This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our interim consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q.

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Federal securities laws, about our business and prospects. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "outlook," "believes," "plans," "intends," "expects," "goals," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "estimates," "anticipates" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Our future results may differ materially from our past results and from those projected in the forward-looking statements due to various uncertainties and risks, including those described in Item 1A of Part II (Risk Factors). The forward-looking statements speak only as of the date of this Quarterly Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-looking statements contained herein after the date of this Quarterly Report. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or closed after the date hereof.

All dollar amounts expressed as numbers in tables (except per share amounts) in this MD&A are in millions.

Certain tables may not add due to rounding.

Company Overview

Since our founding in 1983, we have established a leading position as a provider of enterprise applications software and related services designed and developed specifically for project-focused organizations. These organizations include architectural and engineering firms, government contractors, aerospace and defense contractors, information technology services firms, consulting companies, discrete project manufacturing companies, grant-based not-for-profit organizations and government agencies, among others.

These project-focused organizations generate revenue from defined, discrete, customer-specific engagements or activities. Project-focused organizations typically require specialized software to help them automate complex business processes around the engagement, execution and delivery of projects. Our software applications enable project-focused companies to significantly enhance the visibility they have over all aspects of their operations by providing them increased control over their critical business processes, accurate, project-specific financial information, and real-time performance measurements.

With our software applications, project-focused organizations can better measure business results, optimize performance and streamline operations, and win new business. As of June 30, 2008, we had over 12,000 customers worldwide that spanned numerous project-focused industries and ranged in size from small organizations to large enterprises.

Our revenue is generated from sales of software licenses and related software maintenance and support agreements and professional services to assist customers with the implementation of our products, as well as education and training services. Our continued growth depends, in part, on our ability to generate license revenues from new customers and to continue to expand our presence by selling new products within our existing installed base of customers.

History

We were founded to develop and sell accounting software solutions for firms that contract with the U.S. government. Since our founding, we have continued our focus on providing solutions to government contractors as well as to other project-focused organizations, and at the same time we have broadened our product offerings by developing new software products, selectively acquiring businesses with attractive project-focused applications and services and partnering with third parties.

In April 2005, New Mountain Partners II, L.P., New Mountain Affiliated Investors II, L.P., and Allegheny New Mountain Partners, L.P. (collectively, the "New Mountain Funds") purchased the majority ownership of our company from the founding deLaski stockholders through a recapitalization transaction. Subsequent to this transaction, we implemented a strategy to recruit additional management talent and significantly improve our competitive position and growth prospects through increased investments in product development, sales and marketing initiatives, complemented by strategic acquisitions aimed at broadening our customer base and our product offerings.

In October 2005, we acquired Wind2, an enterprise software provider serving project-focused architectural and engineering ("A/E") and other professional services firms. The acquisition of Wind2 enabled us to expand our presence in the A/E market by adding small and medium-sized engineering firms to our existing customer base.

In March 2006, we acquired WST, Inc. ("Welcom"), a leading provider of project portfolio management solutions, focused on earned value management, planning and scheduling, portfolio analysis, risk management and project collaboration products. The acquisition of Welcom increased our presence among a number of multinational aerospace, defense and government clients, augmenting our existing installed base of customers. This acquisition complemented our core product offerings and created opportunities for additional sales to our existing customer base.

In July 2006, we acquired C/S Solutions, Inc. ("CSSI"), a leading provider of business intelligence tools for the earned value management marketplace. The acquisition of CSSI built upon our leadership position in the enterprise project management sector by incorporating collaborative earned value management analytics delivered by CSSI's wInsight software with our own earned value management engine, Cobra, and Costpoint, our enterprise resource planning solution for mid- to large-sized government contractors.

In April 2007, we acquired the business assets of Applied Integration Management Corporation ("AIM"), a provider of project management consulting services. This acquisition supplemented our existing project portfolio management systems implementation expertise and capabilities and allowed us to provide additional project portfolio management consulting, training and implementation services.

In addition, in May 2007, we completed the acquisition of WST Pacific Pty Ltd. ("WSTP"), a provider of earned value management ("EVM") solutions based in Australia, and previously a development partner of Welcom. The acquisition complemented our existing EVM development, services and support resources.

In April 2007, we reincorporated in the State of Delaware as Deltek, Inc.

In November 2007, the Company completed its initial public offering consisting of 9,000,000 shares of common stock for $18.00 per share. For additional information regarding the initial public offering, see Note 3 in our consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

In presenting our financial statements in conformity with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures.

Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Our future estimates may change if the underlying assumptions change. Actual results may differ significantly from these estimates.

For further information on our critical and other significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2007. We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our consolidated financial statements:

• Revenue Recognition

• Stock-Based Compensation

• Income Taxes

• Allowances for Doubtful Accounts Receivable

• Valuation of Purchased Intangible Assets and Acquired Deferred Revenue

• Impairment of Identifiable Intangible and Other Long-Lived Assets and Goodwill

Results of Operations

The following table sets forth our statements of operations including dollar and
percentage of change from the prior periods indicated:



                                          Three Months Ended June 30                        Six Months Ended June 30
                                   2008        2007      Change      % Change      2008        2007       Change      % Change
                                      (dollars in millions)                            (dollars in millions)
REVENUES:
Software license fees             $  22.1     $ 18.8     $   3.3           18     $  39.1     $  38.6     $   0.5            1
Consulting services                  22.3       19.8         2.5           13        46.6        38.3         8.3           22
Maintenance and support
services                             28.3       25.4         2.9           11        56.4        49.4         7.0           14
Other revenues                        4.6        4.3         0.3            7         4.6         4.5         0.1            2

Total revenues                    $  77.3     $ 68.3     $   9.0           13     $ 146.7     $ 130.8     $  15.9           12

COST OF REVENUES:
Cost of software license fees     $   1.7     $  2.0     $  (0.3 )        (15 )   $   3.3     $   4.2     $  (0.9 )        (21 )
Cost of consulting services          19.2       17.9         1.3            7        39.4        33.4         6.0           18
Cost of maintenance and support
services                              4.8        3.9         0.9           23        10.4         7.7         2.7           35
Cost of other revenues                4.9        4.8         0.1            2         5.1         5.0         0.1            2

Total cost of revenues            $  30.6     $ 28.6     $   2.0            7     $  58.2     $  50.3     $   7.9           16

GROSS PROFIT                      $  46.7     $ 39.7     $   7.0           18     $  88.5     $  80.5     $   8.0           10

OPERATING EXPENSES:
Research and development          $  11.6     $ 10.5     $   1.1           10     $  22.9     $  20.7     $   2.2           11
Sales and marketing                  13.4       10.1         3.3           33        25.7        20.6         5.1           25
General and administrative            8.4        7.2         1.2           17        15.9        14.3         1.6           11
Restructuring charge                  1.1         -          1.1          100         1.1          -          1.1          100

Total operating expenses          $  34.5     $ 27.8     $   6.7           24     $  65.6     $  55.6     $  10.0           18

INCOME FROM OPERATIONS            $  12.2     $ 11.9     $   0.3            3     $  22.9     $  24.9     $  (2.0 )         (8 )
Interest income                       0.2        0.1         0.1          100         0.5         0.2         0.3          150
Interest expense                     (2.5 )     (4.6 )       2.1          (46 )      (6.0 )      (9.2 )       3.2          (35 )
Other expense, net                   (0.2 )     (0.1 )      (0.1 )        100        (0.2 )        -         (0.2 )        100

INCOME BEFORE INCOME TAXES           10.0        7.4         2.6           35        17.2        15.8         1.4            9
Income tax expense                    4.5        2.9         1.6           55         7.8         6.2         1.6           26

NET INCOME                        $   5.4     $  4.5     $   0.9           20     $   9.4     $   9.6     $  (0.2 )         (2 )

Revenues



                                           Three Months Ended June 30                 Six Months Ended June 30
                                       2008      2007     Change    % Change     2008      2007     Change    % Change
                                        (dollars in millions)                     (dollars in millions)
REVENUES:
Software license fees                $   22.1   $ 18.8   $    3.3         18   $   39.1   $  38.6   $   0.5          1
Consulting services                      22.3     19.8        2.5         13       46.6      38.3       8.3         22
Maintenance and support services         28.3     25.4        2.9         11       56.4      49.4       7.0         14
Other revenues                            4.6      4.3        0.3          7        4.6       4.5       0.1          2

Total revenues                       $   77.3   $ 68.3   $    9.0         13   $  146.7   $ 130.8   $  15.9         12

Software License Fees

Our software applications are generally licensed to end-user customers under perpetual license agreements. We sell our software applications to end-user customers mainly through our direct sales force as well as indirectly through our network of alliance partners and resellers. The timing of the sales cycle for our products varies in length based upon a variety of factors, including the size of the customer, the product being sold and whether the customer is a new or existing customer. We primarily compete on product features, functionality and the needs of our customers within our served markets, with price generally a lesser consideration. The pricing for our products has remained stable, requiring infrequent changes in our pricing strategies.

Software license fee revenues increased $3.3 million, or 18%, to $22.1 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. During the second quarter of 2008, software license fee revenues from our Vision product family increased $1.6 million, while software license fee revenues from our Costpoint and GCS Premier product families increased $1.5 million compared to the second quarter of 2007. These increases in software license fee revenues were attributable to revenues generated from sales to new Vision customers as well as existing customers upgrading to our Vision product, and strong demand in the government contracting market. Software license fee revenues from our enterprise project management ("EPM") products increased by $0.2 million in the second quarter of 2008 compared to the second quarter of 2007.

Software license fee revenues increased $0.5 million, or 1%, to $39.1 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. This increase in software license fee revenues was the result of growth in our EPM product family of $0.8 million, offset by decreases in software license fee revenues related to our Costpoint and GCS Premier product families, and Vision product family, of $0.2 million and $0.1 million, respectively.

Consulting Services

Our consulting services revenues are generated from software implementation and related project management and data conversion, as well as training, education and other consulting services associated with our software applications and are typically provided on a time-and-materials basis. Our overall consulting services revenues increase and decrease principally as the number and size of customer engagements change and customers engage our resources as a result of our license sales.

Consulting services revenues increased $2.5 million, or 13%, to $22.3 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. This increase was the result of a $2.0 million increase in software implementation related services revenue and a $0.5 million increase in training and education related services revenue during the second quarter of 2008 compared to the second quarter of 2007. The $2.0 million increase in total software implementation related services includes $0.4 million of revenue associated with our acquisition of AIM in April 2007. Excluding revenue associated with the AIM acquisition, our services revenue increased $1.6 million, or 10%, driven by demand for services from new and existing customers.

Our software implementation related services accounted for 92% of consulting services revenues for the three months ended June 30, 2008, compared to 94% for the same period in 2007.

Our training and education related services accounted for $1.8 million of total consulting services revenues during the three months ended June 30, 2008 compared to $1.3 million for the three months ended June 30, 2007.

Consulting services revenues increased $8.3 million, or 22%, to $46.6 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. This increase was the result of a $7.5 million increase in software implementation related services revenue and a $0.8 million increase in training and education related services revenue during the six months ended June 30, 2008 compared to the same period in 2007. Software implementation related services revenue was $43.1 million of consulting services revenues during the six months ended June 30, 2008 compared to $35.6 million during the six months ended June 30, 2007, accounting for 93% of consulting services revenue in both periods. The increase of $7.5 million includes $2.3 million associated with the 2007 acquisition of AIM. Excluding the AIM acquisition, software implementation related services revenues increased $5.2 million, or 15%, driven by our growth in license sales as well as a non-recurring success fee of approximately $0.5 million earned by the Company during the first quarter of 2008.

Maintenance and Support Services

Our maintenance and support revenues are comprised of fees derived from new maintenance contracts associated with new software license sales and annual renewals of existing maintenance contracts. These contracts typically allow our customers to obtain online, telephone and internet-based support, as well as unspecified periodic upgrades or enhancements to our software on an as available basis. Maintenance services are typically billed on a quarterly basis and generally represent between 15% and 25% of the list price of the underlying software applications at the time of sale. Maintenance fees are generally subject to contractually permitted annual rate increases.

Maintenance revenues increased $2.9 million, or 11%, to $28.3 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. Maintenance revenues from our Vision product family increased $1.2 million, and maintenance revenues from our Costpoint and GCS Premier product families increased by $1.0 million combined. Maintenance revenues from our EPM products increased by $0.7 million. These increases were driven by our sales of new software licenses and renewals of maintenance agreements in our installed base of customers, plus the annual price escalations for our maintenance services. These increases are reduced by the impact of customer cancellations.

Maintenance revenues increased $7.0 million, or 14%, to $56.4 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. This increase is across all of our product families with $3.2 million attributable to our Vision product family, $2.6 million attributable to our Costpoint and GCS Premier product families combined, and $1.2 million attributable to EPM products.

Other Revenues

Our other revenues consist of fees collected for our annual user conference, which is typically held in the second quarter of the year, as well as sales of third-party hardware and software. For the three months ended June 30, 2008, other revenues increased to $4.6 million from $4.3 million for the three months ended June 30, 2007 as a result of higher user conference revenues associated with higher conference attendance in the current year. For the six months ended June 30, 2008, other revenues increased to $4.6 million from $4.5 million compared to the same period in the prior year as a result of higher user conference revenues offset by a decrease in third-party hardware and software revenue.

Cost of Revenues



                                            Three Months Ended June 30                     Six Months Ended June 30
                                       2008       2007    Change      % Change       2008       2007    Change      % Change
                                        (dollars in millions)                         (dollars in millions)
COST OF REVENUES:
Cost of software license fees        $    1.7    $  2.0   $  (0.3 )        (15 )   $    3.3    $  4.2   $  (0.9 )        (21 )
Cost of consulting services              19.2      17.9       1.3            7         39.4      33.4       6.0           18
Cost of maintenance and support
services                                  4.8       3.9       0.9           23         10.4       7.7       2.7           35
Cost of other revenues                    4.9       4.8       0.1            2          5.1       5.0       0.1            2

Total cost of revenues               $   30.6    $ 28.6   $   2.0            7     $   58.2    $ 50.3   $   7.9           16

Cost of Software License Fees

Our cost of software license fees consists of third-party software royalties, costs of product fulfillment, amortization of acquired technology and amortization of capitalized software.

Cost of software license fees decreased by $0.3 million, or 15%, to $1.7 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. The decrease was primarily the result of a reduction in amortization of purchased intangible software assets in the current period related to an acquired intangible asset which finished amortizing during the first quarter of 2008. In addition, there was a decrease of $0.1 million during the three months ended June 30, 2008 as a result of a previously capitalized software product that became fully amortized in the prior year, resulting in no current period expense.

Cost of software license fees for the six months ended June 30, 2008 decreased by $0.9 million, or 21%, to $3.3 million compared to the same period in the prior year, primarily as a result of a $0.6 million decrease in third-party royalty expense due to lower license sales in the first three months of 2007. Additionally, there was a decrease of $0.3 million in amortization of purchased intangible software assets related to an acquisition made in 2006 and amortization of capitalized software due to a product that became fully amortized in the prior year.

Cost of Consulting Services

Our cost of consulting services is comprised of the salaries, benefits, incentive compensation and stock-based compensation expense of services-related employees as well as third-party contractor expenses, travel and reimbursable expenses and classroom rentals. Cost of services also includes an allocation of our facilities and other costs incurred for providing implementation, training and other consulting services to our customers.

Cost of consulting services increased $1.3 million, or 7%, to $19.2 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. The primary driver of this increase was labor, related benefits, bonus, and stock-based compensation expense, which together grew by $1.7 million. This increase was associated with the acquisition of AIM as well as the addition of headcount to support the Company's consulting services organization. The remaining increase is primarily associated with $0.2 million in additional travel costs, and was partially offset by a decrease of $0.4 million in subcontractor and third-party labor expenses in the current period.

For the six months ended June 30, 2008 cost of consulting services was $39.4 million, an increase of $6.0 million, or 18%, when compared to the same period in the prior year. Increases in labor and related benefits, bonus, and stock-based compensation resulted in a $5.7 million increase. Offsetting these costs was a decrease in expenses associated with the use of subcontractors and third-party labor of $0.5 million during the six months ended June 30, 2008 compared to the six months ended June 30, 2007 as we reduced our reliance on subcontractors to meet short-term demands and newly-hired additional headcount became billable. The balance of the remaining increase is principally the result of increased travel costs related to the services organization in the current period.

Cost of Maintenance and Support Services

Our cost of maintenance and support services is primarily comprised of salaries, benefits, stock-based compensation, incentive compensation and third-party contractor expenses, as well as facilities and other expenses incurred in providing support to our customers.

Cost of maintenance services increased $0.9 million, or 23%, to $4.8 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. The increase was driven by additional support headcount, required to meet the greater demand for maintenance services, related benefits, and third-party maintenance expense related to maintenance support that we provide on third-party products which are embedded and sold along with our products, which together increased by $1.3 million. Offsetting these increases was a decrease of $0.4 million in stock-based compensation in the current period.

Cost of maintenance services increased $2.7 million, or 35%, to $10.4 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. This increase was primarily the result of labor expense, related benefits, and third-party maintenance expense, which together increased by $2.7 million.

Cost of Other Revenues

Our cost of other revenues includes the cost of third-party equipment and software purchased for customers as well as the cost associated with our annual user conference. Cost of other revenues remained flat for the three and six months ended June 30, 2008 as compared to the three and six months ended June 30, 2007, as higher costs associated with our annual user conference were offset by lower costs of third-party equipment and software for these periods.

Operating Expenses



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