenance and computer supplies		120		122
Various other items		324		154

	Total change	$	1,842	$	3,623

The increases for the three and nine months ended September 30, 2007 were due primarily to an increase in compensation and related costs resulting from increases in salary costs and headcount which enables us to deliver the services we provide to our growing number of clients in their day-to-day use of our software.

We expect cost of term license, maintenance and other recurring revenue in the fourth quarter of 2007 to increase as compared to the third quarter due to the continued hiring of personnel.

Cost of Perpetual License Fees

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change

Cost of perpetual license fees (in thousands)	$	218		$	181		$	37	$	632		$	607		$	25
Percent of total perpetual license revenues	4		%	4		%			4		%	3		%

Cost of perpetual license fees consists primarily of royalties and other fees paid to third parties, the fixed direct labor involved in producing and distributing our software, and cost of product media including duplication, manuals and packaging materials. The cost of perpetual license fees has remained consistent with the same period in the prior fiscal year.

Cost of Professional Services and Other

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change
Cost of professional services and other (in thousands)	$	7,662		$	6,894		$	768	$	19,950		$	16,967		$	2,983
Percent of total professional services and other revenues	119		%	146		%			129		%	129		%

Cost of professional services and other revenue consists primarily of personnel related costs associated with the client services organization in providing consulting, custom report writing and conversions of data from clients’ previous systems. Also included are direct costs associated with third-party consultants and travel expenses. Additionally, we defer direct professional services costs until we have substantially completed the term license implementation services.

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

		Change From			Change From
		2006 to 2007			2006 to 2007
		QTD			YTD

Increased payroll and related		$	393		$	2,169
Increased outside services		560			568
Increased travel and entertainment		171			440
Increased marketing		63			139
Increased recruiting		50			342
Increased implementation service cost deferral for term		(500		)	(874		)
Various other items		31			199

	Total change	$	768		$	2,983

The increase during the three and nine months ended September 30, 2007 was due primarily to an increase in payroll and related expenses resulting from the increase in headcount and higher utilization of third party implementation consultants to address the general increase in demand for consulting and training services demanded as a result of higher license sales. The increase in outside services is principally a result of increased costs associated with the larger Client Conference in September 2007 compared to September 2006. Travel costs increased during the 2007 periods due to travel associated with more service projects and rising cost of air travel and accommodations. Consistent with the headcount increase, recruiting costs also increased in the fiscal 2007 periods.

We have experienced an increase in implementation services with the launch of our APX product and sales of our Geneva product, which are both sold under the term license model. As there were more term license implementation projects, primarily Geneva-related, in progress as of September 30, 2007 compared to September 30, 2006, we have experienced an increase in the deferral of professional service costs. We deferred net professional service costs of $0.9 million and $2.6 million during the three and nine months ended September 30, 2007, compared to $0.4 million and $1.7 million in the comparable periods of 2006.

Gross margins for the 2007 periods continue to be negative as a result of the significant deferral of professional services revenues and costs associated with our term license implementation. We defer only the direct costs associated with services performed on these arrangements. Indirect costs such as management and other overhead expenses are recognized in the period in which they are incurred, with no revenue to offset them. In addition, we have added headcount in our consulting group. Since these new employees undergo a training period, typically of six months, before becoming fully billable, their associated costs have a near-term negative impact on gross margins.

We expect cost of professional services and other in the fourth quarter of 2007 to decrease as compared to the third quarter, primarily due to our annual client conference that occurred in the third quarter of 2007.

Amortization of Developed Technology

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change
Amortization of developed techology (in thousands)	$	332		$	251		$	81	$	1,018		$	909		$	109
Percent of total net revenues	1		%	1		%			1		%	1		%

Amortization of developed technology represents amortization of acquisition-related intangible assets and internal product development costs. The increase in amortization of developed technology reflected additional expense from the amortization of capitalized internally developed software costs relating to product upgrades since September 30, 2006.

OPERATING EXPENSES

Sales and Marketing

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change

Sales and marketing (in thousands)	$	13,482		$	12,115		$	1,367	$	40,356		$	36,466		$	3,890
Percent of total net revenues	24		%	26		%			26		%	27		%

Sales and marketing expenses consist primarily of the costs of personnel involved in the sales and marketing process, sales commissions, advertising and promotional materials, sales facilities expense, trade shows, and seminars.

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

		Change From			Change From
		2006 to 2007			2006 to 2007
		QTD			YTD

Increased payroll and related		$	487		$	2,633
Increased travel and entertainment		494			842
Increased marketing		173			591
Increased outside services		104			357
Decreased bad debt and broker fees		(144		)	(1,043		)
Various other items		253			510

	Total change	$	1,367		$	3,890

The increase in expenses for the three and nine months ended September 30, 2007 reflected the growth of our business, while the decrease of expenses as a percentage of revenues during the 2007 periods reflected our achievement of improved productivity. The increases in payroll and other related costs were a result of an increase in headcount to 167 at September 30, 2007 from 161 at September 30, 2006 and increases in variable compensation paid to these individuals as a result of higher bookings. We believe this investment in personnel will accelerate the momentum in our Geneva and APX product sales and increase satisfaction for all of our products. Travel expenses increased due to the headcount increase and travel and lodging associated with our annual Advent client conference in September 2007. Marketing and outside service expenses increased due to increased advertising initiatives to market our significant number of product releases for 2007. These increases were partially offset by a decrease in broker fees and bad debt expense associated with the winding down of our soft dollar business in fiscal 2006.

Product Development

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change

Product development (in thousands)	$	9,334		$	8,849		$	485	$	30,006		$	25,599		$	4,407
Percent of total net revenues	17		%	19		%			19		%	19		%

Product development expenses consist primarily of salary and benefits for our development staff as well as contractors’ fees and other costs associated with the enhancements of existing products and services and development of new products and services. We account for product development costs in accordance with SFAS 2, “Accounting for Research and Development Costs”, and SFAS 86, “Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”, which specifies that costs incurred to develop computer software products should be charged to expense as incurred until technological feasibility is reached for the products. Once technological feasibility is reached, all software costs should be capitalized until the product is made available for general release to customers. The capitalized costs will be amortized using

the greater of the ratio of the product’s current gross revenues to the total of current expected gross revenues or on a straight-line basis over the software’s estimated economic life of approximately three years.

Product development expenses fluctuated due to the following (in thousands):

		Change From			Change From
		2006 to 2007			2006 to 2007
		QTD			YTD

Increased payroll and related		$	2,065		$	5,272
Increased capitalization of product development		(2,078		)	(1,765		)
Increased allocation of corporate expenses		295			432
Increased outside services		120			58
Increased computer and telecom		83			132
Increased recruiting		2			122
Various other items		(2		)	156

	Total change	$	485		$	4,407

The increase in product development expense during the three and nine months ended September 30, 2007 was primarily due to increases in payroll and other related costs resulting from the increase in headcount to help us meet our expanded product delivery schedules for fiscal 2007. As a result of the increase in headcount, our product development group incurred additional costs from a higher allocation of corporate expenses (information technology and facilities) as well as increased recruiting fees to identify product development engineers to assist in developing our new products and enhancing existing products. The fluctuations in the capitalization of our product development costs in the three and nine months ended September 30, 2007 was attributable to the timing of product releases as we capitalized $2.1 million and $2.7 million, respectively, of costs associated with our Geneva 7.0, APX 2.0 and Moxy 6.0 products during 2007 as compared with $4,000 and $0.9 million of costs in the comparable periods of 2006 primarily associated with APX 1.0, and was the principal reason that product development costs decreased as a percentage of revenues in the third quarter of 2007.

We expect product development expenses to increase in the fourth quarter of 2007 as compared to the third quarter due to decreased amounts capitalized under SFAS 86. Our engineers worked on a number of product releases which were in their final beta stage during the third quarter.

General and Administrative

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change

General and administrative (in thousands)	$	8,393		$	8,262		$	131	$	25,014		$	23,911		$	1,103
Percent of total net revenues	15		%	18		%			16		%	18		%

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

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

		Change From			Change From
		2006 to 2007			2006 to 2007
		QTD			YTD

Increased payroll and related		$	1,283		$	4,588
Increase in loss on disposal of assets		379			319
Increased recruiting		150			440
Increased (decreased) depreciation		51			(398		)
Decreased facilities		(501		)	(1,850		)
Decreased outside services		(340		)	(1,134		)
Decreased legal and professional		(313		)	(910		)
Various other items		(578		)	48

	Total change	$	131		$	1,103

The increase in expenses during the three and nine months ended September 30, 2007 is primarily due to payroll and other related costs being higher as a result of an increase in headcount and annual merit increases. The headcount increases reflected our investment in information technology infrastructure to assist in automating key business processes to support the Company’s growth. In the third quarter of 2007, we wrote off $331,000 of construction-in-progress assets at our 303 Second

Street facility in San Francisco, California, as a result of our decision to relocate this data center. This increase was offset by a decrease in facilities and depreciation expense as we are no longer incurring rent and depreciation expenses related to our prior San Francisco headquarters facility located at 301 Brannan Street, which we exited in October 2006. We entered into a definitive lease agreement in January 2006 for our new headquarters facility located at 600 Townsend Street in San Francisco, California resulting in rent expense at both 600 Townsend and our prior headquarters facility causing higher rent expense for the first nine months of 2006. Lower legal fees and professional fees resulted from decreased services provided by Sarbanes-Oxley compliance consultants, and external legal and accounting firms.

Amortization of Other Intangibles

	Three Months Ended September 30									Nine Months Ended September 30
	2007			2006			Change			2007			2006			Change
Amortization of other intangibles (in thousands)	$	463		$	1,028		$	(565	)	$	1,403		$	3,027		$	(1,624	)
Percent of total net revenues	1		%	2		%				1		%	2		%

Amortization of other intangibles represents amortization of non-technology related intangible assets. The decreases in amortization of other intangibles in the 2007 periods were attributed to assets becoming fully amortized during fiscal 2006 and the first nine months of 2007.

Restructuring Charges

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change

Restructuring charges (in thousands)	$	113		$	54		$	59	$	902		$	320		$	582
Percent of total net revenues	0		%	0		%			1		%	0		%

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

During the nine months ended September 30, 2007, we recorded aggregate restructuring charges of $902,000 which primarily related to the modification of certain sub-lease assumptions for our prior San Francisco headquarters facility located at 301 Brannan Street, which the Company exited in October 2006.

During the three months ended September 30, 2006, we recorded a restructuring charge of $54,000 which related to the present value amortization of facility exit obligations. During the three months ended June 30, 2006, we recorded a restructuring charge of $124,000 which related to the costs to exit a portion of our facility in New Rochelle, New York, and our entire facility in Summit, New Jersey as well as the fair value amortization of prior period obligations. During the first quarter of 2006, we recorded a net restructuring charge of $141,000 primarily to adjust original estimates for facilities in San Francisco, California and New York, New York.

The following table sets forth an analysis of the components of the payments and restructuring charges made against the accrual during the nine months ended September 30, 2007 (in thousands):

	Facility Exit			Severance &
	Costs			Benefits			Total

Balance of restructuring accrual at December 31, 2006	$	6,587		$	4		$	6,591
Restructuring charges	681			—			681
Cash payments	(2,331		)	(4		)	(2,335		)
Accretion adjustment	221			—			221

Balance of restructuring accrual at September 30, 2007	$	5,158		$	—		$	5,158

Operating Income by Segment

	Three Months Ended September 30									Nine Months Ended September 30
(in thousands)	2007			2006			Change			2007			2006			Change

Advent Investment Management	$	8,522		$	4,210		$	4,312		$	17,029		$	13,883		$	3,146
MicroEdge	1,287			1,418			(131		)	4,225			3,541			684
Other	—			(573		)	573			—			(1,518		)	1,518
Unallocated corporate operating costs and expenses
Stock-based employee compensation	(3,219		)	(3,448		)	229			(10,047		)	(10,097		)	50
Amortization of developed technology	(332		)	(251		)	(81		)	(1,018		)	(909		)	(109		)
Amortization of other intangibles	(463		)	(1,028		)	565			(1,403		)	(3,027		)	1,624

Total operating income	$	5,795		$	328		$	5,467		$	8,786		$	1,873		$	6,913

Operating income for the AIM segment increased by approximately $4.3 million and $3.1 million in the three and nine months ended September 30, 2007, respectively, compared with the comparable periods of 2006, principally as a result of our improved productivity. Increases in total AIM revenues of $8.9 million and $20.4 million, which contributed to our fiscal 2007 operating profit increases, exceeded our payroll and other related cost increases as the AIM segment has added personnel, primarily in the client support, product development, professional services and sales and marketing groups. To a lesser extent, operating income increased due to an increase in product development cost capitalization. However, operating income for the 2007 periods continue to be reduced by the larger deferral of professional services revenues and costs associated with our term license implementations.

MicroEdge’s operating income decreased by $131,000 during the three months ended September 30, 2007, as compared to the comparable period of 2006, while operating income increased by $684,000 during the nine months ended September 30, 2007, primarily due to an increase in revenues of $536,000 and $2.1 million partially offset by an increase in total operating costs of $666,000 and $1.4 million. Operating expenses increased due to an increase in payroll and other related costs resulting from 11 additional employees that were hired since September 30, 2006.

Operating loss for our “Other” segment was $573,000 and $1.5 million for the three and nine months ended September 30, 2006 compared to zero for the comparable periods in 2007, as we completed the wind down of the soft dollar component of our broker/dealer in 2006 which resulted in significant bad debt expense and broker fees in the prior year periods.

Interest and Other Income (Expense), Net

	Three Months Ended September 30									Nine Months Ended September 30
	2007			2006			Change			2007			2006			Change
Interest and other income (expense), net (in thousands)	$	(138	)	$	656		$	(794	)	$	4,248		$	3,054		$	1,194
Percent of total net revenues	0		%	1		%				3		%	2		%

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

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

	Change From			Change From
	2006 to 2007			2006 to 2007
	QTD			YTD

Increase in interest expense	$	(512	)	$	(776	)
Decrease in interest income	(328		)	(1,891		)
Increase in gain on sale of private equity investments	—			4,247
Increase in impairment loss of private equity investment	—			(585		)
Various other items	46			199

Total change	$	(794	)	$	1,194

The decrease in income during the third quarter of 2007 was due to an increase in interest expense as we drew down $25.0 million on our credit facility in June 2007 of which $5.0 million was repaid in September 2007. Additionally, interest income decreased due to our lower level of cash, cash equivalents and marketable securities balances during the first nine months of 2007, as we liquidated part of our portfolio to fund our significant stock repurchases in fiscal 2006 and the first half of 2007. The increase in interest and other income during the nine months ended September 30, 2007 was attributable to an aggregate gain of $4.2 million from the sale of two private equity investments, including our investment in LatentZero Limited, partially offset by an impairment loss of $585,000 associated with a third private equity investment.

Provision for (Benefit from) Income Taxes

	Three Months Ended September 30								Nine Months Ended September 30
	2007			2006			Change		2007			2006			Change
Provision for (benefit from) income taxes (in thousands)	$	2,361		$	32		$	2,329	$	4,204		$	(1,030	)	$	5,234
Effective tax rate	42		%	3		%			32		%	-21		%

During the three months ended September 30, 2007, we recorded a provision of $2.4 million resulting in a 42% effective tax rate for the third quarter of 2007. During the third quarter of 2006, we continued to carry a valuation allowance against our deferred tax assets resulting in a minimal tax provision. The increase over the prior year third quarter is attributed to the reversal of the majority of our valuation allowance against our deferred tax assets in the fourth quarter of 2006.

During the nine months ended September 30, 2007, we recorded a provision of $4.2 million resulting in a year-to-date effective tax rate of 32%. The increase in income tax expense over the prior year period is also attributed to the reversal of most of our valuation allowance against deferred tax assets in the fourth quarter of 2006. During the nine months ended September 30, 2006, we continued to carry a full valuation allowance against our deferred tax assets resulting in a minimal tax provision. In addition, we recognized income tax benefits in the first quarter of 2006 as a result of the receipt of a state tax refund of $0.5 million and the reduction of projected tax liabilities associated with expiration of a federal income tax return contingency of approximately $0.6 million.

We currently expect an annual effective tax rate for 2007 between 30% and 35%. Our expectation is based on a projected fiscal 2007 effective tax rate of 49.2%, adjusted for discrete tax benefits for tax deductions due to disqualifying dispositions of incentive stock options and employee stock purchase plan shares, and the release of the valuation allowance associated with capital losses as a result of the recognition of capital gains during the second quarter of 2007.

LIQUIDITY AND CAPITAL RESOURCES

Our aggregate cash, cash equivalents and marketable securities were $42.8 million at September 30, 2007, compared with $55.1 million at December 31, 2006. Cash equivalents are comprised of highly liquid investments purchased with an original or remaining maturity of 90 days or less at the date of purchase.

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

	Nine Months Ended September 30
	2007			2006

Net cash provided by operating activities	$	38,203		$	31,752
Net cash provided by investing activities	$	25,563		$	46,938
Net cash used in financing activities	$	(51,391	)	$	(117,088	)

Cash Flows from Operating Activities

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

Our cash provided by operating activities of $38.2 million during the nine months ended September 30, 2007 was primarily the result of our net income, increase in deferred revenue, collection of accounts receivable, and non-cash expenses including stock-based compensation and depreciation and amortization during the period, partially off-set by a net gain from equity investment activity. The increase in deferred revenue primarily reflected our continued transition to the term license model. Under the term model, we generally bill and collect for a term agreement in installments in advance of each annual period. These amounts are deferred at billing and recognized over the annual term period. This has the effect of increasing deferred revenue when compared to a perpetual license model where no license revenue is deferred. See further discussion of the effects of our transition to a term model in the “Overview” section. The decrease in accounts receivable primarily reflected improved collections during the first nine months of 2007. Days’ sales outstanding decreased to 66 days at the end of the third quarter of 2007 from 75 days in the fourth quarter of 2006. Other changes in assets and liabilities included an increase in our income taxes payables and

decreases in prepaid and other assets, accounts payable and accrued liabilities. The decreases in accounts payable and accrued liabilities reflected cash payments of fiscal 2006 liabilities including year-end payables and bonuses, commissions and payroll taxes.

Our cash provided by operating activities during the nine months ended September 30, 2006 of $31.8 million was primarily the result of our net income adjusted for non-cash charges including stock-based compensation, depreciation and amortization. Other sources of cash during the nine months ended September 30, 2006 included increases in deferred rent and deferred revenue. The increase in deferred rent resulted from the signing of a definitive lease agreement on January 2006 for our new headquarters facility located at 600 Townsend Street in San Francisco. The increase in deferred revenue primarily reflected our continued transition to a term license model. Uses of our operating cash included a reduction of our sales reserves, an increase in our prepaid and other assets and decreases in accrued liabilities and income taxes payable. The increase in prepaid and other assets primarily reflected a receivable established for the tenant improvement allowance associated with our 600 Townsend lease agreement, which was partially offset by cash payments by the lessor during the nine months ended September 30, 2006. The decreases in accrued liabilities reflected cash payments for December 31, 2005 liabilities including year-end payables and bonuses, commissions, payroll taxes, settlement of claims of certain former members and employees of Advent Outsource Data Management, and legal costs associated with the discovery phase of the Kinexus earnout litigation. The decrease in income taxes payable during the nine months ended September 30, 2006 reflected cash payments related to state income taxes and reductions in other projected tax liabilities.

We expect our cash flow from operating activities for fiscal 2007 to be in the range of $54 million to $57 million.

Cash Flows from Investing Activities

Net cash provided by investing activities of $25.6 million for the nine months ended September 30, 2007 is primarily from proceeds of $24.9 million from the sale of short term investments and from the proceeds of $11.6 million from the sale of two private equity investments, including our stake in LatentZero Limited. This was partially offset by capital expenditures of $7.1 million, capitalized software development costs of $2.4 million and an installment payment totaling $1.0 million related to the acquisition of East Circle Solutions, Inc. In addition, restricted cash increased by $0.4 million associated with amendments to the lease agreement with Toda Development, Inc. (“Toda”) to increase our rentable square footage at our headquarter facility located at 600 Townsend Street in San Francisco, California. In the event that we default under the terms of this lease agreement, the letter of credit may be drawn upon by Toda.

Net cash provided by investing activities of $46.9 million for the nine months ended September 30, 2006, consisted primarily of net sales and maturities of marketable securities of $64.5 million. During the nine months ended September 30, 2006, we liquidated investments to provide the cash required to repurchase our common stock. These cash proceeds were offset by capital expenditures of $15.5 million, a change in restricted cash of $1.3 million to secure a bank line of credit associated with the lease of our new headquarter facilities, and capitalized software development costs of $0.8 million.

Cash Flows from Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2007 of $51.4 million reflected the repurchase of 2.6 million shares of our common stock for $91.2 million and the repayment of $5.0 million on our credit facility. This was partially offset by a draw-down of $25.0 million against our credit facility and proceeds received from the issuance of common stock of $19.8 million under our employee stock option and purchase plans.

Net cash used in financing activities for the nine months ended September 30, 2006 of $117.1 million reflected the repurchase of 4.1 million shares of our common stock for $127.9 million, partially offset by proceeds received from the issuance of common stock of $10.8 million.

Our liquidity and capital resources in any period could be affected by the exercise of outstanding stock options and issuance of common stock under our employee stock purchase plan. The resulting increase in the number of outstanding shares from this and from the issuance of common stock from our other outstanding equity awards (RSUs and SARs) could also affect our per share results of operations. However, we cannot predict the timing or amount of proceeds from the exercise of stock options, or whether they will be exercised at all. Furthermore, our Board may authorize additional share repurchase programs and we may continue our stock repurchase activity. As of September 30, 2007, we have completed the stock repurchases under the share repurchase authorization that was approved by the Board and publicly announced in February 2007.

At September 30, 2007, we had negative working capital of $19.3 million, compared to negative working capital of $0.3 million at December 31, 2006. Our negative working capital is primarily due to our use of excess cash from the growth in deferred revenue to finance common stock repurchases, totaling $148.6 million during fiscal 2006 and $91.2 million during the first nine

months of 2007. We may continue to have negative working capital in the future. However, we have relatively predictable cash flows from operations as a result of the high proportion of recurring revenues in our business model. This allows us to make long-term investments in our business while remaining confident that we will have sufficient liquidity for future operations.

We currently have commitments under our operating leases, which increased from $49.0 million at December 31, 2006 to $51.4 million at September 30, 2007, primarily as a result from expanding the rentable square footage at our corporate headquarters facility located at 600 Townsend Street in San Francisco, California during the first nine months of 2007.

We also have significant commitments associated with our credit facility. In February 2007, we and certain of our domestic subsidiaries entered into a senior secured credit facility agreement (the “Facility”) with Wells Fargo Foothill, Inc. (the “Lender”). Under the Facility, the Lender will provide the Company with a revolving line of credit up to an aggregate amount of $75.0 million, subject to a borrowing base formula, to provide backup liquidity for general corporate purposes, including stock repurchases, or investment opportunities for a period of three years.

In June 2007, we drew $25.0 million against this Facility which bears interest at an aggregate rate of 6.86%, consisting of a three month LIBOR contract rate of 5.36% and an applicable margin of 1.5%. In September 2007, the Company paid down $5.0 million of the loan. Additionally, the LIBOR contract expired and Advent re-entered into another LIBOR rate contract on the outstanding loan balance of $20.0 million which bears a three month LIBOR contract rate of 5.58% and an applicable margin of 1.5%. As of September 30, 2007, Advent was in compliance with all associated covenants. We currently intend to roll the loan for another three-month term and are contractually obligated to repay the remaining loan balance of $20 million at the end of the credit facility term in February 2010. However, we may elect to repay portions of the $20.0 million balance prior to February 2010.

Contractual Obligations

The following table summarizes our contractual cash obligations as of September 30, 2007 (in thousands):

	Three
	Months Ended
	December 31		Years Ended December 31
	2007		2008		2009		2010		2011		Thereafter		Total
Operating lease obligations, net of sub-lease income	$	2,017	$	7,715	$	5,953	$	5,476	$	4,969	$	25,285	$	51,415
Repayment of long-term debt (1)	—		—		—		20,000		—		—		20,000

Total commitments (2)	$	2,017	$	7,715	$	5,953	$	25,476	$	4,969	$	25,285	$	71,415

(1) At September 30, 2007, we are contractually obligated to repay our long-term debt at the end of our credit facility term in 2010. However, we may elect to repay portions of the $20.0 million balance prior to February 2010.

(2) At September 30, 2007, we had a gross liability of $5.3 million for uncertain tax positions associated with the adoption of FIN 48. Since almost all of this liability relates to reserves against deferred tax assets that we do not expect to utilize in the short term, we cannot estimate the timing of potential future cash settlements and have not included any estimates in the table of contractual cash obligations.

At September 30, 2007 and December 31, 2006, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

We expect that for the next year, our operating expenses will continue to constitute a significant use of cash flow. In addition, we may use cash to fund acquisitions, repay our debt under our credit facility and repurchase common stock, or invest in other businesses, when opportunities arise. Based upon the predominance of our revenues from recurring sources, bookings performance and current expectations, we believe that our cash and cash equivalents, cash generated from operations and availability under our Facility will be sufficient to satisfy our working capital needs, capital expenditures, investment requirements, stock repurchases and financing activities for the next year.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of September 30, 2007 consist of obligations under operating leases. See Note 12, “Commitments and Contingencies” to the condensed consolidated financial statements and the “Liquidity and Capital Resources” section above for further discussion and a tabular presentation of our contractual obligations. As of September 30, 2007,

we were in compliance with all our financial covenants and expect to remain within compliance in the next 12 months. We are comfortable with these limitations and believe they will not impact our cash or credit in the coming year or restrict our ability to execute our business plan.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks, including changes in foreign currency exchange rates and interest rates. Historically, much of our revenues and capital spending was transacted in U.S. dollars. However, since the acquisitions of Advent Denmark, Advent Norway, Advent Sweden, Advent Netherlands, and Advent Europe’s remaining distributors in the United Kingdom and Switzerland, whose service and certain license revenues and capital spending, are transacted in local country currencies, we have greater exposure to foreign currency fluctuations. Additionally as of September 30, 2007, $42.0 million of goodwill and $0.5 million of other intangibles from the acquisition of these entities is denominated in foreign currency. Therefore a hypothetical weakening (strengthening) of the U.S. dollar of 10% relative to certain European currencies could increase (decrease) our assets and equity by approximately $4 million. We do not believe that a hypothetical 10% change in foreign currency exchange rates would have a material adverse effect on our condensed consolidated results of operations or cash flows.

Historically, our interest rate risk related primarily to our investment portfolio, which consisted of $20.2 million in cash equivalents and $24.9 million in marketable securities as of December 31, 2006 and $42.8 million in cash equivalents and zero in marketable securities as of September 30, 2007. An immediate sharp increase in interest rates could have a material adverse effect on the fair value of our investment portfolio. Conversely, immediate sharp declines in interest rates could seriously harm interest earnings of our investment portfolio. We do not currently use derivative financial instruments in our investment portfolio, nor hedge for these interest rate exposures.

By policy, we limit our exposure to longer-term investments, and the majority of our investment portfolio at December 31, 2006 had interest rate maturities of less than one year. As a result of the relatively short duration of our portfolio, an immediate hypothetical parallel shift to the yield curve of plus 25 basis points (“BPS”), 50 BPS and 100 BPS would result in a reduction of 0.11% ($51,000), 0.23% ($103,000) and 0.46% ($205,000), respectively, in the market value of our investment portfolio as of December 31, 2006. During the nine months offended September 30, 2007, we liquidated our investment portfolio to fund our stock repurchase program resulting in a zero balance as of September 30, 2007.

Effective February 2007, we also have interest rate risk relating to debt under our credit facility which is indexed to LIBOR or a Wells Fargo prime rate. At September 30, 2007, we have debt of $20.0 million under this facility which bears interest at an aggregate rate of 7.08%, consisting of a three month LIBOR contract rate of 5.58% and an applicable margin of 1.5%. In December 2007, the LIBOR rate contract will expire and Advent will have the option to either re-enter into another LIBOR rate contract, choose the Base Rate, or pay off the existing loan balance. A hypothetical 100 basis point increase in the LIBOR rate from the rate of 5.58% associated with our debt of $20.0 million at September 30, 2007 would result in an increase in quarterly and annual interest expense of approximately $50,000 and $200,000, respectively.

We have also invested in several privately-held companies. These non-marketable investments are classified as other assets on our condensed consolidated balance sheets. Our investments in privately-held companies could be affected by an adverse movement in the financial markets for publicly-traded equity securities, although the impact cannot be directly quantified. These investments are inherently risky as the market for the technologies or products these privately-held companies have under development are typically in the early stages and may never materialize. It is our policy to review investments in privately held companies on a regular basis to evaluate the carrying amount and economic viability of these companies. This policy includes, but is not limited to, reviewing each of the companies’ cash position, financing needs, earnings/revenue outlook, operational performance, management/ownership changes and competition. The evaluation process is based on information that we request from these privately held companies. This information is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to timing and the accuracy of the data received from these companies.

Our investments in privately held companies are assessed for impairment when a review of the investee’s operations indicates that a decline in value of the investment is other than temporary. Such indicators include, but are not limited to, limited capital resources, limited prospects of receiving additional financing, and prospects for liquidity of the related securities. Impaired investments in privately held companies are written down to estimated fair value. We estimate fair value using a variety of valuation methodologies. Such methodologies include comparing the private company with publicly traded companies in similar lines of business, applying revenue and price/earnings multiples to estimated future operating results for the private company and estimating discounted cash flows for that company. We could lose our entire investment in these companies. During the second quarter of 2007, we sold two of our investments, including our investment in LatentZero

Limited, and impaired another. At September 30, 2007, our net investments in privately-held companies totaled $0.5 million. See Note 7, “Balance Sheet Detail”, to our condensed consolidated financial statements for further discussion.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(f) of the Securities and Exchange Act of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective as of September 30, 2007 to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) is accumulated and communicated to Advent’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting which were identified in connection with the evaluation required by Rule 13a-15(e) of the Exchange Act that occurred during the third quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, Advent’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

On March 8, 2005, certain of the former shareholders of Kinexus and the shareholders’ representative filed suit against Advent in the Delaware Chancery Court. The complaint alleges that Advent breached the Agreement and Plan of Merger dated as of December 31, 2001 pursuant to which Advent acquired all of the outstanding shares of Kinexus due principally to the fact that no amount was paid by Advent on an earn-out of up to $115 million. The earn-out, which was payable in cash or stock at the election of Advent, was based upon Kinexus meeting certain revenue targets in both 2002 and 2003. The complaint seeks unspecified compensatory damages, an accounting and restitution for unjust enrichment. Advent advised the shareholders’ representative in January 2003 that the earn-out terms had not been met in 2002 and accordingly no earn-out was payable for 2002 and would not be payable for 2003. Some discovery was conducted by plaintiffs in 2005, but no further discovery has been conducted since December 2005 and Advent has received no further communication from plaintiffs since that time. Advent disputes the plaintiffs’ claims and believes that it has meritorious defenses and intends to vigorously defend this action. Management believes that any potential loss associated with this litigation is neither probable nor reasonably estimable at this time and accordingly has not accrued any amounts for any potential loss.

Item 1A. Risk Factors

Investors should carefully consider the risks described below before making an investment decision. The trading price of our common stock could decline due to any of, but are not limited to, these risks. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q filed with the SEC, including our condensed consolidated financial statements and related notes thereto.

Our Sales Cycle is Long and We Have Limited Ability to Forecast the Timing and Amount of Specific Sales and the Timing of Specific Implementations

The purchase of our software products often requires prospective customers to provide significant executive-level sponsorship and to make major systems architecture decisions. As a result, we must generally engage in relatively lengthy sales and contracting efforts. Sales transactions may therefore be delayed during the customer decision process because we must provide a significant level of education to prospective customers regarding the use and benefit of our products. While we have seen improved economic conditions in recent years, customers are still cautious about capital and information technology expenditures. As a result, the sales cycle associated with the purchase of our solutions is typically between two and twelve months depending upon the size of the client, and is subject to a number of significant risks over which we have little or no control, including customers’ budgeting constraints, internal selection procedures, and changes in customer personnel, among others.

As a result of a lengthy and unpredictable sales cycle, we have limited ability to forecast the timing and amount of specific license sales. The timing of large individual license sales is especially difficult to forecast, and we may not be successful in closing large license transactions on a timely basis or at all. Customers may postpone their purchases of our existing products or product enhancements in advance of the anticipated introduction of new products or product enhancements by us or our competitors. When a customer purchases a term license together with implementation services we do not recognize any revenue under the contract until the implementation services are substantially complete. If we are not able to complete an implementation project for a term license in a quarter, it will cause us to defer all of the contract revenues to a subsequent quarter. Because our expenses are relatively fixed in the near term, any shortfall from anticipated revenues could result in a significant variation in our operating results from quarter to quarter.

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

We derive a significant portion of our net revenues from the licensing of Axys and Geneva products. In addition, many of our other applications, such as Moxy, Partner and various data services have been designed to provide an integrated solution with either of these two products. As a result, we believe that for the next several years a majority of our net revenues will depend upon continued market acceptance of Axys and Geneva, and upgrades to those products. In addition, APX, our newest portfolio accounting and reporting product, is of critical importance in providing an upgrade path for many of our Axys customers. Our long-term growth could be harmed if we are unable to establish APX as a leading product in the market. As a result, we may not be able to successfully upgrade existing Axys clients to APX, or to attract new customers to buy APX.

Uncertain Economic and Financial Market Conditions May Continue to Affect Our Revenues

We believe that the market for large investment management software systems may be affected by a number of factors, including reductions in capital expenditures by large customers and poor performance of major financial markets. The target clients for our products include a range of financial services organizations that manage investment portfolios. In addition in our MicroEdge business segment, we target corporations, public funds, universities and non-profit organizations, which also manage investment portfolios and have many of the same needs. The success of many of our clients is intrinsically linked to the health of the financial markets. We believe that demand for our solutions has been, and could continue to be, disproportionately affected by fluctuations, disruptions, instability or downturns in the economy and financial services industry which may cause clients and potential clients to exit the industry or delay, cancel or reduce any planned expenditures for investment management systems and software products. In addition, a slowdown in the formation of new investment firms, especially hedge funds, or a decline in the growth of assets under management would cause a decline in demand for our solutions. We have, in the past, experienced a number of market downturns in the financial services industry and resulting declines in information technology spending, which has caused longer sales and contracting cycles, deferral or delay of information technology projects and generally reduced expenditures for software and related services, and we believe that future uncertainty about financial markets and the financial services sector could have a material adverse effect on our revenues.

If Our Existing Customers Do Not Renew Their Term License, Perpetual Maintenance or Other Recurring Contracts, Our Business Will Suffer

In the third quarter of 2007, revenues recognized from these recurring contracts represented 77% of total revenues. We expect to continue to derive a significant portion of our revenue from our clients’ renewal of term license, perpetual maintenance and other recurring contracts and such renewals are critical to our future success. Factors that may affect the renewal rate of our contracts include:

• The price, performance and functionality of our solutions;

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

• The effectiveness of our maintenance and support services; and

• Our ability to develop complementary products and services.

Most of our perpetual license customers renew their annual maintenance although our customers have no obligation to renew such maintenance after the first year of their license agreements. In addition, our customers may select maintenance levels less advantageous to us upon renewal, which may reduce recurring revenue from these customers.

During the third quarter of 2007, we commenced renewing term contracts signed in the third quarter of 2004. These are the first three-year term contracts to be renewed by Advent since our transition to a term pricing model began. Our customers have no obligation to renew their term contracts and given the small number of contracts to be renewed in the third quarter of 2007, we can not yet conclude whether customers will renew in a manner consistent with our perpetual maintenance customers. Additionally, we can not predict whether the renewals will be less advantageous to us than the original term contract. For example, customers may request shorter renewal periods than our original term contract or customers may request a reduction in the number of users or products licensed, resulting in a lower annual term license fee. Further, customers may elect to not renew their term license contracts at all. Additionally, we may incur significantly more costs in securing our term license contract renewals than we incur for our perpetual maintenance renewals. If our term contract customers renew under terms less favorable to us or choose not to renew their contracts or if it costs significantly more to secure a renewal for us, our operating results may be harmed.

We Face Competition

The market for investment management software is competitive and highly fragmented, is subject to rapid change and is sensitive to new product introductions and marketing efforts by industry participants. Our largest single source of competition is from proprietary systems used by existing and potential clients, many of whom develop their own software for their particular needs and therefore may be reluctant to license software products offered by independent vendors such as Advent. Other competitors include providers of software and related services as well as providers of outsourced services. Many of our competitors have longer operating histories and greater financial, technical, sales and marketing resources than we do. In addition, consolidation has occurred among some of the competitors in our markets. Competitors vary in size, scope of services offered and platforms supported. In 2005 and 2006, seven of our competitors were acquired with the possibility of forming even larger companies through additional acquisitions of companies and technologies. Any further consolidation among our competitors may result in stronger competitors in our markets and may therefore either result in a loss of market share or harm our results of operations. In addition, we also face competition from potential new entrants into our market that may develop innovative technologies or business models. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressure will not result in price reductions, reduced operating margins or loss of market share, any one of which could seriously harm our business.

We Must Continue to Introduce New Products and Product Enhancements

The market for our products is characterized by rapid technological change, changes in customer demands, evolving industry standards and new regulatory requirements. New products based on new technologies or new industry standards can render existing products obsolete and unmarketable. As a result, our future success will continue to depend upon our ability to develop new products or product enhancements that address the future needs of our target markets and to respond to their changing standards and practices. In the fourth quarter of 2007, we plan to add a new trading compliance solution, Advent Rules Manager, to our suite of products.

We may not be successful in developing, introducing, marketing and licensing our new products or product enhancements on a timely and cost effective basis, or at all, and our new products and product enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. Delays in the commencement of commercial shipments of new products or enhancements or delays in client implementations or migrations may result in client dissatisfaction and delay or loss of product revenues. Additionally, existing clients may be reluctant to go through the sometimes complex and time consuming process of converting from our Axys to APX product, which may slow the conversion of our customer base to APX. In addition, clients may delay purchases in anticipation of new products or product enhancements. Our ability to develop new products and product enhancements is also dependent upon the products of other software vendors, including certain system software vendors, such as Microsoft Corporation, Sun Microsystems, database vendors and development tool vendors. If the products of such vendors have design defects or flaws, are unexpectedly delayed in their introduction, or are unavailable on acceptable terms, our business could be seriously harmed.

Our Operating Results May Fluctuate Significantly

We are more than halfway through our transition to a predominantly term license model. Until we substantially complete our transition to a term license model, our net revenues will be affected by the continued reduction in perpetual license revenue and by the relatively slower revenue recognition associated with the term license model, which is typically over a three-year period. Under a perpetual model, customers purchase licenses to use our software indefinitely and generally we recognize all license revenue at the time of sale; maintenance is purchased under an annual renewable contract, and recognized ratably over the contract period. Under a term model, customers purchase a license to use our software and receive maintenance for a limited period of time and we recognize the revenue ratably over the length of the contract.

During the nine months ended September 30 2007, term license revenues comprised approximately 22% of term license, maintenance and other recurring revenues as compared to approximately 12% in the first nine months of 2006. Term license contracts are comprised of both software licenses and maintenance services. Individual perpetual software licenses vary significantly in value, and the value and timing of these transactions can therefore cause our quarterly perpetual license revenues to fluctuate.

When a customer purchases a term license together with implementation services we do not recognize any revenue under the contract until the implementation services are substantially completed. If the implementation services are still in progress as of quarter-end, we will defer all of the contract revenues to a subsequent quarter. As a result of these and other factors, our quarterly net revenues may fluctuate significantly. Our expense levels are relatively fixed in the short-term. Due to the fixed nature of these expenses, combined with the relatively high gross margin historically achieved on our products, an unanticipated decline in net revenues in any particular quarter may adversely affect our operating results. For example, during the third quarter of 2007, we deferred net revenues of $3.0 million and deferred directly related expenses of $0.9 million. The impact of these deferrals on our operating income for the third quarter of 2007 was approximately $2.1 million.

In addition, we experience seasonality in our perpetual license revenue. The fourth quarter of the year typically has the highest perpetual license fee revenue, followed by lower perpetual license revenue in the first quarter of the following year. We believe that this seasonality results primarily from customer budgeting cycles and the annual nature of some AUA contracts, and expect this seasonality to continue in the future.

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

Our Current Operating Results May Not Be Reflective of Our Future Financial Performance

During the third quarter of 2007, we recognized 77% of total net revenues from recurring sources, which we define as revenues from term license, maintenance on perpetual licenses and other recurring revenue. We generally recognize revenue from these sources ratably over the terms of these agreements, which typically range from one to three years. As a result, almost all of our revenues in any quarter are generated from contracts entered into during previous periods.

Consequently, a significant decline in new business generated in any quarter may not affect our results of operations in that quarter but will have an impact on our revenue growth rate in future quarters. Additionally, a decline in renewals of term agreements, maintenance or data contracts during a quarter will not be fully reflected in our financial performance in that quarter. For example, because we recognize revenue ratably, the non-renewal of term agreements or maintenance contracts late in a quarter may have very little impact on revenue for that quarter, but will reduce revenue in future quarters. In addition, we may be unable to adjust our costs in response to reduced revenue.

Further, solely relying on our historical operating results on a generally accepted accounting principles (GAAP) basis may not be useful in predicting our future operating results. Non-GAAP information that we report, such as our quarterly bookings and maintenance renewal rates, may assist investors in evaluating our future financial position. However, placing undue reliance upon non-GAAP or operating information is not appropriate because this information is neither standardized across companies nor subjected to the same control activities and audit procedures that produce our GAAP financial results.

We Must Retain and Recruit Key Employees

We believe that our future success is dependent on the continued employment of our senior management and our ability to identify, attract, motivate and retain qualified technical, sales and other personnel. Members of our executive management team have acquired specialized knowledge and skills with respect to Advent. We need technical resources such as our product development engineers to develop new products and enhance existing products; we rely upon sales personnel to sell our products and services and maintain healthy business relationships; we must recruit professional service consultants to support the anticipated increase in product implementations; we must hire client services personnel to provide technical support to our growing installed base of customers; and we must attract and retain financial and accounting personnel to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Therefore, we need to identify, attract, motivate and retain such employees with the requisite education, backgrounds and industry experience. However, experienced personnel in the information technology industry are in high demand and competition for their talents is intense, especially in the San Francisco Bay Area where the majority of our employees are located. For example, in February 2007, one of our executives resigned from the Company to become the Chief Executive Officer of an internet company. Additionally, our Chief Financial Officer will resign from the Company in December 2007 to pursue an opportunity at another software company and we have not yet named a new

individual to fill that position. If we are unable to secure a replacement in a timely manner for our chief financial officer position, our results of operations may be harmed and our ability to report our financial results may be impaired.

We have relied on our ability to grant equity compensation as one mechanism for recruiting and retaining such highly skilled personnel. Recently enacted accounting regulations requiring the expensing of equity compensation impair our ability to provide these incentives without reporting significant compensation costs.

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

We Face Challenges in Expanding Our International Operations

We market and sell our products in the United States and, to a lesser extent, internationally. To further expand our international operations, we would need to establish additional locations, acquire other businesses or enter into additional distribution relationships in other parts of the world. Any further expansion of our existing international operations and entry into new international markets could require significant management attention and financial resources. We cannot be certain that establishing businesses in other countries will produce the desired levels of revenues, such as in the case of Advent Hellas which produced less than satisfactory revenues and profitability before its sale in 2005. We currently have limited experience in developing localized versions of our products and marketing and distributing our products internationally. In addition, international operations are subject to other inherent risks, including:

• the impact of recessions in economies outside the United States;

• greater difficulty in accounts receivable collection and longer collection periods;

• unexpected changes in regulatory requirements;

• difficulties in successfully adapting our products to the language, regulatory and technology standards of other countries;

• difficulties in and costs of staffing and managing foreign operations;

• reduced protection for intellectual property rights in some countries;

• potentially adverse tax consequences; and

• political and economic instability.

The revenues, expenses, assets and liabilities of our international subsidiaries are primarily denominated in local currencies. We have not historically undertaken foreign exchange hedging transactions to cover potential foreign currency exposure. Future fluctuations in currency exchange rates may adversely affect revenues and accounts receivable from international sales and the U.S. dollar value of our foreign subsidiaries’ revenues, expenses, assets and liabilities. Our international service revenues and certain license revenues from our European subsidiaries are generally denominated in local foreign currencies.

Difficulties in Integrating Our Acquisitions and Expanding Into New Business Areas Have Impacted and Could Continue to Adversely Impact Our Business and We Face Risks Associated with Potential Acquisitions, Investments, Divestitures and Expansion

From 2001 through the middle of 2003, our strategy focused on growth through the acquisition of additional complementary businesses. During those years, we made five major acquisitions including Kinexus Corporation, Techfi Corporation and Advent Outsource Data Management LLC, and also acquired all of the common stock of five of our European distributor’s subsidiaries. In addition, we purchased our European distributor’s remaining two subsidiaries in the United Kingdom and Switzerland in May 2004. More recently, in December 2006, we acquired East Circle Solutions, Inc., a developer of investment management billing solutions to integrate their product into our software offerings.

The complex process of integrating our acquisitions has required and will continue to require significant resources, particularly in light of our relative inexperience in integrating acquisitions. Integrating these acquisitions in the past has been time-consuming, expensive and disruptive to our business. This integration process has strained our managerial resources, resulting in the diversion of these resources from our core business objectives and may do so in the future. Failure to achieve the anticipated benefits of these acquisitions or to successfully integrate the operations of these entities has harmed and could potentially harm our business, results of operations and cash flows in future periods. For example, in the first quarter of 2003, we closed our Australian subsidiary because it failed to perform at a satisfactory profit level and similarly in the fourth quarter of 2005, we disposed of our Advent Hellas subsidiary because of less than satisfactory profitability. In addition, as we have expanded into new business areas

and built new offerings through strategic alliances and internal development, as well as acquisitions, some of this expansion has required significant management time and resources without generating required revenues. We have had difficulty and may continue to have difficulty creating demand for such offerings. For example, demand for our Techfi product line was significantly lower than expected and thus we discontinued certain products within our Techfi product line in September 2004. As a result, we recorded a non-cash impairment charge of $3.4 million in the third quarter of 2004 to write-off the carrying value of certain Techfi-related intangible assets. Furthermore, we may face other unanticipated costs from our acquisitions, such as the disputes involving earn-out and incentive compensation amounts, similar to those we have experienced with our Kinexus and Advent Outsource acquisitions.

We may make additional acquisitions of complementary companies, products or technologies in the future. In addition, we periodically evaluate the performance of all our products and services and may sell or discontinue current products and services. Failure to achieve the anticipated benefits of any future acquisition or divestiture could harm our business, results of operations and cash flows. Furthermore, we may have to incur debt, write-off investments, infrastructure costs or other assets, incur severance liabilities, write-off impaired goodwill or other intangible assets or issue equity securities to pay for any future acquisitions. The issuance of equity securities could dilute our existing stockholders’ ownership. Finally, we may not identify suitable businesses to acquire or negotiate acceptable terms for future acquisitions.

Impairment of Investments Could Harm Our Results of Operations

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

Information We Provide to Investors Is Accurate Only as of the Date We Disseminate It

From time to time, we may publicly disseminate forward-looking information or guidance in compliance with Regulation FD. This information or guidance represents our outlook only as of the date we disseminate it, and we do not undertake to update such information or guidance.

Our Stock Price May Fluctuate Significantly

Like many companies in the technology and emerging growth sector, our stock price may be subject to wide fluctuations, particularly during times of high market volatility. If net revenues or earnings in any quarter or our financial guidance for future periods fail to meet the investment community’s expectations, our stock price is likely to decline. In addition, our stock price is affected by trends in the financial services sector and by broader market trends unrelated to our performance. For instance, in the event of increased hostilities abroad or terrorist attacks on U.S. soil, there could be increased market volatility, which could negatively impact our stock price.

If Our Relationship with Financial Times/Interactive Data Is Terminated, Our Business May Be Harmed

Many of our clients use our proprietary interface to electronically retrieve pricing and other data from Financial Times/Interactive Data (“FTID”). FTID pays us a commission based on their revenues from providing this data to our clients. Our software products have been customized to be compatible with their system and this software would need to be redesigned if their services were unavailable for any reason. Termination of our agreement with FTID would require at least two years notice by either us or them, or 90 days in the case of material breach. Our revenue would be adversely impacted if our relationship with FTID was terminated or their services were unavailable to our clients for any reason.

If We Are Unable to Protect Our Intellectual Property We May Be Subject to Increased Competition that Could Seriously Harm Our Business

Our success depends significantly upon our proprietary technology. We currently rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. We have registered trademarks for many of our products and services and will continue to evaluate the registration of additional trademarks

as appropriate. We generally enter into confidentiality agreements with our employees and with our resellers and customers. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection and we do not have any patents. Despite these efforts, it may be possible for unauthorized third parties to copy certain portions of our products or to reverse engineer or otherwise obtain and use our proprietary information. In addition, we cannot be certain that others will not develop substantially equivalent or superseding proprietary technology, or that equivalent products will not be marketed in competition with our products, thereby substantially reducing the value of our proprietary rights. We cannot be sure that we will develop proprietary products or technologies that are patentable, that any patent, if issued, would provide us 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 do business. Litigation may be necessary to protect our proprietary technology which may be time-consuming and expensive. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. We cannot be sure that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products or design around any patent that may be issued to us or other intellectual property rights of ours.

If We Infringe the Intellectual Property Rights of Others, We May Incur Additional Costs or Be Prevented from Selling Our Products and Services

We cannot be certain that our products or services do not infringe the intellectual property rights of others. As a result, we may be subject to litigation and claims, including claims of infringement of patents, copyrights and other intellectual property rights of third parties that would be time-consuming and costly to resolve. If we discovered that our products or services violated the intellectual property rights of third parties, we may have to make substantial changes to our products or services or obtain licenses from such third parties. We might not be able to obtain such licenses on favorable terms or at all, and we may be unable to change our products successfully or in a timely manner. Failure to resolve an infringement matter successfully or in a timely manner, would force us to incur significant costs, including damages, redevelopment costs, diversion of management’s attention and satisfaction of indemnification obligations that we have with our clients, as well as prevent us from selling certain products or services.

Catastrophic Events Could Adversely Affect Our Business

Our operations are exposed to potential disruption by fire, earthquake, power loss, telecommunications failure, and other events beyond our control. Additionally, we are vulnerable to interruption caused by terrorist incidents. For example, our facilities in New York were temporarily closed due to the September 11, 2001 terrorist attacks. Immediately after the terrorist attacks, our clients who were located in the World Trade Center area were concentrating on disaster recovery rather than licensing additional software components, while the grounding of transportation impeded our professional services employees’ ability to travel to client sites. Additionally, during the temporary closure of the U.S. stock markets, our clients did not use our market data services. Our corporate headquarters are located in the San Francisco Bay Area, which is a region with significant seismic activity. Earthquakes such as that experienced in 1989 could disrupt our business. Such disruptions could affect our ability to sell and deliver products and services and other critical functions of our business. Further, such disruptions could cause instability in the financial markets upon which we depend.

Further, terrorist acts, conflicts or wars may cause damage or disruption to our customers. The potential for future attacks, the national and international responses to attacks or perceived threats to national security and other actual or potential conflicts or wars, including the ongoing crisis in the Middle East, have created many economic and political uncertainties. Although it is impossible to predict the occurrences or consequences of any such events, they could unsettle the financial markets or result in a decline in information technology spending, which could have a material adverse effect on our revenues.

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

Our products may contain undetected software errors or scalability limitations at any point in their lives, but particularly when first introduced, such as our APX product, or as new versions are released. Despite testing by us and by current and potential customers, errors may not be found in new products until after commencement of commercial shipments, resulting in a loss of or a delay in market acceptance, damage to our reputation, customer dissatisfaction and reductions in revenues and margins, any of which could seriously harm our business. Additionally, our agreements with customers that attempt to limit our exposure to liability claims may not be enforceable in jurisdictions where we operate.

Two of Our Principal Stockholders Have an Influence Over our Business Affairs and May Make Business Decisions with Which You Disagree and Which May Adversely Affect the Value of Your Investment

Our Chief Executive Officer and the Chairman of our board of directors beneficially own or control, indirectly or directly, a substantial number of shares of our common stock (approximately 37% as of October 31, 2007). As a result, if these persons act together, they will have the ability to exert significant influence on matters submitted to our stockholders for approval, such as the election and removal of directors, amendments to our certificate of incorporation and the approval of any business combination. These actions may be taken even if they are opposed by other stockholders or it may be difficult to approve these actions without their consent. This concentration of ownership may also have the effect of delaying or preventing a change of control of our company or discouraging others from making tender offers for our shares, which could prevent our stockholders from receiving a premium for their shares.

Changes in Securities Laws and Regulations May Increase Our Costs

The Sarbanes-Oxley Act (“the Act”) of 2002 required changes in some of our corporate governance and securities disclosure and/or compliance practices. As part of the Act’s requirements, the SEC has enacted new rules on a variety of subjects, and the Nasdaq Stock Market has enacted new corporate governance listing requirements. These developments have increased and may in the future increase our accounting and legal compliance costs and could also expose us to additional liability if we fail to comply with these new rules and reporting requirements. In fiscal 2006 and 2005, we incurred approximately $1.3 million and $1.8 million, respectively, in Sarbanes-Oxley related expenses consisting of external consulting costs and auditor fees, and the Company anticipates similarly spending a significant amount for its 2007 compliance activities. In addition, such developments may make retention and recruitment of qualified persons to serve on our board of directors, or as executive officers, more difficult. We continue to evaluate and monitor regulatory and legislative developments and cannot reliably estimate the timing or magnitude of all costs we may incur as a result of the Act or other related legislation or regulation.

Changes in, or Interpretations of, Accounting Principles Could Result in Unfavorable Accounting Charges

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These principles are subject to interpretation by us, the SEC and various bodies formed to interpret and create accounting principles. A change in these principles or a change in the interpretations of these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. Our accounting principles that recently have been or may be affected include:

• Software revenue recognition

• Accounting for stock-based compensation

• Accounting for income taxes

• Accounting for business combinations and related goodwill

In particular, in the first quarter of 2006, we adopted SFAS 123R which requires the measurement of all stock-based compensation to employees, including grants of employee stock options, restricted stock units and stock appreciation rights, using a fair-value-based method and the recording of such expense in our condensed consolidated statements of operations. The adoption of SFAS 123R had a significant adverse effect on our results of operations. It will continue to significantly adversely affect our results of operations and may impact the way in which we conduct our business.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

We currently use the Black-Scholes option pricing model to determine the fair value of stock-based compensation awards and employee stock purchase plan shares. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants and employee stock purchase plan shares. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock options, restricted stock units and stock appreciation rights, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our condensed consolidated financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements. There currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values.

Potential Changes in Securities Laws and Regulation Governing the Investment Industry’s Use of Soft Dollars May Reduce Our Revenues

As of December 31, 2006, approximately 400 of our clients utilize trading commissions (“soft dollar arrangements”) to pay for software products and services. During fiscal 2006 and 2005, the total value of Advent products and services paid with soft dollars was approximately 5% and 6% of our total billings. Such soft dollar arrangements could be impacted by changes in the regulations governing those arrangements.

During the fourth quarter of 2006, we completed the wind down of the “soft dollar” business of our SEC-registered broker/dealer subsidiary, Second Street Securities, as it no longer fits with our corporate strategy. Second Street Securities offered our customers the ability to pay for Advent products and other third party products and services through brokerage commissions and other fee-based arrangements. We will continue to allow clients to utilize soft dollar arrangements to pay for Advent software products and services through other independent broker/dealers.

In July 2006, the SEC published an Interpretive Release that provides guidance on money managers’ use of client commissions to pay for brokerage and research services under the “soft dollars” safe harbor, which is set forth in Section 28(e) of the Securities Exchange Act of 1934. The Interpretive Release clarifies that money managers may use client commissions to pay only for eligible brokerage and research services. Among other matters, the Interpretive Release states that eligible brokerage includes those products and services that relate to the execution of the trade from the point at which the money manager communicates with the broker-dealer for the purpose of transmitting an order for execution, through the point at which funds or securities are delivered or credited to the advised account. In addition, for “mixed-use” items (such as trade order management systems) that are partly eligible and partly ineligible, the Interpretive Release states that money managers must make a reasonable allocation of client commissions in accordance with the eligible and ineligible uses of the items. Based on this new guidance, our customers may change their method of paying for certain Advent products or services from soft to hard dollars, and as a result seek to reduce their usage of these products or services in order to avoid increasing expenses, which could cause our revenues to decrease.

Covenants in Our Credit Facility Agreement Could Adversely Affect our Financial Condition

In February 2007, we entered into a senior secured facility agreement which provides us with a revolving line of credit up to an aggregate amount of $75.0 million. Our continued ability to borrow under our credit facility is subject to compliance with certain financial and non-financial covenants. The financial covenant is limited to a maximum ratio of senior debt to earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted for cost capitalizations, extraordinary gains (losses) and non-cash stock compensation. Our failure to comply with such covenants could cause default under the agreement, and we may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us, or be available only on unfavorable terms. In the event of default which is not remedied within the prescribed timeframe, the assets of the Company (subject to the amount borrowed) may be attached or seized by the lender.

Security Risks May Harm Our Business

The secure transmission of confidential information over public networks is essential to commerce and communications, particularly in the market in which Advent operates. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security systems. Anyone who circumvents our security measures could misappropriate proprietary information or cause interruptions in our services or operations. In addition, computer viruses or software programs that disable or impair computers could be introduced into our systems or those of our customers or other third parties, which could disrupt or make our systems inaccessible to customers. Our security measures may be inadequate to prevent security breaches, exposing us to a risk of loss, litigation and other possible liabilities, as well as possibly requiring us to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by such breaches.

If We Fail to Maintain an Effective System of Internal Control, We May Not be Able to Accurately Report Our Financial Results or Our Filings May Not be Timely. As a Result, Current and Potential Stockholders Could Lose Confidence in Our Financial Reporting, Which Would Harm Our Business and the Trading Price of Our Stock

Effective internal control is necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal control that need improvement including control deficiencies that may constitute material weaknesses. For example, as of December 31, 2005, the Company did not maintain effective controls over the accounting for

income taxes, including the determination of deferred income tax liabilities and the related income tax provision. This control deficiency resulted in adjustments to the fourth quarter of 2004 and 2005 financial statements and a restatement of the Company’s financial statements for each of the first three quarters of fiscal 2004 and 2005.

The Company also did not maintain effective controls over the accuracy, presentation and disclosure of the pro forma stock-based compensation expense in conformity with generally accepted accounting principles as of December 31, 2005. As a result of this control deficiency, the Company’s disclosure of stock-based compensation expense for fiscal 2003 and 2004 and first three quarters of 2004 and 2005 were revised.

During 2006, we implemented controls and procedures to improve our internal control over financial reporting and address the material weaknesses identified in fiscal 2004 and 2005. As a result, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2006 and September 30, 2007.

We do not expect that our internal control over financial reporting will prevent all errors or fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Any failure to implement or maintain improvements in our internal control over financial reporting, or difficulties encountered in the implementation of these improvements in our controls, could cause significant deficiencies or material weaknesses in our internal controls and consequently cause us to fail to meet our reporting obligations. Any failure to implement or maintain required new or improved internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.

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

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

One element of our quantitative analysis of any control deficiency is its actual or potential financial impact, and any impact that is greater than 5% of our pre-tax income in any quarter may be more likely to result in that deficiency being determined to be a significant deficiency or a material weakness. For example, our pre-tax income for fiscal 2006 was $3.6 million and although we project our fiscal 2007 pre-tax income to increase compared to fiscal 2006, our assessment of a control deficiency as a significant deficiency or material weakness remains dependent in part on our level of profitability during a particular quarter. If our quarterly or fiscal year pre-tax income were to decrease to levels similar to those in fiscal 2006, this will make it statistically less likely for us and our independent registered public accounting firm to determine that a control deficiency is not a material weakness.

In addition, if management or our independent registered public accountants identify errors in our interim or annual financial statements during 2007, it is statistically more likely that such errors may meet the quantitative threshold established under Staff Accounting Bulletin No. 99, “Materiality”, that could, depending upon the complete qualitative and quantitative analysis, result in our having to restate previously issued financial statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

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

On February 9, 2007, the Company’s Board authorized the repurchase of up to an additional 2.25 million shares of outstanding common stock. During the second quarter of 2007, Advent completed the share repurchases under this program and repurchased an aggregate 1.7 million shares of common stock for a total cash outlay of $61.0 million and at an average price of $35.01 per share. As such, there was no repurchase activity during the three months ended September 30, 2007.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

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

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

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

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

SIGNATURES

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

	ADVENT SOFTWARE, INC.

Dated: November 8, 2007	By:	/s/ Graham V. Smith
		Graham V. Smith Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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Advent Software Inactive 10-Q2007 Q3 Quarterly report

Content analysis

Note 12—Commitments and Contingencies

TOTAL EXPENSES

COST OF REVENUES

OPERATING EXPENSES

Provision for (Benefit from) Income Taxes

LIQUIDITY AND CAPITAL RESOURCES