The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. 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," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," "intends," 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, projections of revenues, future cost and expense levels, expected timing and amount of amortization expenses related to past acquisitions, future effective tax rates, future exchange rates, the adequacy of resources to meet future cash requirements, renewal rates, estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, future client wins, future hiring and future product introductions and acceptance. 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-K, 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. Unless otherwise indicated, all references to number of shares and to per share information (except shares authorized) have been retroactively adjusted to reflect the two-for-one stock split on January 18, 2011.

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 investment management organization (portfolio accounting and reporting; trade order management and post-trade processing; research management; account management; and custodial reconciliation) and is tailored to meet the needs of the particular market segment of the investment management industry, as determined by size, assets under management and complexity of the investment process.

Current Economic Environment

While we signed a number of new customer contracts in 2012, many of our customers remained cautious with the uncertainty caused by the European sovereign debt crisis, persistent high unemployment rate and slow economic growth. This caution slowed buying decisions and elongated some sales. The conversion of our sales pipeline to new contract bookings, renewal rates and cash collections was lower than expected during 2012, especially in Europe and the Middle East, and we

expect this environment may continue in 2013. Despite this, we grew our revenues 10% in 2012 compared to 2011, which was driven primarily by an increase in term license revenues and other recurring revenues. We expect to grow revenues by 4% to 6% in fiscal 2013 as a result of incremental term license booking activity. We implemented a re-organization plan in the fourth quarter of 2012 to align strategy and function, reduce operating costs and improve profitability. As a result of this action, we expect annual operating expense run rate savings of approximately $8 million. As the current economic situation evolves, we will continue to evaluate its impact on our business and we will remain focused on increasing operating profit and margin.

Financial Overview

    Financial highlights of 2012 and 2011, and associated dollar and percentage
fluctuations were as follows (in thousands, except per share amounts,
percentages and margin changes):



                                                     Fiscal Years         Percentage /
                                                                             Margin
                                                   2012        2011          Change
Net revenues                                     $ 358,819   $ 326,248               10 %
Gross margin                                     $ 236,103   $ 215,476               10 %
Gross margin percentage                               65.8 %      66.0 %           -0.2 %
Operating income                                 $  49,179   $  42,565               16 %
Operating margin percentage                           13.7 %      13.0 %            0.7 %
Net income from continuing operations            $  30,231   $  28,331                7 %
Net income from continuing operations per
diluted share                                    $    0.58   $    0.52               12 %
Operating cash flows                             $  86,620   $  83,184                4 %

Revenues and gross margin in 2012 increased from the layering of new term license contracts and growth in our product revenues from Black Diamond which was acquired in June 2011. Operating income in 2012 grew faster than revenue resulting from improved operating leverage. Net income from continuing operations in 2012 increased at a lower rate than operating income due principally to higher effective income tax rates in 2012 than 2011. Net income per share in 2012 increased faster than net income as a result of the reduction of weighted average shares outstanding due to recent common share repurchases activity. Operating cash flows increased modestly in 2012 as a result of increased profitability, partially offset by payments for income taxes.

Term License and Term License Deferral

Term license revenues now comprise substantially all of our license revenues. 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.

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 completion in a particular quarter.

During 2012 and 2011, changes in the net term license component of deferred revenues increased (decreased) the Company's revenues as follows (in millions):

                                                Fiscal Years
                                               2012      2011     $ Change
            Term license revenues              $  1.0   $ (2.9 )  $     3.9
            Professional services and other         -     (6.6 )        6.6

            Total net revenues                 $  1.0   $ (9.5 )  $    10.5

During 2012, we recognized net revenues of $1.0 million and deferred directly-related expenses of $0.7 million associated with our term licensing model, resulting in an increase in our operating income of approximately $1.7 million.

Amounts of revenues and directly-related expenses deferred as of December 31, 2012 and 2011 associated with our term licensing deferral were as follows (in millions):

                                                   December 31
                                                  2012     2011
                     Deferred revenues
                     Short-term                  $ 29.8   $ 30.5
                     Long-term                      6.6      6.9

                     Total                       $ 36.4   $ 37.4

                     Directly-related expenses
                     Short-term                  $ 10.8   $ 10.0
                     Long-term                      3.6      3.6

                     Total                       $ 14.4   $ 13.6

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," respectively, on the consolidated balance sheets.

Non-GAAP Financial Measures and Other Operational Data

We consider certain operating measures, such as the annual contract value ("ACV") of term license, Black Diamond and Advent OnDemand contracts and renewal rates, and certain financial measures that are not prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), including non-GAAP net income, non-GAAP net income per share and free cash flow, in measuring the performance of our business. The non-GAAP measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies. However, we believe that this non-GAAP information is useful as an additional means for investors to evaluate our operating performance, when reviewed in conjunction with our GAAP financial statements. Therefore, these measures should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP, and because these amounts are not determined in accordance with GAAP, they should not be used exclusively in evaluating our business and operations. In addition, undue reliance should not be placed upon non-GAAP or operating information because this information is neither standardized across companies nor subjected to the same control activities and audit procedures that produce our GAAP financial results.

Bookings

    The following table summarizes the Company's quarterly term license, Black
Diamond and Advent OnDemand bookings (operational information) signed during the
period and the associated average term (in thousands):

                                   First      Second     Third      Fourth
                                  Quarter    Quarter    Quarter    Quarter     Total
       2012
       Annual contract value(1)    $ 7,406    $ 7,185    $ 7,122   $ 11,131   $ 32,844
       Average term(2)                 3.3        2.6        2.9        2.9        2.9
       2011
       Annual contract value(1)    $ 5,107    $ 6,554    $ 8,541   $ 13,698   $ 33,900
       Average term(2)                 2.8        2.4        2.7        3.1        2.8
       2010
       Annual contract value(1)    $ 7,297    $ 6,502    $ 7,554   $ 10,489   $ 31,842
       Average term(2)                 3.0        2.7        2.9        2.8        2.9


--------------------------------------------------------------------------------
   º (1)

º (2)
º Average term is weighted by contract value for all new term licenses, Black Diamond and Advent OnDemand contracts signed in the period.

The slight decrease in bookings in 2012 is primarily due to a 20% decrease in bookings from the Europe, Middle East and Africa (EMEA) region in 2012 as compared to 2011.

Renewal Rates

Our renewal rates are based on cash collections and are disclosed one quarter in arrears. We disclose our renewal rates one quarter in arrears in order to include substantially all payments received against the invoices for that quarter. We also update our renewal rates from the initially disclosed rates to include all cash collections subsequent to the initial disclosure. We experience seasonality in our bookings and renewals. We believe that this seasonality results from customer budgeting cycles and expect it will continue in the future. As a result, the fourth quarter of the year typically has more

bookings and renewal activity, followed by lower activity in the first quarter of the following year. The following table summarizes our initial and updated renewal rates (operational metric) since 2010:

                                              Fourth       Third      Second       First
Renewal Rates                                 Quarter     Quarter     Quarter     Quarter
Based on cash collections relative to
prior year collections
2012
Initially disclosed renewal rate(1)                 (2 )        94 %        87 %        91 %
Updated disclosed renewal rate(3)                  n/a         n/a          91 %        95 %
2011
Initially disclosed renewal rate(1)                 95 %        93 %        92 %        91 %
Updated disclosed renewal rate(3)                   98 %        94 %        97 %        94 %
2010
Initially disclosed renewal rate(1)                 95 %        91 %        91 %        90 %
Updated disclosed renewal rate(3)                   96 %        95 %        97 %        97 %


--------------------------------------------------------------------------------
   º (1)

º (2)
º The initially disclosed renewal rate for the fourth quarter of 2012 is not currently available as it is disclosed one quarter in arrears in order to include substantially all payments against invoices for this quarter

º (3)
º "Updated Disclosed Renewal Rate" reflects initially disclosed rate updated for subsequent cash collections

Renewal rates have remained consistently in the 90% range historically. The renewal rate in the second quarter of 2012 was negatively impacted by 3 points due to three EMEA customers ceasing business, deactivating or reducing use of our products.

Non-GAAP Net Income and Non-GAAP Net Income Per Share

Non-GAAP net income is calculated by adjusting GAAP net income for the provision for income taxes, stock-based compensation expense, amortization of purchased intangibles, restructuring charges, acquisition-related charges and other non-recurring items. Non-GAAP net income per share is calculated by dividing non-GAAP net income by the weighted average number of diluted shares outstanding for the period. Non-GAAP net income and non-GAAP net income per share, and

reconciliation to its most directly comparable GAAP financial measures, for fiscal 2012, 2011 and 2010 were as follows (in thousands, except per share amounts):

                                                              Fiscal Years
                                            2012                  2011                  2010
GAAP net income / net income per
share                                $  30,231   $  0.58   $  28,331   $  0.52   $ 24,319   $  0.45
Amortization of acquired developed
technology                               7,599      0.14       6,019      0.11      3,325      0.06
Stock-based compensation-cost of
revenues                                 3,641      0.07       3,468      0.06      2,915      0.05
Amortization of other acquired
intangibles                              3,825      0.07       2,807      0.05      1,272      0.02
Stock-based compensation-operating
expenses                                17,160      0.33      15,670      0.29     15,515      0.28
Restructuring charges                    3,634      0.07         696      0.01        840      0.02
Acquisition related(1)                       -         -         936      0.02          -         -
Investment loss                              -         -         500      0.01          -         -
Income tax adjustment(2)               (11,868 )   (0.23 )   (12,005 )   (0.22 )   (9,656 )   (0.18 )

Non-GAAP net income / net income
per share                            $  54,222   $  1.03   $  46,422   $  0.86   $ 38,530   $  0.71

º (2)
º The estimated non-GAAP effective tax rate was 35% for fiscal 2012, 2011 and 2010, respectively, and has been used to adjust the provision for income taxes for non-GAAP purposes.

The growth in non-GAAP net income and net income per share since 2010 reflects improved operating leverage in our business as we have grown revenues at a faster pace than our variable costs.

Free Cash Flow

    Free cash flow is defined as cash flow from operations less cash used for
purchases of property and equipment, and capitalized software development costs.
Free cash flow, and a reconciliation to its most directly comparable GAAP
measure of operating cash flow, for fiscal 2012, 2011 and 2010 was as follows
(in thousands):

                                                          Fiscal Years
                                                  2012       2011        2010
       Cash provided by operating activities    $ 86,620   $  83,184   $  76,218
       Purchases of property and equipment        (6,369 )   (11,252 )   (17,418 )
       Capitalized software development costs     (2,137 )    (2,358 )    (2,144 )

       Free cash flow                           $ 78,114   $  69,574   $  56,656

The fluctuations in free cash flow during these periods primarily reflected our capital expenditure activity. We built-out our new office facilities in New York City and Boston during 2010, Beijing, Sweden and London in 2011, and Jacksonville, Florida in 2012.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of operations are based upon our 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 is reasonable for making judgments at the time the estimates are made. Actual results may differ from our 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 consolidated financial statements:

º •
º Revenue recognition and deferred revenues;

º •
º Income taxes;

º •
º Stock-based compensation;

º •
º Restructuring charges and related accruals;

º •
º Business combinations;

º •
º Disposition;

º •
º Goodwill;

º •
º Impairment of long-lived assets;

º •
º Legal contingencies; and

º •
º Sales returns and accounts receivable allowances.

Revenue recognition and deferred revenues. We recognize revenue from term license, maintenance and other recurring revenues; perpetual license fees, 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 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 accounting principles generally accepted in the United States.

Software license fees. 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 probable. 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 delivery to the distributor's customer has taken place and when all other revenue recognition criteria have been met. Delivery occurs upon notification that software is available for electronic download through our fulfillment vendor, or when a product is delivered to a common carrier F.O.B shipping point, or upon confirmation that product delivered F.O.B shipping destination has been received. Some of our arrangements include acceptance provisions; 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 collectability of the resulting receivable is probable based on a number of factors, including the credit worthiness of the customer determined through a credit review process, including credit reporting agency reports, publicly available customer information, financial statements and 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 often professional services.

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 assets under administration, the number of site installations and the number of authorized users.

We categorize our revenues into two reporting elements-recurring and non-recurring revenues:

º •
º Term licenses

Term license contracts include 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 vendor specific objective evidence, or 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 implementation services are complete and the remaining 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. We determine whether services are substantially complete by consulting with our professional services group and applying management judgment. Term license revenue for the remaining contract years, 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.

º •
º Maintenance

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 period and charged separately for renewals of annual maintenance in subsequent years. Fair value for maintenance is based upon either renewal rates stated in the contracts or separate sales of renewals to customers. Revenue is recognized ratably, or daily, over the term of the maintenance period, typically one year.

º •
º Other Recurring Revenues

Other recurring revenues include revenues from our Software-as-a-Service (SaaS) services, data services and other recurring revenue transactions.

Our SaaS services include Advent OnDemand, Advent OnDemand with Data Management and Black Diamond. Advent OnDemand is the hosting and SaaS delivery of our suite of investment management solutions. We recognize revenue ratably over the period of service which is generally one year. Advent OnDemand with Data Management services include access to our software on a SaaS basis as well as full account aggregation, daily portfolio reconciliation, corporate actions processing and reference data management. We price this comprehensive service offering based on the number of accounts managed for each customer. We measure the number of accounts quarterly in arrears and we recognize revenue for these services . . .