You should read the following discussion in conjunction with our 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, expenses and operating margins. 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 the future of the investment management market and opportunities for us related thereto, future expansion, acquisition, divestment of or investment in other businesses and the impact of

our divestment of MicroEdge, projections of revenues, future cost and expense levels, 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 which 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 the "Risk Factors" 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

We offer integrated software products and services for automating and integrating data and work flows across the investment management organization, as well as between the investment management organization and external parties. Our products are intended to increase operational efficiency, improve the accuracy of client information and enable better decision-making. Each solution focuses on specific mission-critical functions of the front, middle and back offices of investment management organizations and is designed to meet the needs of the particular client, as determined by size, assets under management and complexity of the investment environment. On October 1, 2009, we completed the sale of MicroEdge, Inc., our wholly-owned subsidiary, as further described below. References in this document to our continuing operations refer to our remaining business.

Current Economic Environment

During the first nine months of 2009, our business continued to be impacted by the generally weak macro-economic environment. The current environment has created pressure on our clients to decrease their information technology budgets, which negatively impacted our customer renewal rates and annual term license contract value ("ACV") in the first nine months of 2009. For example, initially disclosed renewal rates, which we report one quarter in arrears, decreased to 87% for the second quarter of 2009, compared to 103% for the second quarter of 2008. Additionally, the ACV added during the first nine months of 2009 decreased to $12.9 million from $18.6 million during the comparable period of 2008. Despite the negative impact on our renewal rates and overall bookings, we continued to proactively control our costs and achieved growth in our continuing operations' operating profit margin and earnings per share during the first nine months of 2009.

We believe that the fourth quarter of 2009 will continue to be a difficult period for the investment management industry in the United States and worldwide. During the first nine months of 2009, investment managers have seen their revenues decrease as a result of decreases in their assets under management. Some hedge funds and other types of clients have gone out of business and we believe more firms may go out of business. While we are not immune to downturns in technology spending, should our customers continue to reduce or limit their spending, we believe we are well positioned to maintain our competitive position in the longer term for the following reasons:

† Our solutions are mission critical to our customers;

† Our technology can be utilized to increase operational efficiency and manage costs;

† As a market leader in investment management technology, we expect the customers who spend money will attempt to minimize risk and, therefore, look to our stability, reliability and scalability;

† We expect an increased need for systems in the face of a more regulated, compliance-oriented industry; and

† Our recurring revenue model and large customer base will continue to provide longer term stability.

We also believe that investment managers will be increasingly focused on providing increased and differentiated levels of service to their customers. These factors have traditionally been demand drivers for our products.

We believe our recent financial results validate the strength and stability of our business and the attractiveness of our product portfolio to our customers. For example, our continuing operations have grown revenue, operating income and margin, and operating cash flows during the three and nine months ended September 30, 2009 compared to the comparable periods of 2008. In addition to our strong financial results, we believe we saw an improved demand environment and interest during the third quarter of 2009 from prospects and customers across all the markets we serve. While we see the potential for improvement for the remainder of 2009 and in 2010, the timing of any recovery is uncertain. As the current economic situation evolves, we will continue to evaluate the impact of this environment on our business and we will remain focused on delivering solutions for our customers. We remain positive about our relative market position and our product delivery plans and we intend to remain focused on executing in the areas we can control by continuing to provide high value products while managing our expenses and headcount growth.

Operating Overview

Operating highlights of our third quarter of 2009 include:

† Expanded customer relationships and acceptance of our product offerings. We experienced continued demand for both our newest and largest portfolio management and accounting platforms: Advent Portfolio Exchange ("APX") and Geneva. We signed 19 APX contracts, bringing the total number of licenses sold globally to 318, and we added 10 new Geneva clients which brings the total number of Geneva licenses sold to 231 as of September 30, 2009.

† New and incremental bookings. The term license contracts signed in the third quarter of 2009 will contribute approximately $6.0 million in annual revenue ("annual term license contract value" or "ACV") once they are fully implemented.

† Launch of Advent Revenue Center 3.0. We unveiled significant new features to Advent Revenue Center 3.0 which includes revenue forecasting and revenue sharing functionality.

Divestiture of MicroEdge

On October 1, 2009, we completed the sale of our MicroEdge subsidiary. See Notes 3 and 17 to condensed consolidated financial statements for a description of the principal terms of the divestiture.

In accordance with FASB ASC 205-20, "Discontinued Operations", MicroEdge's results have been reclassified as a discontinued operation in the condensed consolidated statements of operations for all periods presented. The results of operations and the related charges for our discontinued operation are classified as "net income from discontinued operation, net of applicable taxes" in the accompanying condensed consolidated statements of operations for all periods presented. In addition, the assets and liabilities of MicroEdge have been reclassified as assets and liabilities of discontinued operation in the Company's condensed consolidated balance sheet for all periods presented.

Unless noted otherwise, discussions in the notes to the condensed consolidated financial statementspertain to continuing operations.

Financial Overview



The components of revenue from continuing operations during the third quarters
of 2009 and 2008, and associated dollar and percentage fluctuations were as
follows (in thousands, except % change):



                                   Three Months Ended September 30             $             %
                                     2009                  2008             Change         Change

Term license revenues          $          24,282     $          15,359    $     8,923            58 %
Maintenance revenues                      18,703                19,552           (849 )          -4 %
Other recurring revenues                  12,361                12,020            341             3 %
Total term license,
maintenance and other
recurring revenues                        55,346                46,931          8,415            18 %
Recurring revenue as % of
total revenue                                 87 %                  81 %

Asset under administration
(AUA) fees                                 1,199                 1,510           (311 )         -21 %
Other perpetual license
fees                                       1,171                 1,658           (487 )         -29 %
Total perpetual license
fees                                       2,370                 3,168           (798 )         -25 %

Professional services and
other                                      6,066                 8,053         (1,987 )         -25 %

Total net revenues             $          63,782     $          58,152    $     5,630            10 %

We recognized revenue of $63.8 million from continuing operations during the third quarter of 2009, which represented an increase of 10% over the same quarter of last year. This increase was driven by significant growth in term license revenue as we continued to layer in incremental ACV sold in previous periods, and to a lesser extent, revenues from our new research management solution, Tamale RMS, which we introduced in the fourth quarter of 2008. Perpetual license fees in the third quarter of 2009 were down compared to the third quarter of 2008 as we licensed fewer perpetual seats and modules to our existing perpetual client base. We have grown net revenue year-over-year for several reasons, including the following:

†

† Our existing term licenses and maintenance revenues provide a consistent, recurring revenue stream.

† Our product innovation helped drive acquisition of new customers, resulting in incremental term license contract value and professional services billings.

† Our completion of term license implementations resulted in incremental term license revenues.

Total recurring revenues, which we define as term license, perpetual maintenance, and other recurring revenues, increased to 87% of total net revenues during the third quarter of 2009, as compared to 81% during the same period of 2008. Term license revenues increased 58% in the third quarter of 2009 from the prior year period and represented 38% of total net revenues in the third quarter of 2009, as compared to 26% in the same period in 2008.

Total expenses from continuing operations, including cost of revenues, were $57.9 million in the third quarter of 2009, compared with $55.0 million in the third quarter of 2008. Our expenses increased in 2009 from 2008 largely as a result of increased payroll, variable compensation and benefit expenses resulting from increases in headcount primarily from our acquisition of Tamale Software, Inc. on October 1, 2008.

Our operating income from continuing operations in the third quarter of 2009 increased to $5.8 million or 9% of revenue from $3.2 million or 5% of revenue in the third quarter of 2008 which is reflective of revenue growth and our cost reduction initiatives.

Our continuing operations' income tax expense was $1.7 million resulting in a 31% effective tax rate during the third quarter of 2009, compared to $1.2 million or 40%, respectively, in the third quarter of 2008.

Net income from continuing operations was $3.9 million, resulting in diluted earnings per share of $0.15 for the third quarter of 2009, compared to $1.8 million or $0.06 in the third quarter of 2008.

Our continuing operations generated operating cash flow of $51.6 million in the first nine months of 2009, which compares to $50.1 million in the first nine months of 2008.

Term License and Term License Deferral

We are substantially through the process of converting the Company's license revenues from a perpetual model to a predominantly 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 had the effect of lowering revenues in the Advent Investment Management ("AIM") segment in the early stages of the transition, but increasing the total potential value of the customer relationship. Because our products are used by customers for an average of approximately ten years, we believe this change to our business model is significant for the long-term growth and value of the business as we expect total revenues from a customer to increase over time. For example, over a ten-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 complete and the remaining 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.

Now that we are substantially complete in our transition, the term license component of the deferred revenue balance related to implementations in process will increase or decrease in the future depending on the amount of new term license bookings relative to the number of implementations that reach substantial completion in a particular quarter. During the first nine months of 2009, the revenue recognized from completed implementations exceeded the revenue deferred from projects being implemented by $6.6 million composed of $3.8 million of term license revenue and $2.8 million of professional services revenue. We do not expect this trend of revenue recognition exceeding revenue deferral to continue. For example, during the first nine months of 2008, the revenue deferred from projects being implemented exceeded the revenue recognized from completed implementations by $9.0 million composed of $2.7 million of term license revenue and $6.3 million of professional services revenue.

Amounts of revenues and directly-related expenses deferred as of September 30, 2009 and December 31, 2008 associated with our term licensing deferral was as follows (in millions):

                             September 30     December 31
                                 2009            2008
Deferred revenues
Short-term                  $         18.9   $        26.0
Long-term                              5.3             4.8
Total                       $         24.2   $        30.8

Directly-related expenses
Short-term                  $          5.6   $         8.1
Long-term                              2.7             2.1
Total                       $          8.3   $        10.2

Deferred net revenue and directly-related expenses are classified as "Deferred revenues" (short-term and long-term), and "Prepaid expenses and other," and "Other assets" respectively, on the condensed consolidated balance sheets.

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.

† Revenue recognition and deferred revenues;

† Income taxes;

† Stock-based compensation;

† Restructuring charges and related accruals;

† Business combinations;

† Goodwill;

† 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 first nine months of 2009 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 for the year ended December 31, 2008, except for the following:

† Historically, the Company determined that its operations were organized into two reportable segments: 1) Advent Investment Management, and 2) MicroEdge. For the purposes of goodwill impairment testing, we had determined our MicroEdge subsidiary to be one of our three reporting units as of November 1, 2008.

With the divestiture of MicroEdge, we now report a single operating segment, Advent Investment Management, as defined in ASC 280, "Segment Reporting". Additionally, we have determined that the Company will have two reporting units, US Core Business and International, which comprise our Advent Investment Management segment, for our upcoming test for goodwill impairment during the fourth quarter of 2009. Thus effective November 1, 2009, goodwill impairment testing will be performed on two reporting units in accordance with ASC 350, "Goodwill and Other".

Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2009, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, that are of significance, or potential significance, to the Company.

In April 2009, the Financial Accounting Standards Board ("FASB") issued FASB Accounting Standards Codification ("ASC") 820-10-65 (Prior authoritative literature: FASB Staff Position ("FSP") FAS 157-4, "Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly"). ASC 820-10-65 provides additional guidance for estimating fair value in accordance with ASC 820-10-65 when the volume and level of activity for the asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. ASC 820-10-65 is effective for interim and annual reporting periods ending after June 15, 2009 and is to be applied prospectively. The Company's adoption of ASC 820-10-65 did not have a material impact to the Company's condensed consolidated financial statements.

In April 2009, the FASB issued ASC 320-10-65 (Prior authoritative literature:
FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments"). ASC 320-10-65 amends the other-than-temporary impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. ASC 320-10-65 is effective for interim and annual reporting periods ending after June 15, 2009. The Company's adoption of ASC 320-10-65 did not have a material impact to the Company's condensed consolidated financial statements.

In April 2009, the FASB issued ASC 825-10-65 (Prior authoritative literature:
FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments"). ASC 825-10-65 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 825-10-65 is effective for interim and annual reporting periods ending after June 15, 2009. The Company's adoption of ASC 825-10-65 did not have a material impact to the Company's condensed consolidated financial statements.

In May 2009, the FASB issued ASC 855 (Prior authoritative literature: SFAS No. 165, "Subsequent Events"), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The provisions of ASC 855 are effective for interim and annual reporting periods ending after June 15, 2009 and are effective for the Company in the second quarter of fiscal 2009. Since ASC 855 only required additional disclosures, adoption of ASC 855 did not have an impact to the Company's condensed consolidated financial position, results of operations or cash flows. See Note 17, "Subsequent Events" to our condensed consolidated financial statements for our discussion of the subsequent event that has occurred since the balance sheet date of September 30, 2009.

In July 2009, the FASB issued ASC 105 (Prior authoritative literature: SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles"). ASC 105 establishes the exclusive authoritative reference for U.S. GAAP for use in financial statements, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification will supersede all existing non-SEC accounting and reporting standards. We have included the references to the Codification, as appropriate, in these condensed consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) ("ASU 2009-13") and ASU 2009-14, Certain Arrangements That Include Software Elements , (amendments to FASB ASC Topic 985, Software ) ("ASU 2009-14"). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the Company's condensed consolidated financial statements.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008

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
                                         2009                2008              2009                2008

Net revenues:
Term license, maintenance and
other recurring                                 87 %                81 %              86 %                81 %
Perpetual license fees                           4                   5                 4                   7
Professional services and other                 10                  14                10                  13

Total net revenues                             100                 100               100                 100

Cost of revenues:
Term license, maintenance and
other recurring                                 19                  19                18                  18
Perpetual license fees                           *                   *                 *                   *
Professional services and other                 12                  18                12                  15
. . .