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

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 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.

In August 2008, we acquired the MPM solution ("MPM") and all related assets from Planview, Inc., an earned value management software application used by government contractors and agencies to meet complex compliance requirements for their programs issued by the U.S. Federal Government. MPM integrates with Deltek wInsight to create a complete earned value solution for government contractors and agencies.

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 September 30                   Nine Months Ended September 30
                                    2008        2007      Change      % Change      2008        2007       Change      % Change
                                             (dollars in millions)                            (dollars in millions)
REVENUES:
Software license fees             $   18.5     $ 21.4     $  (2.9 )        (14 )   $  57.6     $  60.0     $  (2.4 )         (4 )
Consulting services                   23.1       22.8         0.3            1        69.7        61.0         8.7           14
Maintenance and support
services                              29.3       26.1         3.2           12        85.7        75.5        10.2           14
Other revenues                         0.1        0.1          -            -          4.7         4.7          -            -

Total revenues                    $   71.0     $ 70.4     $   0.6            1     $ 217.7     $ 201.2     $  16.5            8

COST OF REVENUES:
Cost of software license fees     $    1.7     $  1.8     $  (0.1 )         (6 )   $   4.9     $   6.0     $  (1.1 )        (18 )
Cost of consulting services           18.3       19.3        (1.0 )         (5 )      57.6        52.7         4.9            9
Cost of maintenance and support
services                               5.4        4.4         1.0           23        15.9        12.2         3.7           30
Cost of other revenues                  -         0.2        (0.2 )       (100 )       5.1         5.2        (0.1 )         (2 )

Total cost of revenues            $   25.4     $ 25.7     $  (0.3 )         (1 )   $  83.5     $  76.1     $   7.4           10

GROSS PROFIT                      $   45.6     $ 44.7     $   0.9            2     $ 134.2     $ 125.1     $   9.1            7

OPERATING EXPENSES:
Research and development          $   11.8     $ 11.0     $   0.8            7     $  34.7     $  31.6     $   3.1           10
Sales and marketing                   13.6       11.6         2.0           17        39.4        32.2         7.2           22
General and administrative             8.8        7.4         1.4           19        24.7        21.7         3.0           14
Restructuring charge                  (0.1 )       -         (0.1 )        100         1.0          -          1.0          100

Total operating expenses          $   34.1     $ 30.0     $   4.1           14     $  99.8     $  85.5     $  14.3           17

INCOME FROM OPERATIONS            $   11.5     $ 14.7     $  (3.2 )        (22 )   $  34.4     $  39.6     $  (5.2 )        (13 )
Interest income                        0.2         -          0.2          100         0.6         0.2         0.4          200
Interest expense                      (2.5 )     (4.7 )       2.2          (47 )      (8.4 )     (14.0 )       5.6          (40 )
Other expense, net                    (0.1 )       -         (0.1 )       (100 )      (0.3 )        -         (0.3 )        100

INCOME BEFORE INCOME TAXES             9.1       10.0        (0.9 )         (9 )      26.3        25.8         0.5            2
Income tax expense                     1.1        4.2        (3.1 )        (74 )       8.8        10.4        (1.6 )        (15 )

NET INCOME                        $    8.0     $  5.8     $   2.2           38     $  17.5     $  15.4     $   2.1           14

Revenues



                                        Three Months Ended September 30                Nine Months Ended September 30
                                     2008       2007     Change      % Change       2008      2007     Change      % Change
                                             (dollars in millions)                          (dollars in millions)
REVENUES:
Software license fees              $   18.5    $  21.4   $  (2.9 )        (14 )   $   57.6   $  60.0   $  (2.4 )         (4 )
Consulting services                    23.1       22.8       0.3            1         69.7      61.0       8.7           14
Maintenance and support services       29.3       26.1       3.2           12         85.7      75.5      10.2           14
Other revenues                          0.1        0.1        -            -           4.7       4.7        -            -

Total revenues                     $   71.0    $  70.4   $   0.6            1     $  217.7   $ 201.2   $  16.5            8

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 decreased $2.9 million, or 14%, to $18.5 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. During the third quarter of 2008, software license fee revenues from our Costpoint, GCS Premier and EPM products collectively increased $1.5 million in the third quarter of 2008 compared to the third quarter of 2007 due to the continued demand for our products by the government contracting market. During the current quarter software license fee revenues from our Vision product decreased $4.4 million, primarily due to a number of architecture and engineering customers deferring purchase decisions as their focus turned to the escalating financial crisis that occurred in the final two weeks of September 2008.

Software license fee revenues decreased $2.4 million, or 4%, to $57.6 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. This decrease in software license fee revenues was the result of a decline in our Vision product of $4.4 million. These decreases were offset by a collective increase in software license fee revenues related to our Costpoint, GCS Premier and EPM products of $2.0 million.

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.

Consulting services revenues increased $0.3 million, or 1%, to $23.1 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. This increase was the result of a $0.4 million increase in training and education related services revenue, offset by a $0.1 million decrease in software implementation related services revenue during the third quarter of 2008 compared to the third quarter of 2007. Software implementation related services revenue was $21.1 million of consulting services revenues during the three months ended September 30, 2008 compared to $21.2 million during the three months ended September 30, 2007.

Consulting services revenues increased $8.7 million, or 14%, to $69.7 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. This increase was the result of a $7.8 million increase in software implementation related services revenue and a $0.8 million increase in training and education related services revenue during the nine months ended September 30, 2008 compared to the same period in 2007. Software implementation related services revenue was $64.5 million of consulting services revenues during the nine months ended September 30, 2008 compared to $56.7 million during the nine months ended September 30, 2007. This increase in software implementation related services was a result of increased demand for implementation services and more billable services headcount.

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 $3.2 million, or 12%, to $29.3 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. Maintenance revenues from our Vision product increased $1.2 million and maintenance revenues from our Costpoint, GCS Premier and EPM products collectively increased by $1.9 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 $10.2 million, or 14%, to $85.7 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. This increase is across all of our product families with $4.2 million attributable to our Vision product, and $5.9 million attributable to our Costpoint, GCS Premier and EPM products collectively.

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 September 30, 2008, other revenues remained constant at $0.1 million when compared to the three months ended September 30, 2007. For the nine months ended September 30, 2008, other revenues remained constant at $4.7 million when compared to the same period in the prior year.

Cost of Revenues



                                          Three Months Ended September 30                Nine Months Ended September 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    $   1.8   $  (0.1 )         (6 )   $    4.9    $  6.0   $  (1.1 )        (18 )
Cost of consulting services              18.3       19.3      (1.0 )         (5 )       57.6      52.7       4.9            9
Cost of maintenance and support
services                                  5.4        4.4       1.0           23         15.9      12.2       3.7           30
Cost of other revenues                     -         0.2      (0.2 )       (100 )        5.1       5.2      (0.1 )         (2 )

Total cost of revenues               $   25.4    $  25.7   $  (0.3 )         (1 )   $   83.5    $ 76.1   $   7.4           10

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 $0.1 million, or 6%, to $1.7 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The decrease was primarily the result of a reduction in amortization of purchased intangible software assets and capitalized software costs in the current period.

Cost of software license fees for the nine months ended September 30, 2008 decreased by $1.1 million, or 18%, to $4.9 million compared to the same period in the prior year, primarily as a result of a $0.5 million decrease in the amortization of purchased intangible software assets and amortization of capitalized software. Additionally, there was a decrease of $0.4 million in third-party royalty expense due to lower license sales in the current period.

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 decreased $1.0 million, or 5%, to $18.3 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The primary driver of this decrease was labor, related benefits, travel, subcontractor and third-party labor expenses, which together decreased by $0.9 million.

For the nine months ended September 30, 2008 cost of consulting services was $57.6 million, an increase of $4.9 million, or 9%, when compared to the same period in the prior year. Increases in labor and related benefits, bonus, and stock-based compensation resulted in a $4.3 million increase. Offsetting these costs was a decrease in expenses associated with the use of subcontractors and third-party labor of $0.8 million during the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. We reduced our reliance on subcontractors as a result of additional newly-hired headcount that became billable. The balance of the remaining increase is principally the result of increased costs related to expanding our United Kingdom and Australia 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 $1.0 million, or 23%, to $5.4 million for the three months ended September 30, 2008 compared to the three months ended September 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 $1.0 million.

Cost of maintenance services increased $3.7 million, or 30%, to $15.9 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. This increase was primarily the result of labor expense, related benefits, and third-party maintenance expense, which together increased by $3.5 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 decreased $0.2 million for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. Cost of other revenues decreased $0.1 million for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

Operating Expenses



                                           Three Months Ended September 30              Nine Months Ended September 30
                                       2008         2007    Change      % Change     2008       2007     Change    % Change
                                         (dollars in millions)                         (dollars in millions)
OPERATING EXPENSES:
Research and development             $   11.8      $ 11.0   $   0.8            7   $   34.7    $  31.6   $   3.1         10
Sales and marketing                      13.6        11.6       2.0           17       39.4       32.2       7.2         22
General and administrative                8.8         7.4       1.4           19       24.7       21.7       3.0         14
Restructuring charge                     (0.1 )        -       (0.1 )        100        1.0         -        1.0        100

Total operating expenses             $   34.1      $ 30.0   $   4.1           14   $   99.8    $  85.5   $  14.3         17

Research and Development

Our product development expenses consist primarily of salaries, benefits, stock-based compensation, incentive compensation and related expenses, including third-party contractor expenses, and other expenses associated with the design, development and testing of our software applications.

Research and development expenses increased by $0.8 million, or 7%, to $11.8 million for the three month period ended September 30, 2008 compared to the same period in 2007. The principal driver was an increase of $1.2 million in labor and labor-related benefits to support product development activities. Additionally, a $0.3 million in-process research and development charge was incurred in connection with our acquisition of the MPM solution. Partially offsetting these costs was a decrease of $0.4 million in third-party costs to support new release development.

. . .