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EX-31.2 - EX-31.2 - ADVENT SOFTWARE INC /DE/a10-5886_1ex31d2.htm
EX-32.2 - EX-32.2 - ADVENT SOFTWARE INC /DE/a10-5886_1ex32d2.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2010

 

or

 

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

 

Commission file number:  0-26994

 

ADVENT SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

94-2901952

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification Number)

 

600 Townsend Street, San Francisco, California 94103

(Address of principal executive offices and zip code)

 

(415) 543-7696

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨

 

Accelerated filer x

 

 

 

Non-accelerated filer ¨

 

Smaller reporting company ¨

(Do not check if a smaller reporting company)

 

 

 

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

 

The number of shares of the registrant’s Common Stock outstanding as of April 30, 2010 was 25,772,552.

 

 

 




Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

March 31

 

December 31

 

 

 

2010

 

2009

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

52,015

 

$

57,877

 

Short-term marketable securities

 

50,952

 

31,273

 

Accounts receivable, net

 

42,473

 

44,246

 

Deferred taxes, current

 

15,155

 

15,081

 

Prepaid expenses and other

 

21,262

 

22,350

 

Current assets of discontinued operation

 

97

 

494

 

Total current assets

 

181,954

 

171,321

 

Property and equipment, net

 

35,712

 

33,945

 

Goodwill

 

145,635

 

144,827

 

Other intangibles, net

 

24,596

 

22,965

 

Long-term marketable securities

 

9,070

 

28,495

 

Deferred taxes, long-term

 

40,503

 

40,502

 

Other assets

 

9,396

 

10,142

 

Noncurrent assets of discontinued operation

 

2,095

 

2,095

 

 

 

 

 

 

 

Total assets

 

$

448,961

 

$

454,292

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

9,175

 

$

4,708

 

Accrued liabilities

 

24,673

 

31,066

 

Deferred revenues

 

136,563

 

140,186

 

Income taxes payable

 

3,580

 

1,616

 

Current liabilities of discontinued operation

 

281

 

719

 

Total current liabilities

 

174,272

 

178,295

 

Deferred revenue, long-term

 

5,626

 

5,879

 

Other long-term liabilities

 

13,779

 

12,969

 

Noncurrent liabilities of discontinued operation

 

5,149

 

5,115

 

 

 

 

 

 

 

Total liabilities

 

198,826

 

202,258

 

 

 

 

 

 

 

Commitments and contingencies (See Note 12)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock

 

258

 

259

 

Additional paid-in capital

 

390,427

 

386,623

 

Accumulated deficit

 

(148,823

)

(145,584

)

Accumulated other comprehensive income

 

8,273

 

10,736

 

Total stockholders’ equity

 

250,135

 

252,034

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

448,961

 

$

454,292

 

 

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

 

3



Table of Contents

 

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

Term license, maintenance and other recurring

 

$

58,851

 

$

56,307

 

Perpetual license fees

 

2,302

 

2,685

 

Professional services and other

 

5,535

 

7,333

 

 

 

 

 

 

 

Total net revenues

 

66,688

 

66,325

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

Term license, maintenance and other recurring

 

12,427

 

11,345

 

Perpetual license fees

 

73

 

112

 

Professional services and other

 

6,584

 

8,055

 

Amortization of developed technology

 

1,516

 

1,405

 

 

 

 

 

 

 

Total cost of revenues

 

20,600

 

20,917

 

 

 

 

 

 

 

Gross margin

 

46,088

 

45,408

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Sales and marketing

 

16,860

 

15,779

 

Product development

 

12,061

 

12,119

 

General and administrative

 

9,551

 

8,639

 

Amortization of other intangibles

 

315

 

439

 

Restructuring charges

 

29

 

44

 

 

 

 

 

 

 

Total operating expenses

 

38,816

 

37,020

 

 

 

 

 

 

 

Income from continuing operations

 

7,272

 

8,388

 

 

 

 

 

 

 

Interest and other income (expense), net

 

(706

)

(372

)

 

 

 

 

 

 

Income from continuing operations before income taxes

 

6,566

 

8,016

 

Provision for income taxes

 

2,323

 

2,653

 

 

 

 

 

 

 

Net income from continuing operations

 

$

4,243

 

$

5,363

 

 

 

 

 

 

 

Discontinued operation:

 

 

 

 

 

Net income (loss) from discontinued operation (net of applicable taxes of $(33) and $594, respectively)

 

(48

)

866

 

 

 

 

 

 

 

Net income

 

$

4,195

 

$

6,229

 

 

 

 

 

 

 

Basic net income (loss) per share:

 

 

 

 

 

Continuing operations

 

$

0.16

 

$

0.21

 

Discontinued operation

 

(0.00

)

0.03

 

Total operations

 

$

0.16

 

$

0.25

 

 

 

 

 

 

 

Diluted net income (loss) per share:

 

 

 

 

 

Continuing operations

 

$

0.16

 

$

0.21

 

Discontinued operation

 

(0.00

)

0.03

 

Total operations

 

$

0.15

 

$

0.24

 

 

 

 

 

 

 

Weighted average shares used to compute net income per share:

 

 

 

 

 

Basic

 

25,874

 

25,249

 

Diluted

 

27,138

 

25,844

 

 

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

 

4



Table of Contents

 

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31

 

 

 

2010

 

2009

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

4,195

 

$

6,229

 

Adjustment to net income for discontinued operation

 

48

 

(866

)

Net income from continuing operations

 

4,243

 

5,363

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:

 

 

 

 

 

Stock-based compensation

 

4,285

 

3,893

 

Depreciation and amortization

 

4,331

 

4,149

 

Loss on dispositions of fixed assets

 

 

28

 

Provision for doubtful accounts

 

25

 

187

 

Provision for (reduction of) sales returns

 

(168

)

809

 

Deferred income taxes

 

(9

)

(34

)

Other

 

111

 

95

 

Effect of statement of operations adjustments

 

8,575

 

9,127

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

2,031

 

748

 

Prepaid and other assets

 

1,692

 

2,197

 

Accounts payable

 

4,435

 

627

 

Accrued liabilities

 

(6,404

)

(3,156

)

Deferred revenues

 

(3,974

)

(6,379

)

Income taxes payable

 

1,938

 

2,300

 

Effect of changes in operating assets and liabilities

 

(282

)

(3,663

)

 

 

 

 

 

 

Net cash provided by operating activities from continuing operations

 

12,536

 

10,827

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Cash used in acquisitions, net of cash acquired

 

(4,719

)

 

Purchases of property and equipment

 

(4,308

)

(793

)

Capitalized software development costs

 

(1,197

)

 

Purchases of marketable securities

 

(3,000

)

 

Sales and maturities of marketable securities

 

3,000

 

 

 

 

 

 

 

 

Net cash used in investing activities from continuing operations

 

(10,224

)

(793

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from common stock issued from exercises of stock options

 

3,113

 

1,339

 

Withholding taxes related to equity award net share settlement

 

(534

)

(1,473

)

Repurchase of common stock

 

(10,542

)

(14,578

)

Repayment of long-term borrowing

 

 

(10,000

)

 

 

 

 

 

 

Net cash used in financing activities from continuing operations

 

(7,963

)

(24,712

)

 

 

 

 

 

 

Net cash transferred (to) from discontinued operation

 

(54

)

3,874

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(157

)

(118

)

 

 

 

 

 

 

Net change in cash and cash equivalents from continuing operations

 

(5,862

)

(10,922

)

Cash and cash equivalents of continuing operations at beginning of period

 

57,877

 

45,098

 

 

 

 

 

 

 

Cash and cash equivalents of continuing operations at end of period

 

$

52,015

 

$

34,176

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash flow from discontiued operation:

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(319

)

$

3,122

 

Net cash provided used in investing activities

 

 

(336

)

Net cash transferred from (to) continuing operations

 

54

 

(3,874

)

Effect of exchange rates on cash and cash equivalents

 

(1

)

(2

)

Net change in cash and cash equivalents from discontinued operations

 

(266

)

(1,090

)

Cash and cash equivalents of discontinued operation at beginning of period

 

266

 

3,253

 

Cash and cash equivalents of discontinued operation at end of period

 

$

 

$

2,163

 

 

The cash flows from the discontinued operation, as presented in the condensed consolidated statement of cash flows, relate to the operations of MicroEdge.

 

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

 

5



Table of Contents

 

ADVENT SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1—Basis of Presentation

 

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

 

Advent has prepared these condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in these interim statements pursuant to such SEC rules and regulations. These interim financial statements should be read in conjunction with the audited financial statements and related notes included in Advent’s Annual Report on Form 10-K for the year ended December 31, 2009. Interim results are not necessarily indicative of the results to be expected for the full year, and no representation is made thereto.

 

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

 

Note 2—Recent Accounting Pronouncements

 

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2010, as compared to the recent accounting pronouncements described in Advent’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, that are of significance, or potential significance, to the Company.

 

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.

 

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for entities with a reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for the reporting period beginning April 1, 2011. The adoption of these changes had no material impact on the Company’s condensed consolidated financial statements.

 

Note 3 — Cash Equivalents and Marketable Securities

 

At March 31, 2010, cash and cash equivalents, short-term and long-term marketable securities primarily consisted of money market mutual funds, US government and US Government Sponsored Entities (GSE’s) and high credit quality corporate debt securities. The Company’s short-term and long-term marketable securities are classified as available-for-sale, with long-term investments having a maturity date greater than one year from the end of the period.

 

6



Table of Contents

 

At March 31, 2010, marketable securities were summarized as follows (in thousands):

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Aggregate
Fair Value

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

23,528

 

$

3

 

$

(8

)

$

23,523

 

US government debt securities

 

36,497

 

8

 

(6

)

36,499

 

Total

 

$

60,025

 

$

11

 

$

(14

)

$

60,022

 

 

The following table summarizes marketable securities with unrealized gains and losses by contractual maturity dates at March 31, 2010 (in thousands):

 

 

 

Less than 12 months

 

Greater than 12 months

 

Total

 

 

 

Amortized
Cost

 

Net
Unrealized
Losses

 

Amortized
Cost

 

Net
Unrealized
(Losses)/Gains

 

Amortized
Cost

 

Net
Unrealized
(Losses)/Gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial debt securities

 

$

20,503

 

$

(5

)

$

3,025

 

$

(1

)

$

23,528

 

$

(6

)

US government debt securities

 

30,455

 

(1

)

6,042

 

4

 

36,497

 

3

 

Total

 

$

50,958

 

$

(6

)

$

9,067

 

$

3

 

$

60,025

 

$

(3

)

 

Advent regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition, credit quality and near-term prospects of the investee, and Advent’s ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

 

The gross unrealized losses related to investments are primarily due to a decrease in the fair value of debt securities as a result of an increase in interest rates during the first quarter of 2010. For fixed income securities that have unrealized losses as of March 31, 2010,  the Company has determined that (i) it does not have the intent to sell any of these investments and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, the Company has evaluated these fixed income securities and has determined that no credit losses exist. As of March 31, 2010, all securities in an unrealized loss position have been in an unrealized loss position for less than one year. The Company’s management has determined that the unrealized losses on its fixed income securities as of March 31, 2010 were temporary in nature.

 

During the three months ended March 31, 2010, the Company received proceeds of $3 million associated with the sale of marketable securities and did not have any gross realized gains or losses.

 

Note 4—Discontinued Operation

 

During 2009, the Company decided to discontinue its focus in the not-for-profit business community and to concentrate on its core business. In connection with this decision, the Company explored divesting the MicroEdge subsidiary and on October 1, 2009, it completed the sale of MicroEdge to an affiliate of Vista Equity Partners III, LLC (“Purchaser”). The Company sold net assets in MicroEdge totaling $3.0 million.  The total consideration received by the Company in connection with the divestiture was approximately $30 million in cash, of which $27 million in cash was paid on the closing date. The remaining $3 million of the Purchase Price has been placed in escrow for eighteen (18) months following the close to be held as security for losses incurred by the Purchaser in the event of certain breaches of the representations and warranties contained in the Agreement or certain other events. Any gain on sale associated with the $3.0 million held in escrow will be recorded when realized. In connection with the sale of MicroEdge, the Company recorded an associated gain of $13.6 million in ‘‘net income from discontinued operation, net of applicable taxes’’ in its fourth quarter of 2009 results. Pursuant to the Agreement and Plan of Merger, the purchase price was subject to certain adjustments for working capital. During the first quarter of 2010, the final working capital adjustment was settled, resulting in a downward adjustment of $30,000, net of taxes, to the gain on sale of MicroEdge.

 

As part of the disposition, certain assets and obligations of MicroEdge were excluded from the sale and are reflected on the discontinued operation’s balance sheet as of March 31, 2010 and December 31, 2009. Assets excluded from the sale include cash and deferred tax assets.  Liabilities excluded from the sale include sales tax and other tax-related obligations, future payments related to a two year service and maintenance agreement, certain legal costs and employee related compensation payments incurred as of the period ended September 30, 2009, and continuing lease obligations included as part of the restructuring noted below. Legal costs and liabilities related to employee compensation were all paid as of December 31, 2009.

 

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Table of Contents

 

In connection with the sale of MicroEdge, the Company vacated its MicroEdge facilities in New York and entered into a sub-lease agreement with the Purchaser whereby the Purchaser will sub-lease the premises for two years with the option to extend the sub-lease term through the end of the lease term in 2018.

 

The following table sets forth an analysis of the components of the restructuring charges related to the Company’s discontinued operation and the payments and non-cash charges made against the accrual during the first quarter of 2010 (in thousands):

 

 

 

Facility Exit
Costs

 

Severance and
Benefits

 

Total

 

 

 

 

 

 

 

 

 

Balance of restructuring accrual at December 31, 2009

 

$

5,115

 

$

 

$

5,115

 

 

 

 

 

 

 

 

 

Restructuring charges

 

4

 

8

 

12

 

Cash payments

 

(11

)

(8

)

(19

)

Adjustment of prior restructuring costs

 

41

 

 

41

 

 

 

 

 

 

 

 

 

Balance of restructuring accrual at March 31, 2010

 

$

5,149

 

$

 

$

5,149

 

 

Net revenues and income from the Company’s discontinued operation were as follows for the following periods (in thousands):

 

 

 

Three Months Ended March 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Net revenues

 

$

 

$

6,461

 

 

 

 

 

 

 

Income (loss) from operation of discontinued operation (net of applicable taxes of $(13) and $594, respectively)

 

(18

)

866

 

 

 

 

 

 

 

Loss on disposal of discontinued operation (net of applicable taxes of $(20) and $0, respectively)

 

(30

)

 

Net income (loss) from discontinued operation

 

$

(48

)

$

866

 

 

The following table sets forth the assets and liabilities of the MicroEdge discontinued operation included in the condensed consolidated balance sheets of the Company (in thousands):

 

 

 

March 31

 

December 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

266

 

Prepaid expenses and other

 

97

 

228

 

Total current assets of discontinued operation

 

$

97

 

$

494

 

 

 

 

 

 

 

Deferred taxes, long-term

 

$

2,095

 

$

2,095

 

Total noncurrent assets of discontinued operation

 

$

2,095

 

$

2,095

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Accrued liabilities

 

$

281

 

$

519

 

Income taxes payable

 

 

200

 

Total current liabilities of discontinued operation

 

$

281

 

$

719

 

 

 

 

 

 

 

Accrued restructuring, long-term portion

 

$

5,149

 

$

5,115

 

Total noncurrent liabilities of discontinued operation

 

$

5,149

 

$

5,115

 

 

8



Table of Contents

 

Note 5—Stock-Based Compensation

 

Equity Award Activity

 

A summary of the status of the Company’s stock option and stock appreciation right (“SAR”) activity for the period presented follows:

 

 

 

Number of
Shares
(in thousands)

 

Weighted
Average
Exercise
Price

 

Weighted
Average
Remaining
Contractual Life
(in years)

 

Aggregate
Intrinsic
Value
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2009

 

3,945

 

$

29.14

 

 

 

 

 

Options & SARs granted

 

20

 

$

42.49

 

 

 

 

 

Options & SARs exercised

 

(205

)

$

23.75

 

 

 

 

 

Options & SARs canceled

 

(51

)

$

34.93

 

 

 

 

 

Outstanding at March 31, 2010

 

3,709

 

$

29.43

 

6.19

 

$

57,528

 

Exercisable at March 31, 2010

 

2,351

 

$

26.13

 

5.03

 

$

44,199

 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s closing stock price of $44.75 as of March 31, 2010 for options and SARs that were in-the-money as of that date.

 

The weighted average grant date fair value of options and SARs granted (as determined under ASC 718), total intrinsic value of options and SARs exercised and cash received from option exercises during the first quarter of 2010 and 2009 were as follows (in thousands, except weighted average grant date fair value):

 

 

 

Three Months Ended March 31

 

 

 

2010

 

2009

 

Options and SARs

 

 

 

 

 

Weighted average grant date fair value

 

$

15.36

 

$

12.71

 

Total intrinsic value of awards exercised

 

$

3,594

 

$

900

 

 

 

 

 

 

 

Options

 

 

 

 

 

Cash received from exercises

 

$

3,113

 

$

1,339

 

 

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

 

A summary of the status of the Company’s restricted stock unit (“RSU”) activity for the three months ended March 31, 2010 is as follows:

 

 

 

Number of
Shares
(in thousands)

 

Weighted
Average
Grant Date
Fair Value

 

 

 

 

 

 

 

Outstanding and unvested at December 31, 2009

 

685

 

$

36.33

 

 

 

 

 

 

 

RSUs granted

 

6

 

$

40.54

 

 

 

 

 

 

 

RSUs vested

 

(24

)

$

44.99

 

 

 

 

 

 

 

RSUs canceled

 

(8

)

$

35.86

 

 

 

 

 

 

 

Outstanding and unvested at March 31, 2010

 

659

 

$

36.07

 

 

The weighted average grant date fair value was determined based on the closing market price of the Company’s common stock on the date of the award. The aggregate intrinsic value of RSUs outstanding at March 31, 2010 was $29.5 million, using the closing price of $44.75 per share as of March 31, 2010.

 

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Stock-Based Compensation Expense

 

Stock-based employee compensation expense recognized on Advent’s condensed consolidated statement of operations for the first quarter of 2010 and 2009 was as follows (in thousands):

 

 

 

Three Months Ended March 31

 

 

 

2010

 

2009

 

Statement of operations classification

 

 

 

 

 

Cost of term license, maintenance and other recurring revenues

 

$

414

 

$

352

 

Cost of professional services and other revenues

 

290

 

295

 

Total cost of revenues

 

704

 

647

 

 

 

 

 

 

 

Sales and marketing

 

1,298

 

1,146

 

Product development

 

1,209

 

1,041

 

General and administrative

 

1,074

 

1,059

 

Total operating expenses

 

3,581

 

3,246

 

 

 

 

 

 

 

Total stock-based compensation expense

 

4,285

 

3,893

 

 

 

 

 

 

 

Tax effect on stock-based employee compensation

 

(1,926

)

(1,795

)

 

 

 

 

 

 

Effect on net income from continuing operations, net of tax

 

2,359

 

2,098

 

 

 

 

 

 

 

Effect on net income from discontinued operation, net of tax

 

 

150

 

 

 

 

 

 

 

Effect on net income, net of tax

 

$

2,359

 

$

2,248

 

 

Advent capitalized stock-based employee compensation expense of $71,000 and $26,000 during the first quarter of 2010 and 2009, respectively, associated with the Company’s software development, internal-use software and professional services implementation projects.

 

As of March 31, 2010, total unrecognized compensation cost related to unvested awards not yet recognized under all equity compensation plans, adjusted for estimated forfeitures, was $23.9 million and is expected to be recognized through the remaining vesting period of each grant, with a weighted average remaining period of 2.3 years.

 

Valuation Assumptions

 

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

 

 

 

Three Months Ended March 31

 

Stock Options & SARs

 

2010

 

2009

 

Expected volatility

 

36.1% - 37.8%

 

51.4% - 57.7%

 

Expected life (in years)

 

4.96

 

5.10 - 5.47

 

Risk-free interest rate

 

2.5% - 2.7%

 

1.9% - 2.3%

 

Expected dividends

 

None

 

None

 

 

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

 

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Note 6—Net Income Per Share

 

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

 

The following table sets forth the computation of basic and diluted net income (loss) per share for continuing operations and the Company’s discontinued operation (in thousands, except per-share data):

 

 

 

Three Months Ended March 31

 

 

 

2010

 

2009

 

Numerator:

 

 

 

 

 

Net income (loss):

 

 

 

 

 

Continuing operations

 

$

4,243

 

$

5,363

 

Discontinued operation

 

(48

)

866

 

Total operations

 

$

4,195

 

$

6,229

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic net income (loss) per share-weighted average shares outstanding

 

25,874

 

25,249

 

 

 

 

 

 

 

Dilutive common equivalent shares:

 

 

 

 

 

Employee stock options and other

 

1,264

 

595

 

 

 

 

 

 

 

Denominator for diluted net income (loss) per share-weighted average shares outstanding, assuming exercise of potential dilutive common shares

 

27,138

 

25,844

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

Basic:

 

 

 

 

 

Continuing operations

 

$

0.16

 

$

0.21

 

Discontinued operation

 

(0.00

)

0.03

 

Total operations

 

$

0.16

 

$

0.25

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

Continuing operations

 

$

0.16

 

$

0.21

 

Discontinued operation

 

(0.00

)

0.03

 

Total operations

 

$

0.15

 

$

0.24

 

 

For the first quarters of 2010 and 2009, weighted average stock options/SARs and RSUs of approximately 1.5 million and 2.5 million, respectively, were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive.

 

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Note 7—Goodwill

 

The changes in the carrying value of goodwill for the three months ended March 31, 2010 were as follows (in thousands):

 

 

 

Goodwill

 

 

 

 

 

Balance at December 31, 2009

 

$

144,827

 

Additions

 

3,175

 

Translation adjustments

 

(2,367

)

 

 

 

 

Balance at March 31, 2010

 

$

145,635

 

 

Additions to goodwill of $3.2 million relate to the acquisition of Goya AS. In March 2010, the Company’s wholly-owned Norwegian subsidiary, Advent Norway AS, acquired the entire share capital of Goya AS, a Norwegian software company that provides transfer agency-related solutions to mutual fund managers and mutual fund distributors. Cash consideration of $4.7 million, net of cash acquired, was paid upon closing in March 2010.

 

Foreign currency translation adjustments totaling $2.4 million reflect the general strengthening of the US dollar versus European currencies during the first quarter of 2010.

 

Note 8—Other Intangibles

 

The following is a summary of other intangibles as of March 31, 2010 (in thousands):

 

 

 

Weighted
Average
Amortization
Period
(Years)

 

Other
Intangibles,
Gross

 

Accumulated
Amortization

 

Other
Intangibles,
Net

 

 

 

 

 

 

 

 

 

 

 

Purchased technologies

 

5.0

 

$

28,123

 

$

(16,220

)

$

11,903

 

Product development costs

 

3.0

 

12,732

 

(7,140

)

5,592

 

 

 

 

 

 

 

 

 

 

 

Developed technology sub-total

 

 

 

40,855

 

(23,360

)

17,495

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

6.0

 

27,590

 

(21,272

)

6,318

 

Other intangibles

 

4.1

 

1,586

 

(803

)

783

 

 

 

 

 

 

 

 

 

 

 

Other intangibles sub-total

 

 

 

29,176

 

(22,075

)

7,101

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2010

 

 

 

$

70,031

 

$

(45,435

)

$

24,596

 

 

The following is a summary of other intangibles as of December 31, 2009 (in thousands):

 

 

 

Weighted
Average
Amortization
Period
(Years)

 

Other
Intangibles,
Gross

 

Accumulated
Amortization

 

Other
Intangibles,
Net

 

 

 

 

 

 

 

 

 

 

 

Purchased technologies

 

4.9

 

$

26,556

 

$

(15,416

)

$

11,140

 

Product development costs

 

3.0

 

11,468

 

(6,428

)

5,040

 

 

 

 

 

 

 

 

 

 

 

Developed technology sub-total

 

 

 

38,024

 

(21,844

)

16,180

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

6.0

 

27,038

 

(21,040

)

5,998

 

Other intangibles

 

3.9

 

1,507

 

(720

)

787

 

 

 

 

 

 

 

 

 

 

 

Other intangibles sub-total

 

 

 

28,545

 

(21,760

)

6,785

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2009

 

 

 

$

66,569

 

$

(43,604

)

$

22,965

 

 

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The changes in the carrying value of other intangibles during the three months ended March 31, 2010 were as follows (in thousands):

 

 

 

 

 

Other

 

 

 

Other

 

 

 

 

 

Intangibles,

 

Accumulated

 

Intangibles,

 

 

 

 

 

Gross

 

Amortization

 

Net

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2009

 

 

 

$

66,569

 

$

(43,604

)

$

22,965

 

Additions

 

 

 

3,489

 

 

3,489

 

Amortization

 

 

 

 

(1,831

)

(1,831

)

Translation adjustments

 

 

 

(27

)

 

(27

)

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2010

 

 

 

$

70,031

 

$

(45,435

)

$

24,596

 

 

Based on the carrying amount of intangible assets as of March 31, 2010, the estimated future amortization is as follows (in thousands):

 

 

 

Nine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31

 

Years Ended December 31

 

 

 

2010

 

2011

 

2012

 

2013

 

2014

 

Thereafter

 

Total

 

Estimated future amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

$

4,811

 

$

5,219

 

$

4,332

 

$

2,580

 

$

264

 

$

289

 

$

17,495

 

Other intangibles

 

959

 

1,172

 

1,172

 

1,127

 

992

 

1,679

 

7,101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,770

 

$

6,391

 

$

5,504

 

$

3,707

 

$

1,256

 

$

1,968

 

$

24,596

 

 

Note 9—Balance Sheet Detail

 

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

 

 

 

March 31

 

December 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Prepaid commission

 

$

5,321

 

$

5,483

 

Prepaid contract expense

 

5,832

 

5,815

 

Prepaid royalty

 

1,040

 

1,138

 

Tenant improvement allowance

 

3,863

 

3,863

 

Other

 

5,206

 

6,051

 

 

 

 

 

 

 

Total prepaid expenses and other

 

$

21,262

 

$

22,350

 

 

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

 

 

 

March 31

 

December 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Long-term investments

 

$

500

 

$

500

 

Long-term prepaid commissions

 

3,141

 

3,204

 

Deposits

 

2,877

 

2,821

 

Prepaid contract expense, long-term

 

2,878

 

3,617

 

 

 

 

 

 

 

Total other assets

 

$

9,396

 

$

10,142

 

 

Long-term investments include an equity investment in a privately held company. This equity investment is carried at the lower of cost or fair value at March 31, 2010 and December 31, 2009.  Deposits include restricted cash balance of $1.4

 

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Table of Contents

 

million and $1.4 million at March 31, 2010 and December 31, 2009, respectively, related to the Company’s San Francisco headquarters and facilities in Boston and New York.

 

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

 

 

 

March 31

 

December 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Salaries and benefits payable

 

$

13,018

 

$

21,273

 

Accrued restructuring, current portion

 

495

 

518

 

Other

 

11,160

 

9,275

 

 

 

 

 

 

 

Total accrued liabilities

 

$

24,673

 

$

31,066

 

 

Accrued restructuring charges are discussed further in Note 11, “Restructuring Charges”. Other accrued liabilities include accruals for royalties, sales and business taxes, acquisition related costs, and other miscellaneous items.

 

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

 

 

 

March 31

 

December 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Deferred rent

 

$

10,901

 

$

10,595

 

Accrued restructuring, long-term portion

 

600

 

716

 

Other

 

2,278

 

1,658

 

 

 

 

 

 

 

Total other long-term liabilities

 

$

13,779

 

$

12,969

 

 

Note 10—Comprehensive Income

 

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

 

 

 

Three Months Ended March 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Net income from continuing operations

 

$

4,243

 

$

5,363

 

Unrealized gain on marketable securities

 

60

 

 

Foreign currency translation adjustment

 

(2,523

)

(1,766

)

Comprehensive income (loss) from continuing operations

 

1,780

 

3,597

 

Comprehensive income (loss) from discontinued operation

 

(48

)

777

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

1,732

 

$

4,373

 

 

The Company recorded taxes of $41,000 and $0 during the first quarter of 2010 and 2009, respectively, related to the marketable securities component of other comprehensive income.

 

The components of accumulated other comprehensive income, net of related taxes, were as follows (in thousands):

 

 

 

March 31

 

December 31

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Accumulated net unrealized loss on marketable securities

 

$

(2

)

$

(62

)

Accumulated foreign currency translation adjustments

 

8,275

 

10,798

 

Accumulated other comprehensive income, net of taxes

 

$

8,273

 

$

10,736

 

 

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Table of Contents

 

Note 11—Restructuring Charges

 

Minor restructuring initiatives were implemented in the Company’s Advent Investment Management segment in 2006 to reduce costs and improve operating efficiencies. These initiatives have resulted in restructuring charges comprised primarily of costs related to properties abandoned in connection with facilities consolidation, associated write-down of leasehold improvements and severance and associated employee termination costs related to headcount reductions. Advent’s restructuring charges included accruals for estimated losses on facility costs based on the Company’s contractual obligations net of estimated sublease income. Advent reassesses this liability periodically based on market conditions.

 

During the first quarter of 2010 and 2009, Advent recorded restructuring charges of $29,000 and $44,000, respectively, which related to the present value amortization of facility exit obligations, partially offset by adjustments to other facility exit assumptions.
 

The following table sets forth an analysis of the components of the payments and restructuring charges made against the accrual during the first quarter of 2010 (in thousands):

 

 

 

Facility Exit

 

 

 

Costs

 

 

 

 

 

Balance of restructuring accrual at December 31, 2009

 

$

1,234

 

Restructuring charges

 

15

 

Cash payments

 

(168

)

Adjustment of prior restructuring costs

 

14

 

 

 

 

 

Balance of restructuring accrual at March 31, 2010

 

$

1,095

 

 

Of the remaining restructuring accrual of $1.1 million at March 31, 2010, $0.5 million and $0.6 million are included in accrued liabilities and other long-term liabilities, respectively, on the accompanying condensed consolidated balance sheet. The remaining excess facility costs of $1.1 million are stated at estimated fair value, net of estimated sublease income of approximately $1.7 million. Advent expects to pay the remaining obligations associated with the vacated facilities over the remaining lease terms, which expire on various dates through 2012.

 

Note 12—Commitments and Contingencies

 

Lease Obligations

 

Advent leases office space and equipment under non-cancelable operating lease agreements, which expire at various dates through June 2025. Some operating leases contain escalation provisions for adjustments in the consumer price index. Advent is responsible for maintenance, insurance, and property taxes. Excluding leases and associated sub-leases for MicroEdge facilities, as of March 31, 2010, Advent’s remaining operating lease commitments through 2025 were approximately $68.0 million, net of future minimum rental receipts of $1.9 million to be received under non-cancelable sub-leases.

 

In connection with the sale of MicroEdge, the Company entered into a sub-lease agreement with the Purchaser, whereby Purchaser will sub-lease approximately 24,000 square feet of the 29,000 square feet of office space located at 619 West 54th Street in New York, New York from the Company. The Purchaser will sub-lease the premises for two years with the option to extend the sub-lease term through the end of the lease term in 2018. The sub-lease agreement became effective upon the close of sale of MicroEdge on October 1, 2009. The operating lease commitment related to this discontinued operation facility is approximately $8.7 million, less estimated sub-lease income for two years of $1.5 million. With the exception of the MicroEdge facilities in New York City, the leases related to MicroEdge have been transferred to the Purchaser.

 

Indemnifications

 

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

 

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Table of Contents

 

Legal Contingencies

 

On March 8, 2005, certain of the former shareholders of Kinexus and the shareholders’ representative filed suit against Advent in the Delaware Chancery Court. The complaint alleges that Advent breached the Agreement and Plan of Merger dated as of December 31, 2001 pursuant to which Advent acquired all of the outstanding shares of Kinexus due principally to the fact that no amount was paid by Advent on an earn-out of up to $115 million. The earn-out, which was payable in cash or stock at the election of Advent, was based upon Kinexus meeting certain revenue targets in both 2002 and 2003. The complaint seeks unspecified compensatory damages, an accounting and restitution for unjust enrichment. Advent advised the shareholders’ representative in January 2003 that the earn-out terms had not been met in 2002 and accordingly no earn-out was payable for 2002 and would not be payable for 2003. There has been no further activity in this case since additional document discovery and interrogatory answers were provided by the parties in December 2008. Advent disputes the plaintiff’s claim and believes that it has meritorious defenses and intends to vigorously defend this action. Management has not determined that any potential loss associated with this litigation is either probable or reasonably estimable at this time and accordingly has not accrued any amounts for any potential loss.

 

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

 

Note 13—Segment Information

 

Description of Segments

 

ASC 280, “Segment Reporting” establishes standards for reporting information about operating segments in a company’s financial statements. Advent’s organizational structure is based on a number of factors that the chief operating decision maker (“CODM”) uses to evaluate, view and run its business operations which include, but are not limited to, customer base, homogeneity of products and technology. Advent currently has one operating segment as determined by this organizational structure and information reviewed by Advent’s CODM to evaluate the operating segment results.

 

Major Customers

 

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

 

Note 14—Debt

 

On February 14, 2007, Advent and certain of its subsidiaries entered into a senior secured $75 million credit facility agreement (the “Credit Facility”) with Wells Fargo Foothill, Inc. (the “Lender”) for a term of three years. As of December 31, 2009, there were no outstanding borrowings under the Credit Facility and the Company was in compliance with all associated covenants.

 

In February 2010, Advent’s Credit Facility expired in accordance with the terms of the senior secured facility agreement with the Lender. Advent elected not to renew the Credit Facility as the Company determined its existing cash, cash equivalents, short-term and long-term marketable securities, together with cash expected to be generated from operations, would be sufficient to fund its operating activities, anticipated capital expenditures and authorized stock repurchases.

 

Note 15—Income Taxes

 

The following table summarizes the activity relating to the Company’s unrecognized tax benefits during the first quarter of 2010 (in thousands):

 

 

 

Total

 

 

 

 

 

Balance at December 31, 2009

 

$

7,467

 

 

 

 

 

Gross increases related to current period tax positions

 

87

 

Balance at March 31, 2010

 

$

7,554

 

 

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Table of Contents

 

At March 31, 2010 and December 31, 2009, Advent had $7.6 million and $7.5 million of gross unrecognized tax benefits, respectively. During the first three months of 2010, Advent increased the amount of unrecognized tax benefits by approximately $90,000 relating to California research and enterprise zone credits. If recognized, the total unrecognized tax benefits would decrease Advent’s tax provision and increase net income $6.3 million. The impact on net income reflects the liabilities for unrecognized tax benefits net of the federal tax benefit of state income tax items. The Company’s liabilities for unrecognized tax benefits relate to federal research credits, California research and enterprise zone tax credits and various state net operating losses.

 

Advent is subject to taxation in the US and various state and foreign jurisdictions. Advent does not anticipate the total amount of its unrecognized tax benefits to significantly change over the next 12 months. The material jurisdictions that are subject to examination by tax authorities include federal for tax years after 2005 and California for tax years after 2004. During the year, New York concluded an income tax audit for tax years up through 2007 and there were no material income tax assessments. In March 2010, Advent was notified by the State of California that it will be undergoing a franchise tax examination for the 2006 and 2007 tax years.

 

Note 16—Fair Value Measurements

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale securities. The fair value of these certain financial assets was determined using the following inputs as of March 31, 2010 (in thousands):

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted Prices in