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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

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

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from            to            

Commission File Number 001-33772

 

 

DELTEK, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		54-1252625
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
13880 Dulles Corner Lane, Herndon, VA		20171
(Address of principal executive offices)		(Zip Code)

(703) 734-8606

(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  ¨

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  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “accelerated filer,” “large 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		¨

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 common stock, par value $0.001 per share, and Class A common stock, par value $0.001 per share, of the registrant outstanding as of May 3, 2010 was 67,374,351 and 100, respectively.

 

 

 

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TABLE OF CONTENTS

 

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)		1
Condensed Consolidated Balance Sheets at March 31, 2010 and December 31, 2009 (unaudited)		1
Condensed Consolidated Statements of Operations for the Three Months Ended March  31, 2010 and 2009 (unaudited)		2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2010 and 2009 (unaudited)		3
Condensed Consolidated Statements of Changes in Stockholders’ Equity at March  31, 2010 and December 31, 2009 (unaudited)		5
Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		26
Item 4. Controls and Procedures		26
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 3. Defaults Upon Senior Securities		39
Item 4. Removed and Reserved		39
Item 5. Other Information		39
Item 6. Exhibits		39
SIGNATURES		40
EXHIBIT INDEX		41

 

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PART I

FINANCIAL INFORMATION

 

Item 1.

FINANCIAL STATEMENTS

DELTEK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

		March 31, 2010				December 31, 2009
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	119,252			$	132,636
Accounts receivable, net of allowance of $2,463 and $2,658 at March 31, 2010 and December 31, 2009, respectively			39,215				42,531
Deferred income taxes			2,790				6,014
Prepaid expenses and other current assets			10,828				11,256
Income taxes receivable			145				—
TOTAL CURRENT ASSETS			172,230				192,437
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $20,961 and $19,833 at March 31, 2010 and December 31, 2009, respectively			10,630				11,371
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET			507				618
LONG-TERM DEFERRED INCOME TAXES			7,763				6,359
INTANGIBLE ASSETS, NET			15,459				13,748
GOODWILL			70,200				63,910
OTHER ASSETS			3,119				3,165
TOTAL ASSETS		$	279,908			$	291,608
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt		$	30,220			$	44,707
Accounts payable and accrued expenses			26,592				26,740
Accrued liability for redemption of stock in recapitalization			317				317
Deferred revenues			46,579				40,176
Income taxes payable			—				992
TOTAL CURRENT LIABILITIES			103,708				112,932
LONG-TERM DEBT			121,723				134,250
OTHER TAX LIABILITIES			1,898				1,871
OTHER LONG-TERM LIABILITIES			4,623				1,875
TOTAL LIABILITIES			231,952				250,928
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value—authorized, 5,000,000 shares; none issued or outstanding at March 31, 2010 or December 31, 2009			—				—
Common stock, $0.001 par value—authorized, 200,000,000 shares; issued and outstanding, 67,255,414 and 66,292,415 shares at March 31, 2010 and December 31, 2009, respectively			67				66
Class A common stock, $0.001 par value—authorized, 100 shares; issued and outstanding, 100 shares at March 31, 2010 and December 31, 2009, respectively			—				—
Additional paid-in capital			252,987				249,798
Accumulated deficit			(204,343	)			(208,509	)
Accumulated other comprehensive deficit			(755	)			(675	)
TOTAL STOCKHOLDERS’ EQUITY			47,956				40,680
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	279,908			$	291,608

See accompanying notes to condensed consolidated financial statements

 

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DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

		Three Months Ended March 31,
		2010				2009
		(unaudited)
REVENUES:
Software license fees		$	14,004			$	11,226
Consulting services			17,218				20,066
Maintenance and support services			32,571				30,597
Other revenues			11				104
Total revenues			63,804				61,993
COST OF REVENUES:
Cost of software license fees			1,020				1,388
Cost of consulting services			14,565				17,317
Cost of maintenance and support services			6,114				5,740
Cost of other revenues			18				43
Total cost of revenues			21,717				24,488
GROSS PROFIT			42,087				37,505
OPERATING EXPENSES:
Research and development			11,103				10,871
Sales and marketing			11,041				11,519
General and administrative			9,753				7,905
Restructuring charge			973				1,413
Total operating expenses			32,870				31,708
INCOME FROM OPERATIONS			9,217				5,797
Interest income			12				11
Interest expense			(2,706	)			(1,509	)
Other income (expense), net			49				(3	)
INCOME BEFORE INCOME TAXES			6,572				4,296
Income tax expense			2,406				1,642
NET INCOME		$	4,166			$	2,654
EARNINGS PER SHARE (a)
Basic		$	0.06			$	0.06
Diluted		$	0.06			$	0.06
COMMON SHARES AND EQUIVALENTS OUTSTANDING (a)
Basic weighted average shares			64,440				46,672
Diluted weighted average shares			65,717				47,290

 

(a)

In accordance with FASB Accounting Standards Codification (ASC) 260, Earnings Per Share, for the purpose of computing the basic and diluted number of shares, the number of weighted average common shares outstanding prior to June 1, 2009 was retroactively adjusted by a factor of 1.08 to reflect the impact of the bonus element associated with the common stock rights offering that was completed in June 2009. See Note 4, Earnings Per Share, for additional information.

See accompanying notes to condensed consolidated financial statements.

 

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DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

		Three Months Ended March 31,
		2010				2009
		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	4,166			$	2,654
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts			382				1,389
Depreciation and amortization			2,255				2,859
Amortization of debt issuance costs			322				270
Stock-based compensation expense			2,608				2,011
Employee stock purchase plan expense			62				109
Restructuring charge, net			479				529
Loss on disposal of fixed assets			3				6
Deferred income taxes			1,627				(1,188	)
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable, net			2,981				6,662
Prepaid expenses and other assets			442				(995	)
Accounts payable and accrued expenses			(1,263	)			(2,022	)
Income taxes receivable/payable			(687	)			1,474
Excess tax (deficiency) benefit from stock awards			(451	)			46
Other tax liabilities			24				88
Other long-term liabilities			(230	)			(147	)
Deferred revenues			6,949				3,624
Net Cash Provided by Operating Activities			19,669				17,369
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired			(6,109	)			—
Purchase of property and equipment			(499	)			(292	)
Capitalized software development costs			—				(150	)
Net Cash Used in Investing Activities			(6,608	)			(442	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options			391				90
Excess tax benefit (deficiency) from stock awards			451				(46	)
Proceeds from issuance of stock under employee stock purchase plan			413				310
Shares withheld for minimum tax withholding on vested restricted stock awards			(661	)			—
Repayment of debt			(27,015	)			(10,154	)
Net Cash Used In Financing Activities			(26,421	)			(9,800	)
IMPACT OF FOREIGN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS			(24	)			37
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(13,384	)			7,164
CASH AND CASH EQUIVALENTS––Beginning of period			132,636				35,788
CASH AND CASH EQUIVALENTS––End of period		$	119,252			$	42,952

See accompanying notes to condensed consolidated financial statements.

 

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DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(in thousands)

 

		Three Months Ended March 31,
		2010			2009
		(unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash activity:
Accrued liability for purchases of property and equipment		$	—		$	143
Accrued liability for acquisition of a business		$	2,818		$	—
Cash paid during the period for:
Interest		$	2,381		$	1,243
Income taxes, net		$	1,460		$	1,272

See accompanying notes to condensed consolidated financial statements.

 

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DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

		Preferred Stock					Common Stock						Class A Common Stock					Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive Deficit				Total Stockholders’ Equity
		Shares		Amount			Shares			Amount			Shares		Amount
Balance at December 31, 2008		—		$	—		43,474,220			$	43		100		$	—		$	177,249			$	(229,905	)		$	(1,197	)			(53,810	)
Net income		—			—		—				—		—			—			—				21,396				—				21,396
Foreign currency translation adjustments		—			—		—				—		—			—			—				—				522				522
Comprehensive income																															21,918
Issuance of common stock in connection with rights offering, net of issuance costs		—			—		20,000,000				20		—			—			58,208				—				—				58,228
Stock issued for acquisitions		—			—		247,038				—		—			—			1,454				—				—				1,454
Issuance of common stock under the employee stock purchase plan		—			—		635,855				1		—			—			2,014				—				—				2,015
Stock options exercised		—			—		245,750				—		—			—			887				—				—				887
Issuance of restricted stock awards, net		—			—		1,707,848				2		—			—			(2	)			—				—				—
Tax benefit from stock awards		—			—		—				—		—			—			80				—				—				80
Tax deficiency from other stock option activity		—			—		—				—		—			—			(541	)			—				—				(541	)
Stock compensation		—			—		—				—		—			—			10,547				—				—				10,547
Exchange of liability for restricted stock		—			—		—				—		—			—			25				—				—				25
Shares withheld for minimum tax withholding on vested restricted stock awards		—			—		(18,296	)			—		—			—			(123	)			—				—				(123	)
Balance at December 31, 2009		—		$	—		66,292,415			$	66		100		$	—		$	249,798			$	(208,509	)		$	(675	)		$	40,680
Net income		—			—		—				—		—			—			—				4,166				—				4,166
Foreign currency translation adjustments		—			—		—				—		—			—			—				—				(80	)			(80	)
Comprehensive income																															4,086
Issuance of common stock under the employee stock purchase plan		—			—		64,479				—		—			—			413				—				—				413
Stock options exercised		—			—		107,451				—		—			—			391				—				—				391
Issuance of restricted stock awards, net		—			—		876,148				1		—			—			(1	)			—				—				—
Tax benefit from stock awards		—			—		—				—		—			—			451				—				—				451
Tax deficiency from other stock option activity		—			—		—				—		—			—			(109	)			—				—				(109	)
Stock compensation		—			—		—				—		—			—			2,694				—				—				2,694
Exchange of liability for restricted stock		—			—		—				—		—			—			11				—				—				11
Shares withheld for minimum tax withholding on vested restricted stock awards		—			—		(85,079	)			—		—			—			(661	)			—				—				(661	)
Balance at March 31, 2010		—		$	—		67,255,414			$	67		100		$	—		$	252,987			$	(204,343	)		$	(755	)		$	47,956

See accompanying notes to condensed consolidated financial statements.

 

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DELTEK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2010

1. ORGANIZATION

Organization

Deltek, Inc. (“Deltek” or the “Company”) is a leading provider of enterprise applications software and related services designed specifically for project-focused organizations. Project-focused organizations generate revenue from defined, discrete, customer-specific engagements or activities. Project-focused organizations typically require specialized software or solutions to help them automate their complex business processes around the engagement, execution and delivery of projects. Deltek’s software applications and solutions enable customers to significantly enhance the visibility they have over all aspects of their operations by providing them increased control over their critical business processes, accurate project-specific financial information, and real-time performance measurements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The December 31, 2009 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes otherwise required by GAAP.

The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments necessary for the fair presentation of the Company’s statement of financial position, the Company’s results of operations and its cash flows for the interim periods. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2010 or for any other periods.

Principles of Consolidation

The condensed consolidated financial statements are prepared in accordance with GAAP and include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Areas of the financial statements where estimates may have the most significant effect include the allowance for doubtful accounts receivable and sales allowances, lives of tangible and intangible assets, impairment of long-lived and other assets, realization of deferred tax assets, accrued liabilities, stock-based compensation, revenue recognition, valuation of acquired deferred revenue and intangible assets, and provisions for income taxes. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenues are generated primarily from three sources: licensing of software products, providing maintenance and support for those products, and providing consulting services for those products. Deltek’s consulting services consist primarily of implementation services, training and assessment, and design services. A typical sales arrangement includes both software licenses and maintenance, and may also include consulting services. Consulting services are also regularly sold separately from other elements, generally on a time-and-materials basis. The Company recognizes revenue in accordance with ASC 985-605, Software-Revenue Recognition (“ASC 985-605”), and in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition.

Consulting services are generally not essential to the functionality of the Company’s software and are usually completed in three to six months, though larger implementations may take longer. The Company generally recognizes revenues for these services as they are performed. In the case of software arrangements where services are essential to the software functionality, the Company recognizes the software and services revenue together in accordance with ASC 605-35, Revenue Recognition-Construction-Type and Certain Production-Type Contracts (“ASC 605-35”).

 

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For sales arrangements involving multiple elements, where software licenses are sold together with maintenance and support, consulting, training, or other services, the Company recognizes revenue using the residual method. Under the residual method, to determine the amount to allocate to and recognize revenue on delivered elements, normally the license element of the arrangement, the Company first allocates and defers revenue for any undelivered elements based upon objective evidence of fair value of those elements. The objective evidence of fair value used is required to be specific to the Company and commonly referred to as vendor-specific objective evidence, or “VSOE”. The Company recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue for the delivered elements.

For maintenance and support agreements, VSOE is based upon historical renewal rates and, in some cases, renewal rates stated in the Company’s agreements.

For consulting services and training sold as part of a multiple-element sales arrangement, VSOE is based upon the prices charged for those services when sold separately. For sales arrangements that require the Company to deliver future specified products or services in which VSOE of fair value is not available, the entire arrangement is deferred.

Under its standard perpetual software license agreements, the Company recognizes revenue from the license of software upon execution of a signed agreement and delivery of the software, provided that the software license fees are fixed and determinable, collection of the resulting receivable is probable, and VSOE exists to allow the allocation of a portion of the total fee to any undelivered elements of the arrangement. If a right of return exists, revenue is recognized upon the expiration of that right.

The Company’s standard software license agreement does not include customer acceptance provisions; if acceptance provisions are provided, delivery is deemed to occur upon acceptance.

Software license fee revenues from resellers are recognized using a sell-through model whereby the Company recognizes revenue when these channels complete the sale and the Company delivers the software products.

The Company’s standard payment terms for its software license agreements are generally within 180 days. The Company considers the software license fee to be fixed and determinable unless the fee is subject to refund or adjustment, or is not payable within 180 days. Revenue from arrangements with payment terms extending beyond 180 days is recognized as payments become due and payable.

Implementation, installation and other consulting services are generally billed based upon hourly rates, plus reimbursable out-of-pocket expenses and related administrative fees. Revenue on these arrangements is recognized based on hours actually incurred at the contract billing rates, plus out-of-pocket expenses. Implementation, installation and other consulting services revenue under fixed-fee arrangements is generally recognized as the services are performed.

The Company generally sells training services at a fixed rate for each specific training session at a per-attendee price, and revenue is recognized upon the customer attending and completing the training. The Company also sells training on a time-and-materials basis. In situations where customers pay for services in advance of the services being rendered, the related prepayment is recorded as deferred revenue and recognized as revenue when the services are performed.

Maintenance and support services include unspecified periodic software upgrades or enhancements, bug fixes and phone support. Initial annual maintenance and support generally represent between 15% and 20% of the related software license list price, depending upon the related product. Customers generally prepay for maintenance, and these prepayments are recorded as deferred revenue and revenue is recognized ratably over the term of the maintenance period.

Other revenue mainly includes fees collected for the Company’s annual user conference, which is typically held in the second quarter. Other revenue also includes the resale and sublicensing of third-party hardware and software products in connection with the software license and installation of the Company’s products, and is generally recognized upon delivery. In addition, other revenue includes revenue that is recognized ratably over the subscriber’s membership period.

Sales taxes and other taxes collected from customers and remitted to governmental authorities are presented on a net basis and, as such, are excluded from revenues.

Fair Value Measurements

Financial instruments are defined as cash, evidence of an ownership interest in an entity or contracts that impose an obligation to deliver cash or other financial instruments to a third party. Effective January 1, 2008, the Company adopted ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 820-10 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value and expands required disclosure about fair value measurements.

 

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The Company measures its cash and cash equivalents at fair value based on quoted prices that are equivalent to par value (Level 1). The Company considers all liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash equivalents primarily include funds held in money market accounts on a short-term basis. At March 31, 2010, the Company’s cash equivalents were invested in a money market fund that invests exclusively in AAA-rated (i) bills, notes and bonds issued by the U.S. Treasury, (ii) U.S. Government repurchase agreements fully collateralized by U.S. Treasury obligations, and (iii) U.S. Government guaranteed securities. As a result, the risk of non-performance of the money market fund is very low. The investments have a net asset value equal to $1.00 with no withdrawal restrictions and with no investments in auction rate securities. In addition, the money market fund has not experienced a decline in value and its net asset value has historically not dropped below $1.00. The Company’s cash and cash equivalents at March 31, 2010 consisted of $117.0 million in money market investments and $2.3 million in cash. The Company’s cash and cash equivalents at December 31, 2009 consisted of $132.6 million in money market investments and no amount in cash.

The Company did not have any assets measured at fair value on a recurring basis using significant other observable inputs (Level 2) or significant unobservable inputs (Level 3), or any liabilities measured at fair value as prescribed by ASC 820-10.

The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity term of these instruments. The carrying value of the Company’s debt is reported in the financial statements at cost. Although there is no active market for the debt, the Company has determined that the carrying value of its debt approximates fair value as a result of the Company’s debt refinancing in August 2009 at current market rates as well as the fact that the debt has a variable interest rate component. The estimated fair value of the Company’s debt at March 31, 2010 and December 31, 2009 was $151.9 million and $179.0 million, respectively.

As of March 31, 2010 and December 31, 2009, the Company had no derivative financial instruments. The Company’s policy with respect to derivative financial instruments is to record them at fair value with changes in value recognized as earnings during the period of change.

Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires new disclosures concerning transfers into and out of Level 1 and Level 2 of the fair value measurement hierarchy and a roll forward of the activity of assets and liabilities measured in Level 3 of the hierarchy. In addition, ASU 2010-06 clarifies existing disclosure requirements to require fair value measurement disclosures for each class of assets and liabilities and disclosure regarding the valuation techniques and inputs used to measure Level 2 or Level 3 fair value measurements on a recurring and nonrecurring basis. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 except for the roll forward of activity for Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, and the FASB issued ASU 2009-14, Certain Revenue Arrangements That Include Software Elements, on revenue recognition that will become effective for the Company beginning January 1, 2011, with earlier adoption permitted. The Company does not anticipate that the adoption of these standards will have an impact on its consolidated financial statements.

3. ACQUISITIONS

Assets of S.I.R.A., Inc.

In March 2010, the Company acquired the budgeting, forecasting and resource planning business of S.I.R.A., Inc. The results of this business have been included in the consolidated financial statements since the acquisition date. The Company’s results of operations would not have been materially different if this business were included in the results of operations from the beginning of the periods presented.

The aggregate purchase price was $8.9 million, including a cash payment of $6.1 million and contingent consideration of $2.8 million to be paid over a three-year period based on license sales.

 

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The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

Accounts receivable		$	120
Property and Equipment			8
Intangible assets			2,611
Goodwill			6,265
Accounts payable and accrued expenses			(18	)
Deferred revenue			(58	)
Total purchase price		$	8,928

The components and the useful lives of the intangible assets listed in the above table as of the acquisition date are as follows (in thousands):

 

		Amount			Life
Customer relationships		$	354		10 years
Technology			2,257		4 years
		$	2,611

The customer relationships are being amortized using an accelerated amortization method over ten years and the related amortization expense is included in “Sales and Marketing” expense. Technology is being amortized using an accelerated amortization method over four years and the related amortization expense is included in “Cost of Software License Fees” expense. The weighted average amortization period for the intangibles is 4.8 years. The goodwill recorded in this transaction is deductible for tax purposes.

mySBX

In December 2009, the Company acquired 100% of the outstanding common stock of mySBX Corporation (“mySBX”), an online network for government contractors. The results of operations of mySBX have been included in the consolidated financial statements since the acquisition date.

The aggregate purchase price was $6.8 million and included cash payments of $5.4 million and common stock issued of $1.4 million.

Per the purchase agreement, the Company paid $95,000 of mySBX acquisition costs which were expensed as incurred. In addition, there is a retention arrangement with one of the former mySBX stockholders, pursuant to which the stockholder will receive up to 67,496 shares of restricted stock if the individual is employed on the one-year and two-year anniversaries of the acquisition. The restricted stock is being expensed as the requisite services are provided. The acquisition did not result in any contingent consideration.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

Accounts receivable		$	18
Intangible assets			791
Goodwill			6,062
Deferred tax assets			903
Accounts payable			(594	)
Accrued expenses			(41	)
Deferred revenue			(5	)
Deferred tax liability			(312	)
Total purchase price		$	6,822

 

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The components and the initial estimated useful lives of the intangible assets listed in the above table as of the acquisition date are as follows (in thousands):

 

		Amount			Life
Trade name and trademarks		$	25		2 years
Technology			458		4 years
Member community			136		10 years
Customer relationships			172		10 years
		$	791

The customer relationships and member community are being amortized using an accelerated amortization method over ten years and the related amortization expense is included in “Sales and Marketing” expense. Trade name and trademarks are being amortized using a straight-line method of amortization over two years and the related amortization expense is included in “General and Administrative” expense. Technology is being amortized using an accelerated amortization method over four years and the related amortization expense is included in “Cost of Other Revenues” expense. The weighted average amortization period for the intangibles is 6.3 years. The goodwill recorded in this transaction is not deductible for tax purposes.

4. EARNINGS PER SHARE

Net income per share is computed under the provisions of ASC 260, Earnings Per Share (“ASC 260”). Basic earnings per share is computed using net income and the weighted average number of common shares outstanding. Diluted earnings per share reflect the weighted average number of common shares outstanding plus any potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of shares issuable upon the exercise of stock options, restricted stock and shares from the Employee Stock Purchase Plan (“ESPP”).

The following table sets forth the computation of basic and diluted net income per share (dollars in thousands, except share and per share data):

 

		Three Months Ended March 31,
		2010			2009
Basic earnings per share computation:
Net income (A)		$	4,166		$	2,654
Weighted average common shares–basic (B)			64,440,373			46,671,657
Basic net income per share (A/B)		$	0.06		$	0.06
Diluted earnings per share computation:
Net income (A)		$	4,166		$	2,654
Shares computation:
Weighted average common shares–basic			64,440,373			46,671,657
Effect of dilutive stock options, restricted stock, and ESPP			1,277,052			618,424
Weighted average common shares–diluted (C)			65,717,425			47,290,081
Diluted net income per share (A/C)		$	0.06		$	0.06

In June 2009, the Company completed a common stock rights offering, as a result of which the Company issued 20 million shares of the Company’s common stock at a subscription price of $3.00 per share. In accordance with ASC 260, a rights offering where the exercise price at issuance is less than the fair value of the stock is considered to include a bonus element, requiring an adjustment to the prior period number of shares outstanding used to compute basic and diluted earnings per share. In accordance with ASC 260, the weighted average common shares outstanding used in the computation of basic and diluted earnings per share was retroactively increased by an adjustment factor of 1.08 for all periods prior to the period in which the rights offering was completed.

For the three months ended March 31, 2010 and 2009, 4,658,209 and 4,772,225 shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. These excluded shares related to potentially dilutive securities primarily associated with stock options granted by the Company pursuant to its equity plans.

 

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5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table represents the balance and changes in goodwill for the three months ended March 31, 2010 (in thousands):

 

Balance as of January 1, 2010		$	63,910
Acquisition of S.I.R.A., Inc.’s assets			6,265
Foreign currency translation adjustments			25
Balance as of March 31, 2010		$	70,200

The Company performed an annual impairment test for goodwill as of December 31, 2009 and determined that there was no impairment of goodwill, as the Company assessed its fair value and determined the fair value exceeded the carrying value. There have been no events or changes in circumstances that have occurred during the three months ended March 31, 2010 that indicate there is an impairment of goodwill.

Other Intangible Assets

The following tables set forth information for intangible assets subject to amortization and for intangible assets not subject to amortization (in thousands):

 

		As of March 31, 2010
		Gross Carrying Amount			Accumulated Amortization				Net Carrying Amount
Amortized Intangible Assets
Customer relationships		$	20,418		$	(12,622	)		$	7,796
Developed software			11,367			(8,241	)		$	3,126
Trade name and non-compete			347			(326	)		$	21
Foreign currency translation adjustments			39			(23	)		$	16
Total		$	32,171		$	(21,212	)		$	10,959
Unamortized Intangible Assets
Trade name		$	4,500		$	—			$	4,500
Total		$	36,671		$	(21,212	)		$	15,459
		As of December 31, 2009
		Gross Carrying Amount			Accumulated Amortization				Net Carrying Amount
Amortized Intangible Assets
Customer relationships		$	20,064		$	(11,896	)		$	8,168
Developed software			9,110			(8,066	)			1,044
Trade name and non-compete			347			(323	)			24
Foreign currency translation adjustments			29			(17	)			12
Total		$	29,550		$	(20,302	)		$	9,248
Unamortized Intangible Assets
Trade name		$	4,500		$	—			$	4,500
Total		$	34,050		$	(20,302	)		$	13,748

 

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Amortization expense related to intangible assets acquired in business combinations is allocated to cost of revenue or operating expense on the statements of operations based on the revenue stream to which the asset contributes. The following table summarizes amortization expense for the three months ended March 31, 2010 and 2009 (in thousands):

 

		Three Months Ended March 31,
		2010			2009
Included in cost of revenue:
Cost of software license fees		$	140		$	355
Cost of consulting services			20			20
Cost of other revenues			15			—
Total included in cost of revenue			175			375
Included in operating expenses:			729			889
Total		$	904		$	1,264

The following table summarizes the estimated future amortization expense for the remaining nine months of 2010 and years thereafter (in thousands):

 

Years Ending December 31,
2010-remaining		$	3,261
2011			3,332
2012			2,180
2013			1,247
2014			604
Thereafter			319
Total		$	10,943

In accordance with ASC 360, Property, Plant, and Equipment, the Company reviews its long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There have been no impairment charges for the three months ended March 31, 2010 or 2009.

6. DEBT

The Company has maintained a credit agreement since 2005 with a syndicate of lenders led by Credit Suisse. The credit agreement was amended and extended in August 2009 (the “Amended Credit Agreement”), as a result of which the maturity of $129.4 million of term loans was extended to April 2013 (the “Extended Portion”). The maturity of the remaining $50.2 million of term loans continues to mature in April 2011 (the “Non-Extended Portion”). In addition, the expiration of $22.5 million of the Company’s $30 million revolving credit facility was also extended to April 2013. The remaining $7.5 million under the revolving credit facility expired in April 2010.

The Non-Extended Portion of the term loans continues to accrue interest at a rate of 2.25% above the British Banker’s Association Interest Settlement Rates for dollar deposits (the “LIBO rate”). The spread above the LIBO rate decreases as the Company’s leverage ratio, as defined in the Amended Credit Agreement, decreases. The interest rate for the Extended Portion of the term loans and the revolving credit facility is the LIBO rate plus 4.25% with a LIBO rate floor of 2.00%.

The Amended Credit Agreement requires mandatory prepayments of the term loans from annual excess cash flow, as defined in the agreement, and from the net proceeds of certain asset sales or equity issuances. Mandatory prepayments, such as those made from annual cash flow, as well as voluntary prepayments, are applied pro rata against the outstanding balances of the non-extended and extended term loans.

During the first quarter of 2010, the Company made a scheduled principal payment of $323,000 and a mandatory principal prepayment of $26.7 million from the Company’s 2009 annual excess cash flow. The mandatory excess cash flow payment was applied pro rata against the non-extended and extended term loans.

 

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As of March 31, 2010, the outstanding amount of the term loans was $151.9 million ($109.2 million relating to the Extended Portion and $42.7 million relating to the Non-Extended Portion), with interest at 6.25% for the Extended Portion of the term loans and 2.5% for the Non-Extended Portion of the term loans. As of December 31, 2009, the outstanding amount of the term loans was $179.0 million ($128.8 million relating to the Extended Portion and $50.2 million relating to the Non-Extended Portion), with interest at 6.25% for the Extended Portion of the term loans and 2.5% for the Non-Extended Portion of the term loans. There were no borrowings under the revolving credit facility at March 31, 2010 and December 31, 2009 with the exception of certain contingent liabilities related to outstanding letters of credit, as discussed below.

The following table summarizes future principal payments on the Amended Credit Agreement as of March 31, 2010 (in thousands):

 

		Total Remaining Principal  Payments
2010		$	17,693
2011			25,888
2012			1,111
2013			107,251
Total principal payments		$	151,943

The loans are collateralized by substantially all of the Company’s assets and require the maintenance of certain financial covenants. The Amended Credit Agreement also requires the Company to comply with non-financial covenants that restrict certain corporate activities, including incurring additional indebtedness, guaranteeing obligations, creating liens on assets, entering into sale and leaseback transactions, engaging in certain mergers or consolidations, or paying cash dividends. The Company was in compliance with all covenants as of March 31, 2010.

At March 31, 2010, the Company was contingently liable under open standby letters of credit and bank guarantees issued by the Company’s banks in favor of third parties primarily relating to real estate lease obligations. These instruments reduce the Company’s available borrowings under the revolving credit facility. The revolving credit facility was utilized to guarantee the letters of credit in an amount totaling $877,000. As a result, at March 31, 2010, the available borrowings on the revolving credit facility were $29.1 million.

7. INCOME TAXES

In accordance with ASC 740, Income Taxes, the income tax provision for interim periods is based on the estimated annual effective tax rate for the full fiscal year. The estimated effective tax rate is subject to adjustment in subsequent quarterly periods as the estimates are refined. The Company’s effective tax rate for the three months ended March 31, 2010 and 2009 was 36.6% and 38.2%, respectively.

During the three months ended March 31, 2010, the Company established an additional liability under ASC 740-10, Income Taxes – Overall, of $27,000, associated with certain meals and entertainment expenses. Interest and penalties related to uncertain tax positions are recorded as part of the provision for income taxes. As of March 31, 2010, the Company has a liability under ASC 740-10 of $1.9 million, which includes accrued interest and potential penalties of $143,000 and $46,000, respectively. These liabilities for unrecognized tax benefits are included in “Other Tax Liabilities”.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to examination for the years before 2006. Currently, the Company is under audit in the Philippines and Virginia for the tax periods ending December 31, 2008, 2007 and 2006.

8. STOCK-BASED COMPENSATION

Stock Incentive Plans

The Company has historically granted equity awards to directors and employees under two separate equity plans.

The Company’s 2005 Stock Option Plan (the “2005 Plan”) authorized the Company to grant options to purchase up to 6,310,000 shares of common stock to directors and employees. Option grants under the 2005 Plan ceased upon the approval of the Company’s 2007 Stock Incentive and Award Plan (the “2007 Plan”).

In April 2007, the Company’s Board of Directors approved the 2007 Plan, which allowed the Company to grant up to 1,840,000 new stock incentive awards or options, including incentive and nonqualified stock options, stock appreciation rights, restricted stock, dividend equivalent rights, performance units, performance shares, performance-based restricted stock, share awards, phantom stock

 

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and cash incentive awards. The aggregate number of shares reserved and available for grant and issuance pursuant to the 2007 Plan increases automatically each January 1 in an amount equal to 3% of the total number of shares of the Company’s common stock issued and outstanding on December 31 of the immediately preceding calendar year, unless otherwise reduced by the Board of Directors. Shares issued under the plan may be from either authorized but unissued shares or issued shares from restricted stock awards which have been withheld by the Company upon vesting and returned to the plan as shares available for future issuance.

The following table presents the stock-based compensation expense for stock options, restricted stock and ESPP included in the related financial statement line items (in thousands):

 

		Three Months Ended March  31,
		2010			2009
Included in cost of revenue:
Cost of consulting services		$	136		$	403
Cost of maintenance and support services			190			89
Total included in cost of revenue			326			492
Included in operating expenses:
Research and development			540			502
Sales and marketing			662			374
General and administrative			1,142			752
Total included in operating expenses			2,344			1,628
Total		$	2,670		$	2,120

Stock Options

During the three months ended March 31, 2010, options to purchase 260,000 shares of common stock were granted, with a weighted average grant date fair value of $5.35 as determined under the Black-Scholes-Merton valuation model. During the three months ended March 31, 2010, options were exercised at an aggregate intrinsic value of $458,000. The intrinsic value for stock options exercised is calculated as the difference between the market value on the date of exercise and the exercise price of the shares. The stock options exercised during the period were issued from previously authorized common stock.

The weighted average assumptions used in the Black-Scholes-Merton option-pricing model are as follows:

 

		Three Months Ended March  31,
		2010			2009
Dividend yield		0.0	%		0.0	%
Expected volatility		69.6	%		69.0	%
Risk-free interest rate		3.0	%		2.0	%
Expected life (in years)		6.15			6.23

Stock option compensation expense for the three months ended March 31, 2010 and 2009 was $1.3 million and $1.8 million, respectively. As of March 31, 2010, compensation cost related to nonvested stock options not yet recognized in the income statement was $6.5 million and is expected to be recognized over an average period of 1.73 years.

Restricted Stock

During the three months ended March 31, 2010, the Company issued 932,800 shares of restricted stock at a weighted average grant date fair value of $8.26. The grant date fair value is based on the closing price of the Company’s common stock on the date of grant.

Restricted stock awards are considered outstanding at the time of grant as the stockholders are entitled to voting rights. Dividend payments are deferred until the requisite service period has lapsed; additionally, any deferred dividends will be forfeited if the award shares are forfeited by the grantee. Unvested restricted stock awards are not considered outstanding in the computation of basic earnings per share.

 

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Restricted stock compensation expense for the three months ended March 31, 2010 and 2009 was $1.3 million and $233,000, respectively. As of March 31, 2010, compensation cost related to nonvested shares not yet recognized in the income statement was $12.9 million and is expected to be recognized over an average period of 3.31 years.

Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. The 2007 Plan allows the Company, at the employee’s election, to withhold a sufficient number of shares due to the employee to satisfy the employee’s minimum tax withholding obligations. During the three months ended March 31, 2010, the Company withheld 85,079 shares of common stock at a value of approximately $661,000. Pursuant to the terms of the 2007 Plan, the shares withheld were returned to the 2007 Plan reserve for future issuance and, accordingly, the Company’s issued and outstanding common stock and additional paid-in capital were reduced to reflect this adjustment.

Employee Stock Purchase Program

In April 2007, the Company’s Board of Directors adopted the ESPP to provide eligible employees an opportunity to purchase up to 750,000 shares of the Company’s common stock through accumulated payroll deductions. In February 2010, the number of shares that employees could purchase under the ESPP was increased to 1,500,000 in the aggregate. Employees contribute to the plan during six-month offering periods that begin on March 1^st and September 1^st of each year. The per share price of common stock purchased pursuant to the ESPP shall be 90% of the fair market value of a share of common stock on (i) the first day of an offering period, or (ii) the date of purchase, whichever is lower.

ESPP compensation expense for the three months ended March 31, 2010 and 2009 was $62,000 and $109,000, respectively. A total of 64,479 shares were issued under the plan during the three months ended March 31, 2010. As of March 31, 2010, there were 716,930 shares available under the plan.

9. RELATED-PARTY TRANSACTIONS

New Mountain Capital, L.L.C. is entitled to receive transaction fees equal to 2% of the transaction value of each significant transaction directly or indirectly involving the Company or any of its controlled affiliates, including, but not limited to, acquisitions, dispositions, mergers, or other similar transactions, debt, equity or other financing transactions, public or private offerings of the Company’s securities and joint ventures, partnerships and minority investments. Transaction fees are payable upon the consummation of a significant transaction. No fee is payable for a transaction with a value of less than $25.0 million. There were no related party transactions during the three months ended March 31, 2010 or 2009.

10. RESTRUCTURING CHARGE

The following table represents the restructuring liability balance at March 31, 2010 (in thousands):

 

		Three Months Ended March 31, 2010
		Beginning Balance			Charges and Adjustments to Charges				Cash Payments				Total Remaining Liability
2009 Plans
Severance and benefits		$	462		$	7			$	(329	)		$	140
Facilities			470			(68	)			(193	)			209
Total 2009 Plans		$	932		$	(61	)		$	(522	)		$	349
Q1 2010 Plan
Severance and benefits		$	—		$	937			$	(494	)		$	443
Facilities			—			97				—				97
Total Q1 2010 Plan		$	—		$	1,034			$	(494	)		$	540
Total
Severance and benefits		$	462		$	944			$	(823	)		$	583
Facilities			470			29				(193	)			306
		$	932		$	973			$	(1,016	)		$	889

2010 Restructuring Activity

During the first quarter of 2010, the Company implemented a restructuring plan to eliminate certain positions in order to realign the cost structure and to allow for increased investment in several areas. As a result of this restructuring, the Company recorded a restructuring charge of $937,000 for severance and benefit costs for the reduction in headcount of approximately 25 employees. As of March 31, 2010, the Company has a remaining severance and benefits liability of $443,000, which is expected to be fully paid by the

 

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third quarter of 2010. As part of the Company’s continued effort to manage operating costs, a restructuring charge of $97,000 was recorded for the closure of an office location and is expected to be paid in the second quarter of 2010. These amounts are reflected as “Accounts Payable and Accrued Expenses” in the condensed consolidated balance sheet.

2009 Restructuring Activity

During the first quarter of 2009, the Company implemented a restructuring plan to eliminate certain positions to realign the Company’s cost structure and to allow for increased investment in its key strategic areas. The plan included a reduction in headcount of approximately 50 employees. As a result of this plan, the Company recorded a charge of $1.4 million for severance and severance-related costs for the three months ended March 31, 2009.

The balance of the 2009 restructuring activity in the table above is expected to be fully paid in the third quarter of 2011.

11. COMMITMENTS AND CONTINGENCIES

The Company is involved in claims and legal proceedings arising from normal business operations. The Company does not expect these matters, individually or in the aggregate, to have a material impact on the Company’s financial condition, results of operations or cash flows.

At March 31, 2010, the Company was contingently liable under open standby letters of credit and bank guarantees issued under the Amended Credit Agreement by the Company’s banks in favor of third parties. These letters of credit and bank guarantees primarily relate to real estate lease obligations and totaled $877,000 at March 31, 2010 and December 31, 2009. These instruments had not been drawn on by third parties at March 31, 2010 or December 31, 2009.

Guarantees

The Company provides limited indemnification to customers against intellectual property infringement claims made by third parties arising from the use of the Company’s software products. The Company does not believe that it currently has any material financial exposure with respect to indemnification provided to customers. However, due to the lack of claims for indemnification from customers, the Company cannot estimate the fair value nor determine the total nominal amount of the indemnifications, if any. Estimated losses for such indemnifications are evaluated under ASC 450, Contingencies, as interpreted by ASC 460, Guarantees.

The Company has secured copyright registrations for its own software products with the U.S. Patent and Trademark Office, and is provided intellectual property infringement indemnification from its third-party partners whose technology may be embedded or otherwise bundled with the Company’s software products. Therefore, the Company considers the probability of an unfavorable outcome in an intellectual property infringement case relatively low. The Company has not encountered material costs as a result of such obligations and has not accrued any liabilities related to such indemnifications.

Product Warranty

The Company’s standard software license agreement includes a warranty provision for software products. The Company generally warrants for a period of up to one year after delivery that the software shall operate substantially as stated in the then current documentation provided that the software is used in a supported computer system. The Company provides for the estimated cost of product warranties based on specific warranty claims, provided that it is probable that a liability exists and the amount can be reasonably estimated. To date, the Company has not had any material costs associated with these warranties.

12. SEGMENT INFORMATION

The Company operates as one reportable segment as the Company’s principal business activity relates to selling project-based software solutions and implementation services. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company as one consolidated unit based upon software license fee revenues, consulting services, maintenance revenues, and operating costs.

The Company’s products and services are sold primarily in the United States, but also include sales through direct and indirect sales channels outside the United States, primarily in Canada, South Africa, Australia and the United Kingdom. For the three months ended March 31, 2010, approximately 8% of the Company’s total revenues were generated from sales outside of the United States. Less than 5% of the Company’s total revenues were generated from sales outside of the United States for the three months ended March 31, 2009. As of March 31, 2010 and December 31, 2009, the Company had $3.4 million and $4.0 million, respectively, of long-lived assets held outside of the United States.

No single customer accounted for 10% or more of the Company’s revenue for the three months ended March 31, 2010 or 2009.

 

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with, and provides period to period comparisons based on, our interim consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q.

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Federal securities laws, that involve substantial risks and uncertainties about our business and prospects. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “outlook,” “believes,” “plans,” “intends,” “expects,” “goals,” “potential,” “continues,” “may,” “seeks,” “approximately,” “predicts,” “estimates,” “anticipates” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. There will be events in the future, however, that we are not able to predict accurately or control.

Our future results may differ materially from our past results and from those projected in the forward-looking statements due to various uncertainties and risks, including those described in this Quarterly Report on Form 10-Q. The forward-looking statements speak only as of the date of this Quarterly Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-looking statements contained herein after the date of this Quarterly Report. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures, financings, securities offerings or business combinations that may be announced or closed after the date hereof. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (refer to Part II, Item 1A).

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

Certain tables may not calculate due to rounding.

Company Overview

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

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

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

In our management decision making, we continuously balance our need to achieve short-term financial and operational goals with the equally critical need to continuously invest in our products and infrastructure to ensure our future success. In making decisions around investment levels and our future plans, we consider many factors, including:

 

•

Our ability to expand our presence and penetration of existing markets;

 

•

The extent to which we can sell new products to existing customers and sell upgrades to applications from legacy products in our current portfolio;

 

•

Our ability to offer new sales and pricing models and strategies;

 

•

Our success in maximizing our network of alliance partners;

 

•

Our ability to expand our presence in new markets and broaden our reach geographically; and

 

•

The pursuit and successful integration of acquired companies.

We have acquired companies to broaden our product offerings, expand our customer base and provide us with a future opportunity to migrate those added customers to newer applications we may develop. The products of the acquired companies provide our customers with core functionality that complements our own established products.

 

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In December 2009, we acquired mySBX Corporation, an online enterprise that enables organizations and professionals to rapidly identify opportunities, manage resources, win more business and increase profits.

In March 2010, we acquired S.I.R.A. Inc.’s web-based budgeting, forecasting, and resource planning business specifically designed for government contractors.

In evaluating our financial condition and operating performance, we consider a variety of factors including, but not limited to, the following:

 

•

The growth rates of the individual components of our revenues (licenses, services and support) relative to recent historical trends and the growth rate of the overall market as reported or predicted by industry analysts;

 

•

The margins of our business relative to recent historical trends;

 

•

Our operating expenses and income from operations;

 

•

Our cash flow from operations;

 

•

The long-term success of our development efforts;

 

•

Our ability to successfully penetrate new markets;

 

•

Our ability to successfully integrate acquisitions and achieve anticipated synergies;

 

•

Our win rate against our competitors; and

 

•

Our long-term customer retention rates.

Each of these factors may be evaluated individually or collectively by our senior management team in evaluating our performance as we balance our short-term quarterly objectives and our longer-term strategic goals and objectives.

Our license revenue for the three months ended March 31, 2010 increased 25% as compared to the three months ended March 31, 2009. We believe the increase in revenue was primarily attributable to the improved confidence among our customers with regard to their economic outlook, as license revenue for each of our product families increased in comparison to the prior-year period. In addition, our existing customers continued to purchase additional software licenses and add-on products and continued to convert to current versions of our software offerings.

During the three months ended March 31, 2010, we experienced an increase in new customer activity among our architecture and engineering and other professional services customers, as well as our government contract customers. While the timing and extent of any economic recovery remains uncertain, we expect that these current economic trends may continue during the first half of 2010. In particular, we believe that there remains an opportunity in international markets for our Vision product among architecture and engineering and professional services customers.

Going forward, we also expect that continued government spending, increased regulation by government agencies and the application of funds from the economic stimulus package could benefit our government contracting customers. While we anticipate that these trends may impact demand for our consulting, maintenance and support services in the future, it is difficult to predict when and to what extent the potential benefits of the economic stimulus package will be experienced by government contracting and other customers.

We also expect continued demand in the first half of 2010 for consulting services from customers due to additional purchases of our applications and the expansion of their use of our existing software. However, we may not experience the same level of demand when compared to historical periods for consulting services from our customers as the decrease in software license sales that we experienced in recent periods may impact our consulting services revenues in 2010 and beyond and we may not be able to replicate the impact of large implementation projects that will come to a successful conclusion during 2010. We also expect continued demand for our maintenance services given our high maintenance retention rate and stable base of customers.

During the three months ended March 31, 2010, we incurred additional restructuring charges of approximately $1.0 million as we continue to realign our cost structure and allow for increased investment in our key strategic objectives. In light of the economic challenges our customers have faced and the related impact on their purchasing and business decisions, we have proactively managed, and will continue to proactively manage, our business to control operating expenses and realign resources in a way that will allow us to maximize near-term opportunities while maintaining the flexibility needed to achieve our longer-term strategic goals.

Critical Accounting Policies and Estimates

In presenting our financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Our future estimates may change if the underlying assumptions change. Actual results may differ significantly from these estimates.

 

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For further information on our critical and other significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2009. We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our consolidated financial statements:

 

•

Revenue Recognition;

 

•

Stock-Based Compensation;

 

•

Income Taxes;

 

•

Allowances for Doubtful Accounts Receivable;

 

•

Valuation of Purchased Intangible Assets and Acquired Deferred Revenue; and

 

•

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

Results of Operations

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

 

		Three Months Ended March 31,
		2010				2009				Change				% Change
		(dollars in millions)
REVENUES:
Software license fees		$	14.0			$	11.2			$	2.8			25
Consulting services			17.2				20.1				(2.9	)		(14	)
Maintenance and support services			32.6				30.6				2.0			6
Other revenues			—				0.1				(0.1	)		(100	)
Total revenues		$	63.8			$	62.0			$	1.8			3
COST OF REVENUES:
Cost of software license fees		$	1.0			$	1.4			$	(0.4	)		(27	)
Cost of consulting services			14.6				17.3				(2.7	)		(16	)
Cost of maintenance and support services			6.1				5.8				0.3			7
Cost of other revenues			—				—				—			—
Total cost of revenues		$	21.7			$	24.5			$	(2.8	)		(11	)
GROSS PROFIT		$	42.1			$	37.5			$	4.6			12
OPERATING EXPENSES:
Research and development		$	11.1			$	10.9			$	0.2			2
Sales and marketing			11.0				11.5				(0.5	)		(4	)
General and administrative			9.8				7.9				1.9			23
Restructuring charge			1.0				1.4				(0.4	)		(31	)
Total operating expenses		$	32.9			$	31.7			$	1.2			4
INCOME FROM OPERATIONS		$	9.2			$	5.8			$	3.4			59
Interest income			—				—				—			—
Interest expense			(2.7	)			(1.5	)			1.2			(80	)
Other expense, net			0.1				–				0.1			100
INCOME BEFORE INCOME TAXES			6.6				4.3				2.3			54
Income tax expense			2.4				1.6				0.8			50
NET INCOME		$	4.2			$	2.7			$	1.5			56

 

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Revenues

 

		Three Months Ended March 31,
		2010			2009			Change				% Change
		(dollars in millions)
REVENUES:
Software license fees		$	14.0		$	11.2		$	2.8			25
Consulting services			17.2			20.1			(2.9	)		(14	)
Maintenance and support services			32.6			30.6			2.0			6
Other revenues			—			0.1			(0.1	)		(100	)
Total revenues		$	63.8		$	62.0		$	1.8			3

Software License Fees

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

Software license fee revenues increased $2.8 million, or 25%, to $14.0 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. Vision license revenues increased $0.9 million and Costpoint, EPM, and GCS license revenues increased $1.9 million. The increase was partially attributed to revenue recognized in 2010 for one larger transaction as well as improved confidence among our customers with regard to their economic outlook, as license revenue for each of our product families increased in comparison to the prior-year period.

While the extent of the financial and economic turnaround remains uncertain, we expect the improved confidence among our customers to continue in the first half of 2010 as compared to the same period in the prior year. Nonetheless, we may not experience the same level of demand in the first half of 2010 when compared to historical periods for our software solutions.

Consulting Services

Our consulting services revenues are generated from software implementation and related project management and data conversion, as well as training, education and other consulting services associated with our software applications, and are typically provided on a time-and-materials basis.

Consulting services revenues decreased $2.9 million, or 14%, to $17.2 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. This is a result of declines of $2.5 million in software implementation consulting services and $0.4 million in reimbursable revenues, which is the result of lower license revenue related to activity in prior quarters as well as the conclusion of some large implementation projects.

Although we expect continued demand in the first half of 2010 for consulting services from customers due to additional purchases of our applications and the expansion of their use of our existing software, we may not be able to replicate the impact of large implementation projects that will come to a successful conclusion during 2010. In addition, the decrease in software license sales in recent periods may also impact our consulting services revenues in 2010 and beyond. Moreover, we may not experience the same level of demand as previously experienced from our government contracting and architecture and engineering and professional services customers as they remain cautious with respect to the expansion of their business opportunities.

Maintenance and Support Services

Maintenance revenues increased $2.0 million, or 6%, to $32.6 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. Maintenance revenues from our Costpoint, GCS Premier, and EPM products collectively increased $2.2 million year over year, while Vision maintenance revenue remained flat. These increases were due to sales of new software licenses, renewals of maintenance agreements by our installed base of customers and annual price escalations for our maintenance services. In addition, the sales allowance increased by $0.2 million.

Other Revenues

Our other revenues consist primarily of fees collected for our annual user conference, which is typically held in the second quarter of the year, as well as sales of third-party hardware and software. For the three months ended March 31, 2010, other revenues remained relatively flat compared to the three months ended March 31, 2009.

 

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Cost of Revenues

 

		Three Months Ended March 31,
		2010			2009			Change				% Change
		(dollars in millions)
COST OF REVENUES:
Cost of software license fees		$	1.0		$	1.4		$	(0.4	)		(27	)
Cost of consulting services			14.6			17.3			(2.7	)		(16	)
Cost of maintenance and support services			6.1			5.8			0.3			7
Cost of other revenues			—			—			—			—
Total cost of revenues		$	21.7		$	24.5		$	(2.8	)		(11	)

Cost of Software License Fees

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

Cost of software license fees decreased by $0.4 million, or 27%, to $1.0 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. This decrease was the result of lower amortization of capitalized software and purchased intangible assets of $0.5 million offset by higher royalty expense for third party software of $0.1 million.

Cost of Consulting Services

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

Cost of consulting services decreased $2.7 million, or 16%, to $14.6 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The key drivers were decreases in labor and related benefits of $2.2 million resulting from a reduction in headcount of 21% to approximately 250, decreases in travel expenses of $0.3 million, and decreases in third-party contractor expenses of $0.2 million.

Cost of Maintenance and Support Services

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

Cost of maintenance services increased $0.3 million, or 7%, to $6.1 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The change is due to an increase in labor and related benefits of $0.2 million and other expenses of $0.1 million.

Cost of Other Revenues

Our cost of other revenues includes the cost of third-party equipment and software purchased for customers as well as the cost associated with our annual user conference. For the three months ended March 31, 2010, cost of other revenues remained relatively flat compared to the three months ended March 31, 2009.

Operating Expenses

 

		Three Months Ended March 31,
		2010			2009			Change				% Change
		(dollars in millions)
OPERATING EXPENSES:
Research and development		$	11.1		$	10.9		$	0.2			2
Sales and marketing			11.0			11.5			(0.5	)		(4	)
General and administrative			9.8			7.9			1.9			23
Restructuring charge			1.0			1.4			(0.4	)		(31	)
Total operating expenses		$	32.9		$	31.7		$	1.2			4

 

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Research and Development

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

Research and development expenses increased by $0.2 million, or 2%, to $11.1 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The drivers of the increase were higher labor and related benefits of $0.5 million offset by lower other expenses of $0.3 million.

Sales and Marketing

Our sales and marketing expenses consist primarily of salaries and related costs, plus commissions paid to our sales team and the cost of marketing programs (including our demand generation efforts, advertising, events, marketing and corporate communications, field marketing and product marketing) and other expenses associated with our sales and marketing activities. Sales and marketing expenses also include amortization expense for acquired intangible assets associated with customer relationships.

Sales and marketing expenses decreased by $0.5 million, or 4%, to $11.0 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The decrease was primarily due to decreases in labor and related benefits of $0.7 million from a reduction in headcount and decreases in amortization of purchased intangibles of $0.1 million offset by increases in commissions of $0.3 million.

General and Administrative

Our general and administrative expenses consist primarily of salaries and related costs for general corporate functions, including executive, finance, accounting, legal and human resources. General and administrative costs also include insurance premiums and third-party legal and other professional services fees, facilities and other expenses associated with our administrative activities.

General and administrative expenses increased $1.9 million, or 23%, to $9.8 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The key drivers were increases in labor and labor-related benefits of $1.7 million, increases in third-party consultant expenses of $0.3 million, increases in professional services of $0.3 million and increases in other expenses of $0.2 million offset by decreases in bad debt of $0.4 million and tax and license fees of $0.2 million.

Restructuring Charge

During the three months ended March 31, 2010, we recorded a restructuring charge of approximately $1.0 million in an effort to realign our cost structure and to close an office location. The charge included $0.9 million for severance and benefit costs for approximately 25 employees and $0.1 million for facilities related expenses associated with the closure of one office location. During the three months ended March 31, 2009, we recorded a $1.4 million restructuring charge primarily for severance and severance-related costs for approximately 50 employees.

Interest Income

Interest income reflects interest earned on our invested cash balances. Interest income remained relatively flat during the three months ended March 31, 2010, when compared with the three months ended March 31, 2009.

Interest Expense

 

		Three Months Ended March 31,
		2010			2009			Change			% Change
		(dollars in millions)
Interest expense		$	2.7		$	1.5		$	1.2		80

Interest expense increased by $1.2 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. This increase resulted from higher interest rates attributed to the amendment to our credit facility in August 2009 offset by the decrease in the LIBO rate compared to the prior year.

 

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Income Taxes

 

		Three Months Ended March 31,
		2010			2009		Change			% Change
		(dollars in millions)
Income tax expense		$	2.4		1.6		$	0.8		50

Income tax expense increased to $2.4 million for the three months ended March 31, 2010 from $1.6 million for the three months ended March 31, 2009. As a percentage of pre-tax income, income tax expense was 36.6% and 38.2% for the three months ended March 31, 2010 and 2009, respectively. The decrease in the effective tax rate for the first quarter of 2010 compared to the first quarter of 2009 is primarily due to the increase in the allowable domestic production activities deduction and expected utilization of foreign tax credits not scheduled to expire for ten years, partially offset by the expiration of the credit for research and development activities.

Effective January 1, 2007, we adopted the provisions of ASC 740-10, Income Taxes-Overall. ASC 740-10 clarifies the criteria that an individual tax position must satisfy for that position to be recognized in the financial statements. This interpretation also provides guidance on accounting for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. During the three months ended March 31, 2010, the Company established an additional liability of less than $0.1 million associated with certain permanent adjustment and associated interest on prior period ASC 740-10 adjustments.

Credit Agreement

The Company has maintained a credit agreement since 2005 with a syndicate of lenders led by Credit Suisse. The credit agreement was amended and extended in August 2009 (the “Amended Credit Agreement”), as a result of which the maturity of $129.4 million of term loans was extended to April 2013 (the “Extended Portion”). The maturity of the remaining $50.2 million of term loans continues to mature in April 2011 (the “Non-Extended Portion”). In addition, the expiration of $22.5 million of the Company’s $30 million revolving credit facility was also extended to April 2013. The remaining $7.5 million under the revolving credit facility expired in April 2010.

The Non-Extended Portion of the term loans continues to accrue interest at a rate of 2.25% above the British Banker’s Association Interest Settlement Rates for dollar deposits (the “LIBO rate”).The spread above the LIBO rate decreases as the Company’s leverage ratio, as defined in the Amended Credit Agreement, decreases. The interest rate for the Extended Portion of the term loans and the revolving credit facility is the LIBO rate plus 4.25% with a LIBO rate floor of 2.00%. The Company is obligated to pay a commitment fee ranging from 0.5% to 0.75% of the unused portion of the revolving credit facility.

The Amended Credit Agreement requires mandatory prepayments of the term loans from annual excess cash flow, as defined in the agreement, and from the net proceeds of certain asset sales or equity issuances. Mandatory prepayments, such as those made from annual cash flow, as well as voluntary prepayments, are applied pro rata against the outstanding balances of the non-extended and extended loans.

During the first quarter of 2010, we made a scheduled principal payment of $323,000 and a mandatory principal prepayment of $26.7 million from our 2009 annual excess cash flow. The mandatory excess cash flow payment was applied pro rata against the non-extended and extended term loans.

As of March 31, 2010, the outstanding amount of the term loans was $151.9 million ($109.2 million relating to the Extended Portion and $42.7 million relating to the Non-Extended Portion), with interest at 6.25% for the Extended Portion of the term loans and 2.5% for the Non-Extended Portion of the term loans. As of December 31, 2009, the outstanding amount of the term loans was $179.0 million ($128.8 million relating to the Extended Portion and $50.2 million relating to the Non-Extended Portion), with interest at 6.25% for the Extended Portion of the term loans and 2.5% for the Non-Extended Portion of the term loans. There were no borrowings under the revolving credit facility at March 31, 2010 and December 31, 2009, with the exception of certain contingent liabilities related to outstanding letters of credit described below.

All the loans under the Amended Credit Agreement are collateralized by substantially all of our assets (including our subsidiaries’ assets) and require us to comply with financial covenants requiring us to maintain defined minimum levels of interest coverage and fixed charges coverage and providing for a limitation on our leverage ratio. The financial ratio covenants in the Amended Credit Agreement remained unchanged.

 

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The following table summarizes the significant financial covenants under the Amended Credit Agreement (adjusted EBITDA below is as defined in the Amended Credit Agreement):

 

Covenant Requirement		Calculation		As of March 31, 2010				Most Restrictive Required Level
				Required Level		Actual Level
Minimum Interest Coverage		Cumulative adjusted EBITDA for the prior four quarters/consolidated interest expense		Greater than 3.00 to 1.00		8.54		Greater than 3.00 to 1.00 effective January 1, 2010
Minimum Fixed Charges Coverage		Cumulative adjusted EBITDA for the prior four quarters/(interest expense + principal payments + capital expenditures + capitalized software costs + cash tax payments)		Greater than 1.10		2.92		Greater than 1.10
Leverage Coverage		Total debt/cumulative adjusted EBITDA for the prior four quarters		Less than 3.25 to 1.00		2.30		Less than 3.25 to 1.00

The Amended Credit Agreement also requires us to comply with non-financial covenants that restrict or limit certain corporate activities by us and our subsidiaries, including our ability to incur additional indebtedness, guarantee obligations, or create liens on our assets, enter into sale and leaseback transactions, engage in mergers or consolidations, or pay cash dividends.

As of March 31, 2010, we were in compliance with all covenants related to our Amended Credit Agreement. Based on our current expectations of our future performance, we believe that we will continue to satisfy the financial covenants of our Amended Credit Agreement for the foreseeable future.

The following table summarizes future principal payments on the Amended Credit Agreement as of March 31, 2010 (in thousands):

 

		Total Remaining Principal Payments
2010		$	17,693
2011			25,888
2012			1,111
2013			107,251
Total principal payments		$	151,943

Liquidity and Capital Resources

Overview of Liquidity

Our primary operating cash requirements include the payment of salaries, incentive compensation and related benefits, and other headcount-related costs as well as the costs of office facilities and information technology systems. We fund these requirements through cash collections from our customers for the purchase of our software, consulting services and maintenance services. Amounts due from customers for software license and maintenance services are generally billed in advance of the contract period.

Historically, our cash flows have been subject to variability from year-to-year, primarily as a result of one-time or infrequent events. These events have included acquisitions and the repayment of indebtedness. The cost of our acquisitions can be financed with available cash flow or, to the extent necessary, short-term borrowings from our revolving credit facility. These borrowings are repaid in subsequent periods with available cash provided by operating or financing activities.

We utilize our revolving credit facility for the additional purpose of providing the required guarantee related to certain letters of credit for our real estate leases. At March 31, 2010, the total amount of letters of credit guaranteed under the revolving credit facility was $877,000. As a result, available borrowings on the revolving credit facility at March 31, 2010 were $29.1 million.

We expect that our future growth will continue to require additional working capital. While future working capital requirements are difficult to forecast, we believe that anticipated cash flows from operations and available sources of funds (including available borrowings under our revolving credit facility) will provide sufficient liquidity for us to fund our business and meet our obligations for the next twelve months.

Our Amended Credit Agreement provides for greater financial flexibility by extending our debt repayments over a longer term.

We also believe that the aggregate cash balance of $119.3 million as of March 31, 2010 is sufficient to cover the payments due over the next eighteen months of $43.3 million under the Amended Credit Agreement. In the future, we may require additional liquidity to fund our operations, strategic investments and acquisitions, and debt repayment obligations, which could entail raising additional funds or modifying our Amended Credit Agreement.

 

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In June 2009, we completed our common stock rights offering, which was fully subscribed by our stockholders, resulting in the issuance of 20 million shares of common stock. Net proceeds after deducting fees and offering expenses were approximately $58.2 million. We used $3.1 million to prepay indebtedness under our credit agreement and intend to use the remaining net proceeds from the rights offering for additional working capital, strategic investments and acquisitions, reduction of indebtedness or general corporate purposes.

Analysis of Cash Flows

For the three months ended March 31, 2010, we generated cash from operating activities of $19.7 million, compared to $17.4 million during the comparable period for 2009. The increase of $2.3 million was attributed to an increase in deferred revenue of $3.3 million which was primarily attributed to moving to annual maintenance billings in 2010. This was partially offset by an increase in cash payments of $0.2 million for taxes and $1.1 million in interest.

Net cash used in investing activities was $6.6 million for the three months ended March 31, 2010, compared to $0.4 million used during the comparable period of 2009. Our use of cash in investing activities in the first three months of 2010 was for the purchase of the assets of S.I.R.A., Inc. for $6.1 million and the purchase of property and equipment of $0.5 million. The use of cash in the comparable period in 2009 was for the purchase of property and equipment of $0.3 million and for capitalized software development costs of $0.1 million.

Net cash used in financing activities was $26.4 million for the three months ended March 31, 2010, compared to net cash used in financing activities of $9.8 million during the comparable period of 2009. Cash used in financing activities in the first three months of 2010 was primarily related to $27.0 million in debt repayments and $0.7 million for shares withheld for minimum tax withholdings on restricted stock. This was offset from proceeds for the issuance of stock under the Company’s employee stock purchase plan as well as stock option exercises of $1.3 million. The use of cash for the comparable period in 2009 was for debt repayments of $10.2 million offset by the proceeds for the issuance of stock due to the Company’s employee stock purchase plan and stock option exercises of $0.4 million.

Impact of Seasonality

Fluctuations in our quarterly software license fee revenues have historically reflected, in part, seasonal fluctuations driven by our customers’ procurement cycles for enterprise software and other factors. These factors have historically yielded a peak in software license fee revenue in the fourth quarter due to increased spending by our customers during that time. However, as a result of the current economic environment, the seasonality of our business has been impacted by our customers’ views of their economic outlook. Therefore, past seasonality may not be indicative of current or future seasonality.

Our consulting services revenues are impacted by software license sales, the availability of our consulting resources to work on customer implementations and the adequacy of our contracting activity to maintain full utilization of our available resources. As a result, services revenues are much less subject to seasonal fluctuations.

Our maintenance revenues are generally not subject to significant seasonal fluctuations.

Off-Balance Sheet Arrangements

As of March 31, 2010, we had no off-balance sheet arrangements.

Indemnification

We provide limited indemnification to our customers against intellectual property infringement claims made by third parties arising from the use of our software products. Due to the established nature of our primary software products and the lack of intellectual property infringement claims in the past, we cannot estimate the fair value nor determine the total nominal amount of the indemnification, if any. Estimated losses for such indemnification are evaluated under ASC 450, Contingencies, as interpreted by ASC 460, Guarantees. We have secured copyright and trademark registrations for our software products with the U.S. Patent and Trademark Office, and we have intellectual property infringement indemnification from our third-party partners whose technology may be embedded or otherwise bundled with our software products. Therefore, we generally consider the probability of an unfavorable outcome in an intellectual property infringement case to be relatively low. We have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such indemnifications.

Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires new disclosures concerning transfers into and out of Level 1 and Level 2 of the fair value measurement hierarchy and a roll forward of the activity of assets and liabilities measured in

Level 3 of the hierarchy. In addition, ASU 2010-06 clarifies existing disclosure requirements to require fair value measurement disclosures for each class of assets and liabilities and disclosure regarding the valuation techniques and inputs used to measure Level 2 or Level 3 fair value measurements on a recurring and nonrecurring basis. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 except for the roll forward of activity for Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements.

 

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Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, and the FASB issued ASU 2009-14, Certain Revenue Arrangements That Include Software Elements, on revenue recognition that will become effective for us beginning January 1, 2011, with earlier adoption permitted. We do not anticipate that the adoption of these standards will have an impact on our consolidated financial statements.

 

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt and cash and cash equivalents consisting primarily of funds held in money market accounts on a short-term basis with no withdrawal restrictions. At March 31, 2010, we had $119.3 million in cash and cash equivalents. Our interest expense associated with the Non-Extended Portion of our term loans and revolving credit facility will vary with market rates. As of March 31, 2010, we had approximately $151.9 million in debt outstanding, of which $109.2 million is set at a fixed rate, due to the LIBO rate floor established in the Amended Credit Agreement, and the remaining $42.7 million is at a variable rate. Based upon the variable rate debt outstanding as of March 31, 2010, a hypothetical 1% increase in interest rates would increase interest expense by approximately $0.4 million on an annual basis, and likewise decrease our earnings and cash flows. However, an increase in the LIBO rate above the LIBO rate floor subsequent to March 31, 2010 could also cause our fixed rate debt to become variable and our interest expense to vary.

We cannot predict market fluctuations in interest rates and their impact on our variable rate debt, or whether fixed-rate long-term debt will be available to us at favorable rates, if at all. Consequently, future results may differ materially from the hypothetical 1% increase discussed above.

Based on the investment interest rate and our cash and cash equivalents balance as of March 31, 2010, a hypothetical 1% decrease in interest rates would decrease interest income by approximately $1.2 million on an annual basis, and likewise decrease our earnings and cash flows. We do not use derivative financial instruments in our investment portfolio.

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound, the Philippine peso and the Australian dollar. As our international operations continue to grow, we may choose to use foreign currency forward and option contracts to manage currency exposures. We do not currently have any such contracts in place, nor did we have any such contracts during the three months ended March 31, 2010 or 2009. To date, exchange rate fluctuations have had an insignificant impact on our operating results and cash flows given the scope of our international presence. A hypothetical 10% increase or decrease in foreign currency exchange rates would not have a material effect on our financial statements.

 

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Our management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required financial disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

OTHER INFORMATION

 

Item 1.

LEGAL PROCEEDINGS

We are involved in various legal proceedings from time to time that are incidental to the ordinary conduct of our business. Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.

 

Item 1A.

RISK FACTORS

Risks Related to Our Business

Our business is exposed to the risk that adverse economic or financial conditions may reduce or defer the demand for project-based enterprise applications software and solutions.

The demand for project-based enterprise applications software and solutions historically has fluctuated based upon a variety of factors, including the business and financial condition of our customers and on economic and financial conditions that affect the key sectors in which our customers operate.

Economic downturns or unfavorable changes in the financial and credit markets in both the United States and broader international markets, including economic recessions, could have an adverse effect on the operations, budgets and overall financial condition of our customers.

As a result, our customers may reduce their overall spending on information technology, purchase fewer of our products or solutions, lengthen sales cycles, or delay, defer or cancel purchases of our products or solutions. Furthermore, our customers may be less able to timely finance or pay for the products which they have purchased or could be forced into a bankruptcy or restructuring process, which could limit our ability to recover amounts owed to us. If any of our customers cease operations or file for bankruptcy protection, our ability to recover amounts owed to us for software license fees, consulting and implementation services or software maintenance may be severely impaired.

In addition, the financial and overall condition of third-party solutions providers and resellers of our products and solutions may be affected by adverse conditions in the economy and the financial and credit markets, which may adversely affect the sale of our products or solutions. For the twelve months ended December 31, 2009 and the three months ended March 31, 2010, resellers accounted for approximately 9% and 10%, respectively, of our software license fee revenue.

We cannot predict the impact, timing, strength or duration of any economic slowdown or subsequent economic recovery, or of any disruption in the financial and credit markets. If the financial and credit markets do not return to previous levels, or if the recovery from the current economic slowdown were delayed, our business, financial condition, cash flow, and results of operations could be materially adversely affected.

Our quarterly and annual operating results fluctuate, and as a result, we may fail to meet or exceed the expectations of securities analysts or investors, and our stock price could decline.

Historically, our operating results have varied from quarter to quarter and from year to year. Consequently, we believe that investors should not view our historical revenue and other operating results as an indicator of our future performance. A number of factors contribute to the variability in our revenue and other operating results, including the following:

 

•

global and domestic economic and financial conditions;

 

•

the number and timing of major customer contract wins, which tend to be unpredictable and which may disproportionately impact our software license fee revenue and operating results;

 

•

the highest concentration of our software license sales is typically in the last month of each quarter resulting in diminished predictability of our quarterly results;

 

•

the higher concentration of our software license sales in the last quarter of each fiscal year, resulting in diminished predictability of our annual results;

 

•

the discretionary nature of our customers’ purchases, varying budget cycles and amounts available to fund purchases resulting in varying demand for our products and services;

 

•

delays or deferrals by customers in the implementation of our products;

 

•

the level of product and price competition;

 

•

the length of our sales cycles;

 

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the timing of recognition of deferred revenue, including as a result of fixed-price contractual arrangements;

 

•

any significant change in the number of customers renewing or terminating maintenance agreements with us;

 

•

our ability to deliver and market new software enhancements and products;

 

•

announcements of technological innovations by us or our competitors;

 

•

the relative mix of products and services we sell;

 

•

developments with respect to our intellectual property rights or those of our competitors; and

 

•

our ability to attract, train and retain qualified personnel.

As a result of these and other factors, our operating results may fluctuate significantly from period to period and may not meet or exceed the expectations of securities analysts or investors. In that event, the price of our common stock could be adversely affected.

If we are unable to effectively respond to organizational challenges as our business evolves, our revenues, profitability and business reputation could be materially adversely affected.

Between 2006 and 2009 our total revenue increased from $228.3 million to $265.8 million, or approximately 16%. For the three months ended March 31, 2010, our total revenue was $63.8 million. Our worldwide headcount has increased from approximately 1,040 employees at the end of 2006 to approximately 1,110 employees worldwide as of March 31, 2010.

Continuing to expand and develop our business will place greater demands on our management, financial and accounting systems, information technology systems and other components of our infrastructure. To meet these demands, we continue to invest in enhanced or new systems, including enhancements to our accounting, billing and information technology systems. Although we have reduced headcount in the past two years, we continue to hire, train and retain employees with the specific skills needed to help address these demands.

If we fail to address the demands associated with the expansion and development of our business, our profitability and our business reputation could be materially adversely affected.

If we are unsuccessful in entering new market segments or further penetrating our existing market segments, our revenue or revenue growth could be materially adversely affected.

Our future results depend, in part, on our ability to successfully penetrate new markets, as well as to expand further into our existing markets. In order to grow our business, we may expand to other project-focused markets in which we may have less experience. Expanding into new markets requires both considerable investment and coordination of technical, support, sales, marketing and financial resources.

While we continually add functionality to our products to address the specific needs of both existing customers and new customers, we may be unsuccessful in developing appropriate or complete products, devoting sufficient resources or pursuing effective strategies for product development and marketing.

Our current or future products may not appeal to potential customers in new or existing markets. If we are unable to execute upon this element of our business strategy and expand into new markets or maintain and increase our market share in our existing markets, our revenue or revenue growth may be materially adversely affected.

If our existing customers do not buy additional software and services from us, our revenue and revenue growth could be materially adversely affected.

Our business model depends, in part, on the success of our efforts to maintain and increase sales to our existing customers. We have typically generated significant additional revenues from our installed customer base through the sale of additional new licenses, add-on applications, expansion of existing implementations and professional and maintenance services. We may be unsuccessful in maintaining or increasing sales to our existing customers for any number of reasons, including the failure of our customers to increase the size of their operations, our inability to deploy new applications and features for our existing products or to introduce new products and services that are responsive to the business needs of our customers. If we fail to generate additional business from our customers, our revenue and profitability could be materially adversely affected.

If we do not successfully address the potential risks associated with our current or future global operations, we could experience increased costs or our operating results could be materially adversely affected.

We currently have customers in approximately 70 countries and have facilities in the Philippines, Australia and the United Kingdom.

 

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Doing business internationally involves additional potential risks and challenges, including:

 

•

managing international operations, including a global workforce;

 

•

conforming our products to local business practices or standards, including developing multi-lingual compatible software;

 

•

developing brand awareness for our products;

 

•

competing with local and international software vendors;

 

•

disruptions in international communications resulting from damage to, or disruptions of, telecommunications links, gateways, cables or other systems;

 

•

potential difficulties in collecting accounts receivable and longer collection periods in countries where the accounts receivable collections process may be more difficult;

 

•

potentially unstable political and economic conditions in countries in which we do business or maintain development operations;

 

•

potentially higher operating costs resulting from local laws, regulations and market conditions;

 

•

foreign currency controls and fluctuations resulting from intercompany balances or arrangements associated with our international operations;

 

•

reduced protection for intellectual property rights in a number of countries where we do business;

 

•

compliance with frequently changing governmental laws and regulations;

 

•

seasonality in business activity specific to various markets that is different than our recent historical experience;

 

•

potentially longer sales cycles in certain international markets;

 

•

potential restrictions on repatriation of earnings, including changes in the tax treatment of our international operations; and

 

•

potential restrictions on the export of technologies such as data security and encryption.

These risks could increase our costs or adversely affect our operating results.

If we are not successful in expanding our international business, our revenue growth could be materially adversely affected.

We have customers in approximately 70 countries and international markets accounted for approximately 9% of our total software license fee revenue for both the twelve months ended December 31, 2009 and the three months ended March 31, 2010. Nonetheless, our ability to accelerate our international expansion will require us to deliver additional product functionality and foreign language translations that are responsive to the needs of the international customers that we target. If we are unable to expand our qualified direct sales force, identify additional strategic alliance partners, or negotiate favorable alliance terms, our international growth may be hampered. Our ability to expand internationally also is dependent on our ability to raise brand recognition for our products in international markets. If we are unable to further our expansion into international markets, our revenue and profitability could be materially adversely affected. In addition, our planned international expansion will require significant attention from our management as well as additional management and other resources in these markets.

We may be subject to integration and other risks from acquisition activities, which could materially impair our ability to realize the anticipated benefits of any acquisitions.

As part of our business strategy, we have acquired and intend to continue to acquire complementary businesses, technologies, product lines or services organizations. We may not realize the anticipated strategic or financial benefits of past or potential future acquisitions due to a variety of factors, including the following:

 

•

the potential difficulty in integrating acquired products and technology into our software applications and business strategy;

 

•

the potential inability to achieve the desired revenue or cost synergies and benefits;

 

•

the potential difficulty in coordinating and integrating the sales, marketing, services, support and development activities of the acquired businesses, successfully cross selling products or services and managing the combined organizations;

 

•

the potential difficulty in retaining the strategic alliance partners of the acquired businesses on terms that are acceptable to us;

 

•

the potential difficulty in retaining, integrating, training and motivating key employees of the acquired business;

 

•

the potential difficulty and cost of establishing and integrating controls, procedures and policies;

 

•

the potential difficulty in predicting and responding to issues related to product transition, including product development, distribution and customer support;

 

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•

the possibility that customers of the acquired business may not support any changes associated with our ownership of the acquired business and that as a result they may transition to products offered by our competitors, or may attempt to renegotiate contract terms or relationships, including maintenance agreements;

 

•

the acquisition may result in unplanned disruptions to our ongoing business and may divert management from day-to-day operations due to a variety of factors, including integration issues;

 

•

the possibility that goodwill or other intangible assets may become impaired and will need to be written off in the future;

 

•

the potential failure of the due diligence process to identify significant issues, including product quality, architecture and development issues or legal and financial contingencies (including ongoing maintenance or service contract concerns); and

 

•

lack of legal protection for the intellectual property we acquire.

If a significant number of our customers fail to renew or otherwise terminate their maintenance services agreements for our products, or if they are successful in renegotiating their agreements with us on terms that are unfavorable to us, our maintenance services revenues and our operating results could be materially harmed.

Our customers contract with us for ongoing product maintenance and support services. Historically, maintenance services revenues have represented a significant portion of our total revenue. Revenues from maintenance services constituted approximately 47% and 40% of our total revenue in 2009 and 2008, respectively. For the three months ended March 31, 2010, revenues from maintenance services constituted approximately 51% or our total revenue.

Our maintenance and support services are generally billed and paid in advance. A customer may cancel its maintenance services agreement prior to the beginning of the next scheduled period. At the end of a contract term, or at the time a customer has cancellation rights, a customer could seek a modification of its maintenance services agreement terms, including modifications that could result in lower maintenance fees or our providing additional services without associated fee increases.

A customer may also elect to terminate its maintenance services agreement and rely on its own in-house technical staff or other third-party resources, or may replace our software with a competitor’s product. If our maintenance services business declines due to a significant number of contract terminations, or if we are forced to offer pricing or other maintenance terms that are unfavorable to us, our maintenance services revenues and operating results could be materially adversely affected.

If we fail to forecast the timing of our revenues or expenses accurately, our operating results could be materially different than we anticipated.

We use a variety of factors in our forecasting and planning processes, including historical trends, recent customer history, expectations of customer buying decisions, customer implementation schedules and plans, analyses by our sales and service teams, maintenance renewal rates, our assessment of economic or market conditions and many other factors. While these analyses may provide us with some guidance in business planning and expense management, these estimates are inherently imprecise and may not accurately predict the timing of our revenues or expenses. A variation in any or all of these factors, particularly in light of prevailing financial or economic conditions, could cause us to inaccurately forecast our revenues or expenses and could result in expenditures without corresponding revenue. As a result, our revenues and our operating results could be materially lower than anticipated.

To maintain our competitive position, we may be forced to reduce prices or limit price increases, which could result in materially reduced revenue, margins or net income.

We face significant competition across all of our product lines from a variety of sources, including larger multi-national software companies, smaller start-up organizations, point solution application providers, specialized consulting organizations, systems integrators and internal information technology departments of existing or potential customers. Several competitors, such as Oracle, SAP and Microsoft, have significantly greater financial, technical and marketing resources than we have.

In addition, some of our competitors have well-established relationships with our current and prospective customers and with major accounting and consulting firms that may prefer to recommend those competitors over us. Our competitors may also seek to influence some customers’ purchase decisions by offering more comprehensive horizontal product portfolios, superior global presence and more sophisticated multi-national product capabilities.

To maintain our competitive position, we may be forced to reduce prices or limit price increases, which could materially reduce our revenue, margins or net income.

 

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Our indebtedness or an inability to borrow additional amounts or refinance our debt could adversely affect our results of operations and financial condition and prevent us from fulfilling our financial obligations and business objectives.

As of March 31, 2010, we had approximately $151.9 million of outstanding debt under our credit agreement and term loans at interest rates which are subject to market fluctuation. Over the remainder of 2010, approximately $17.7 million of principal is due and payable. Our indebtedness and related obligations could have important future consequences to us, such as:

 

•

potentially limiting our ability to obtain additional financing to fund growth, working capital, and capital expenditures or to meet existing debt service or other cash requirements;

 

•

exposing us to the risk of increased interest costs if the underlying interest rates rise significantly;

 

•

potentially limiting our ability to invest operating cash flow in our business due to existing debt service requirements; or

 

•

increasing our vulnerability to economic downturns and changing market conditions.

Our ability to meet our existing debt service obligations, borrow additional funds or refinance our existing debt will depend on many factors, including prevailing financial or economic conditions, our past performance and our financial and operational outlook. If we do not have enough cash to satisfy our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets or reduce our spending. At any given time, we may not be able to refinance our debt or sell assets on terms acceptable to us or at all.

If we are unable to comply with the covenants or restrictions contained in our amended credit agreement, our lenders could declare all amounts outstanding under the credit agreement to be due and payable, which could materially adversely affect our financial condition.

In August 2009, we entered into an amended credit agreement (the “Amended Credit Agreement”) governing our term loans and revolving credit facility. The Amended Credit Agreement contains covenants that, among other things, restrict our and our subsidiaries’ ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by us and engage in certain transactions with affiliates.

Our Amended Credit Agreement also requires us to comply with certain financial ratios related to fixed charge coverage, interest coverage and leverage ratios. While we have historically complied with our financial ratio covenants, we may not be able to comply with these financial covenants in the future, which could cause all amounts outstanding to be due and payable, and which could limit our ability to meet ongoing or future capital needs. Our ability to comply with the covenants and restrictions contained in our Amended Credit Agreement may be adversely affected by economic, financial, industry or other conditions, some of which may be beyond our control.

The potential breach of any of the covenants or restrictions contained in our Amended Credit Agreement, unless cured within the applicable grace period, could result in a default under the Amended Credit Agreement that would permit the lenders to declare all amounts outstanding to be due and payable, together with accrued and unpaid interest. In such an event, we may not have sufficient assets to repay such indebtedness. As a result, any default could have serious consequences to our financial condition.

If we defer recognition of software license fee revenue for a significant period of time after entering into a license agreement as a result of leveraging new sales or revenue-generating opportunities, our operating results in any particular quarter could be materially impacted.

We may be required to defer recognition of software license fee revenue from a license agreement with a customer if, for example:

 

•

the software transactions include both currently deliverable software products and software products that are under development or require other undeliverable elements;

 

•

a particular customer requires services that include significant modifications, customizations or complex interfaces that could delay product delivery or acceptance;

 

•

the software transactions involve customer acceptance criteria;

 

•

there are identified product-related issues, such as known defects;

 

•

the software transactions involve payment terms that are longer than our standard payment terms, fees that depend upon future contingencies or include fixed-price deliverable elements; or

 

•

under the applicable accounting requirements, we are unable to separate recognition of software license fee revenue from maintenance or other services-related revenue, thereby requiring us to defer software license fee revenue recognition until the services are provided.

 

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Deferral of software license fee revenue may result in significant timing differences between the completion of a sale and the actual recognition of the revenue related to that sale. However, we generally recognize commission and other sales-related expenses associated with sales at the time they are incurred. As a result, if we are required to defer a significant amount of revenue, our operating results in any quarter could be materially adversely affected.

To the extent we sell any of our software solutions on a subscription basis, and if we fail to price or market those products appropriately, our software license fee revenue and cash flow could be materially reduced.

Our software license fee revenues are generally derived from the sale of perpetual licenses for software products. Each license fee generally is paid on a one-time basis either on a per-seat basis or as an enterprise license, and related revenue is generally recognized at the time the license is executed. Nearly all of our software license fee revenue for the three months ended March 31, 2010, and for the years ended 2009 and 2008, was generated from the sale of perpetual licenses.

We have recently begun to offer some of our software products and solutions on a subscription basis. If more of our customers find subscription-based software appealing, we may need to offer additional products and solutions on a subscription basis. We may not successfully price, market or otherwise execute a subscription-based model. If we increase the use of a subscription-based licensing model, we could experience materially reduced software license fee revenues and cash flows associated with the transition to a subscription based licensing model.

If our investments in product development require greater resources than anticipated, our operating margins could be adversely affected.

We expect to continue to commit significant resources to maintain and improve our existing products and to develop new products. For example, our product development expenses were approximately $11.1 million, or 17%, of revenue for the three months ended March 31, 2010, approximately $43.4 million, or 16%, of revenue in 2009 and approximately $45.8 million, or 16%, of revenue in 2008. Our current and future product development efforts may require greater resources than we expect, or may not achieve the market acceptance that we expect and, as a result, we may not achieve margins we anticipate.

We may also be required to price our product enhancements, product features or new products at levels below those anticipated during the product development stage, which could result in lower revenues and margins for that product than we originally anticipated.

We also may experience unforeseen or unavoidable delays in delivering product enhancements, product features or new products due to factors within or outside of our control. We may encounter unforeseen or unavoidable defects or quality control issues when developing product enhancements, product features or new products, which may require additional expenditures to resolve such issues and may affect the reputation our products have for quality and reliability. If we incur greater expenditures than we expect for our product development efforts, or if our products do not succeed, our revenues or margins could be materially adversely affected.

If we fail to adapt to changing technological and market trends or changing customer requirements, our market share could decline and our sales and profitability could be materially adversely affected.

Historically, the business application software market has been characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product lifecycles. The development of new technologically advanced software products is a complex and uncertain process requiring high levels of innovation, as well as accurate anticipation of technological and market trends.

Our future success will largely depend upon our ability to develop and introduce timely new products and product features in order to maintain or enhance our competitive position. The introduction of enhanced or new products requires us to manage the transition from, or integration with, older products in order to minimize disruption in sales of existing products and to manage the overall process in a cost-effective manner. If we do not successfully anticipate changing technological and market trends or changing customer requirements, and we fail to enhance or develop products timely, effectively and in a cost-effective manner, our ability to retain or increase market share may be harmed, and our sales and profitability could be materially adversely affected.

If our existing or prospective customers prefer an application software architecture other than the standards-based technology and platforms upon which we build or support our products, or if we fail to develop our new product enhancements or products to be compatible with the application software architecture preferred by existing and prospective customers, we may not be able to compete effectively, and our software license fee revenue could be materially reduced.

Many of our customers operate their information technology infrastructure on standards-based application software platforms such as J2EE and .NET. A significant portion of our product development is devoted to enhancing our products that deploy these and other standards-based application software platforms.

If our products are not compatible with future technologies and platforms that achieve industry standard status, we will be

required to spend material development resources to develop products or product enhancements that are deployable on these platforms. If we are unsuccessful in developing these products or product enhancements, we may lose existing customers or be unable to attract prospective customers.

 

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In addition, our customers may choose competing products other than our offerings based upon their preference for new or different standards-based application software than the software or platforms on which our products operate or are supported. Any of these adverse developments could injure our competitive position and could cause our software license fee revenue to be materially adversely affected.

Our software products are built upon and depend upon operating platforms and software developed and supplied by third parties. As a result, changes in the availability, features and price of, or support for, any of these third-party platforms or software, including as a result of the platforms or software being acquired by a competitor, could materially increase our costs, divert resources and materially adversely affect our competitive position and software license fee revenue.

Our software products are built upon and depend upon operating platforms and software developed by third-party providers. We license from several software providers technologies that are incorporated into our products. Our software may also be integrated with third-party vendor products for the purpose of providing or enhancing necessary functionality.

If any of these operating platforms or software products ceases to be supported by its third-party provider, or if we lose any technology license for software that is incorporated into our products, including as a result of the platforms or software being acquired by a competitor, we may need to devote increased management and financial resources to migrate our software products to an alternative operating platform, identify and license equivalent technology or integrate our software products with an alternative third-party vendor product. In addition, if a provider enhances its product in a manner that prevents us from timely adapting our products to the enhancement, we may lose our competitive advantage, and our existing customers may migrate to a competitor’s product.

Third-party providers may also not remain in business, cooperate with us to support our software products or make their product available to us on commercially reasonable terms or provide an effective substitute product to us and our customers. Any of these adverse developments could materially increase our costs and materially adversely affect our competitive position and software license fee revenue.

If we lose access to, or fail to obtain, third-party software development tools on which our product development efforts depend, we may be unable to develop additional applications and functionality, and our ability to maintain our existing applications may be diminished, which may cause us to incur materially increased costs, reduced margins or lower revenue.

We license software development tools from third parties and use those tools in the development of our products. Consequently, we depend upon third parties’ abilities to deliver quality products, correct errors, support their current products, develop new and enhanced products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. If any of these third-party development tools become unavailable, if we are unable to maintain or renegotiate our licenses with third parties to use the required development tools, or if third-party developers fail to adequately support or enhance the tools, we may be forced to establish relationships with alternative third-party providers and to rewrite our products using different development tools.

We may be unable to obtain other development tools with comparable functionality from other third parties on reasonable terms or in a timely fashion. In addition, we may not be able to complete the development of our products using different development tools, or we may encounter substantial delays in doing so. If we do not adequately replace these software development tools in a timely manner, we may incur additional costs, which may materially reduce our margins or revenue.

If our products fail to perform properly due to undetected defects or similar problems, and if we fail to develop an enhancement to resolve any defect or other software problem, we could be subject to product liability, performance or warranty claims and incur material costs, which could damage our reputation, result in a potential loss of customer confidence and adversely impact our sales, revenue and operating results.

Our software applications are complex and, as a result, defects or other software problems may be found during development, product testing, implementation or deployment. In the past, we have encountered defects in our products as they are introduced or enhanced. If our software contains defects or other software problems:

 

•

we may not be paid;

 

•

a customer may bring a warranty claim against us;

 

•

a customer may bring a claim for their losses caused by our product failure;

 

•

we may face a delay or loss in the market acceptance of our products;

 

•

we may incur unexpected expenses and diversion of resources to remedy the problem;

 

•

our reputation and competitive position may be damaged; and

 

•

significant customer relations problems may result.

 

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Our customers use our software together with software and hardware applications and products from other companies. As a result, when problems occur, it may be difficult to determine the cause of the problem, and our software, even when not the ultimate cause of the problem, may be misidentified as the source of the problem. The existence of defects or other software problems, even when our software is not the source of the problem, might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts for a lengthy time period, require extensive consulting resources, harm our reputation and cause significant customer relations problems.

If our products fail to perform properly, we may face liability claims notwithstanding that our standard customer agreements contain limitations of liability provisions. A material claim or lawsuit against us could result in significant legal expense, harm our reputation, damage our customer relations, divert management’s attention from our business and expose us to the payment of material damages or settlement amounts. In addition, interruption in the functionality of our products or other defects could cause us to lose new sales and materially adversely affect our license and maintenance services revenues and our operating results.

A breach in the security of our software could harm our reputation and subject us to material claims, which could materially harm our operating results and financial condition.

Fundamental to the use of enterprise application software, including our software, is the ability to securely process, collect, analyze, store and transmit information. Third parties may attempt to breach the security of our solutions, third party applications that our products interface with, as well as customer databases and actual data. In addition, cyber attacks and similar acts could lead to interruptions and delays in customer processing or a loss or breach of a customer’s data.

We may be responsible, and liable, to our customers for certain breaches in the security of our software products. Any security breaches for which we are, or are perceived to be, responsible, in whole or in part, could subject us to claims, which could harm our reputation and result in significant litigation costs and damage awards or settlement amounts. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm our operating results and financial condition. We might be required to expend significant financial and other resources to protect further against security breaches or to rectify problems caused by any security breach.

If we are not able to retain existing employees or hire qualified new employees, our business could suffer, and we may not be able to execute our business strategy.

Our business strategy and future success depends, in part, upon our ability to attract, train and retain highly skilled managerial, professional service, sales, development, marketing, accounting, administrative and infrastructure-related personnel. The market for these highly skilled employees is generally competitive in the geographies in which we operate.

Our business could be adversely affected if we are unable to retain qualified employees or recruit qualified personnel in a timely fashion, or if we are required to incur unexpected increases in compensation costs to retain key employees or meet our hiring goals. If we are not able to retain and attract the personnel we require, it could be more difficult for us to sell and develop our products and services and execute our business strategy, which could lead to a material shortfall in our anticipated results. Furthermore, if we fail to manage these costs effectively, our operating results could be materially adversely affected.

The loss of key members of our senior management team could disrupt the management of our business and materially impair the success of our business.

We believe that our success depends on the continued contributions of the members of our senior management team. We rely on our executive officers and other key managers for the successful performance of our business. Although we have employment arrangements with several members of our senior management team, none of these arrangements prevents any of our employees from leaving us. The loss of the services of one or more of our executive officers or key managers could have an adverse effect on our operating results and financial condition.

If we are not able to protect our intellectual property and other proprietary rights, we may not be able to compete effectively, and our software license fee revenue could be materially adversely affected.

Our success and ability to compete is dependent in significant degree on our intellectual property, particularly our proprietary software. We rely on a combination of copyrights, trademarks, trade secrets, confidentiality procedures and contractual provisions to establish and protect our rights in our software and other intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy, design around or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary.

Our competitors may independently develop software that is substantially equivalent or superior to our software. Furthermore, existing copyright law affords only limited protection for our software and may not protect such software in the event competitors independently develop products similar to ours.

We take significant measures to protect the secrecy of our proprietary source code. Despite these measures, unauthorized disclosure of some of or all of our source code could occur. Such unauthorized disclosure could potentially cause our source code to lose intellectual property protection and make it easier for third parties to compete with our products by copying their functionality, structure or operation.

 

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In addition, the laws of some countries may not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, we may not be able to protect our proprietary software against unauthorized third-party copying or use, which could adversely affect our competitive position and our software license fee revenue. Any litigation to protect our proprietary rights could be time consuming and expensive to prosecute or resolve, result in substantial diversion of management attention and resources, and could be unsuccessful, which could result in the loss of material intellectual property and other proprietary rights.

Potential future claims that we infringe upon third parties’ intellectual property rights could be costly and time-consuming to defend or settle or result in the loss of significant products, any of which could materially adversely impact our revenue and operating results.

Third parties could claim that we have infringed upon their intellectual property rights. Such claims, whether or not they have merit, could be time consuming to defend, result in costly litigation, divert our management’s attention and resources from day-to-day operations or cause significant delays in our delivery or implementation of our products.

We could also be required to cease to develop, use or market infringing or allegedly infringing products, to develop non-infringing products or to obtain licenses to use infringing or allegedly infringing technology. We may not be able to develop alternative software or to obtain such licenses or, if a license is obtainable, we cannot be certain that the terms of such license would be commercially acceptable.

If a claim of infringement were threatened or brought against us, and if we were unable to license the infringing or allegedly infringing product or develop or license substitute software, or were required to license such software at a high royalty, our revenue and operating results could be materially adversely affected.

In addition, we agree, from time to time, to indemnify our customers against certain claims that our software infringes upon the intellectual property rights of others. We could incur substantial costs in defending our customers against such claims.

Catastrophic events may disrupt our business and could result in materially increased expenses, reduced revenues and profitability and impaired customer relationships.

We are a highly automated business and rely on our network infrastructure, enterprise applications and internal and external technology and infrastructure systems for our development, sales, marketing, support and operational activities. A disruption or failure of any or all of these systems could result from catastrophic events, including major telecommunications failures, cyber attacks, terrorist attacks, fires, earthquakes, storms or other severe climate-related events. A disruption or failure of any or all of these systems could cause system interruptions to our operations, including product development, sales-cycle or product implementation delays, as well as loss of data or other disruptions to our relationships with current or potential customers.

The disaster recovery plans and backup systems that we have in place may not be effective in addressing a catastrophic event that results in the destruction or disruption of any of our critical business or information technology and infrastructure systems. As a result of any of these events, we may not be able to conduct normal business operations and may be required to incur significant expenses in order to resume normal business operations. As a result, our revenues and profitability may be materially adversely affected.

Our revenues are partially dependent upon federal government contractors and their need for compliance with Federal Government contract accounting and reporting standards, as well as data privacy and security requirements. Our failure to anticipate or adapt timely to changes in those standards could cause us to lose government contractor customers and materially adversely affect our revenue generated from these customers.

We derive a significant portion of our revenues from federal government contractors. For the three months ended March 31, 2010, and for the years ended December 31, 2009 and 2008, over half of our software license fee revenue was generated from federal government contractor customers. Our government contractor customers utilize our Deltek Costpoint, Deltek GCS Premier or our enterprise project management applications to manage their contracts and projects with the Federal Government in a manner that accounts for expenditures in accordance with the Federal Government contracting accounting standards. These customers also have a requirement to maintain stringent data privacy and security safeguards.

For example, a key function of our Costpoint application is to enable government contractors to enter, review and organize accounting data in a manner that is compliant with applicable laws and regulations and to easily demonstrate compliance with those laws and regulations. If the Federal Government alters these compliance standards, or if there were any significant problem with the functionality of our software from a compliance or data security perspective, we may be required to modify or enhance our software products to satisfy any new or altered compliance standards. Our inability to effectively and efficiently modify our applications to resolve any compliance issue could result in the loss of government contract customers and materially adversely impact our revenue from these customers.

 

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Significant reductions in the Federal Government’s budget or changes in the spending priorities for that budget could materially reduce government contractors’ demand for our products and services.

The Federal Government’s budget is subject to annual renewal and may be increased or decreased, whether on an overall basis or on a basis that could disproportionately injure our customers. Any significant downsizing, consolidation or insolvency of our Federal Government contractor customers resulting from changes in procurement policies, budget reductions, loss of government contracts, delays in contract awards or other similar procurement obstacles could materially adversely impact our customers’ demand for our software products and related services and maintenance.

Impairment of our goodwill or intangible assets may adversely impact our results of operations.

We have acquired several businesses which, in aggregate, have resulted in goodwill valued at approximately $70.2 million and other purchased intangible assets valued at approximately $15.5 million as of March 31, 2010. This represents a significant portion of the assets recorded on our balance sheet. Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually or sooner under certain circumstances. Other intangible assets that are deemed to have finite useful lives will continue to be amortized over their useful lives but must be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Screening for and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating fundamentals, competition and general economic conditions, requires significant judgment by management.

We performed tests for impairment of goodwill and intangible assets and determined that there was no impairment as of December 31, 2009. In addition, there have been no events or changes in circumstances that have occurred during the three months ended March 31, 2010 that indicate there is an impairment of goodwill or intangible assets. However, there can be no assurances that a charge to operations will not occur in the event of a future impairment. The decrease in the price of our stock that has occurred from time to time and may occur in the future increases the possibility of such an impairment in future periods. If an impairment is deemed to exist in the future, we would be required to write down the recorded value of these intangible assets to their then current estimated fair values. If a write down were to occur, it could materially adversely impact our results of operations and our stock price.

If we were to identify material weaknesses in our internal controls, those weaknesses may impede our ability to produce timely and accurate financial statements, result in inaccurate financial reporting or restatements of our financial statements, subject our stock to delisting and materially harm our business reputation and stock price.

As a public company, we are required to file annual and quarterly periodic reports containing our financial statements with the Securities and Exchange Commission within prescribed time periods. As part of The NASDAQ Global Select Market listing requirements, we are also required to provide our periodic reports, or make them available, to our stockholders within prescribed time periods.

If we were to identify material weaknesses in our internal control in the future, the required audit or review of our financial statements by our independent registered public accounting firm may be delayed. In addition, we may not be able to produce reliable financial statements, file our financial statements as part of a periodic report in a timely manner with the Securities and Exchange Commission or comply with The NASDAQ Global Select Market listing requirements. If we are required to restate our financial statements in the future, any specific adjustment may cause our operating results and financial condition, as restated, on an overall basis to be materially impacted.

If these events were to occur, our common stock listing on The NASDAQ Global Select Market could be suspended or terminated and, absent a waiver, we also would be in default under our credit agreement and our lenders could accelerate any obligation we have to them. We, or members of our management, could also be subject to investigation and sanction by the Securities and Exchange Commission and other regulatory authorities and to stockholder lawsuits. In addition, our stock price could decline, we could face significant unanticipated costs, management’s attention could be diverted and our business reputation could be materially harmed.

Risks Related to Ownership of Our Common Stock

Our stock price has been volatile and could continue to remain volatile for a variety of reasons, resulting in a substantial loss on your investment.

The stock markets generally have experienced extreme and increasing volatility, often unrelated to the operating performance of the individual companies whose securities are traded publicly. Broad market fluctuations and general economic and financial conditions may materially adversely affect the trading price of our common stock.

 

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Significant price fluctuations in our common stock also could result from a variety of other factors, including:

 

•

actual or anticipated fluctuations in our operating results or financial condition;

 

•

our competitors’ announcements of significant contracts, acquisitions or strategic investments;

 

•

changes in our growth rates or our competitors’ growth rates;

 

•

conditions of the project-focused software industry;

 

•

securities analysts’ commentary about us or our industry; and

 

•

any other factor described in this “Risk Factors” section of this Quarterly Report.

In addition, if the market value of our common stock falls below the book value of our assets, we could be forced to recognize an impairment of our goodwill or other assets. If this were to occur, our operating results would be adversely affected and the price of our common stock could be negatively impacted.

Future sales of our common stock by existing stockholders could cause our stock price to decline.

New Mountain Partners II, L.P., New Mountain Affiliated Investors II, L.P., and Allegheny New Mountain Partners, L.P. (collectively, the “New Mountain Funds”), our controlling stockholders, own more than 60% of outstanding common stock. If the New Mountain Funds were to sell substantial amounts of our common stock in the public market or if the market perceives that our stockholders may sell shares of our common stock, the market price of our common stock could decrease significantly.

The New Mountain Funds have the right, subject to certain conditions, to require us to register the sale of their shares under the federal securities laws. If this right is exercised, holders of other shares and, in certain circumstances, stock options may sell their shares alongside the New Mountain Funds, which could cause the prevailing market price of our common stock to decline. The majority of our common stock (and all shares of common stock underlying options outstanding under our 2005 Stock Option Plan and certain shares of common stock underlying options and restricted stock outstanding under our 2007 Stock Award and Incentive Plan) are, directly or indirectly, subject to a registration rights agreement.

We have also filed registration statements with the Securities and Exchange Commission covering shares subject to options and restricted stock outstanding under our 2005 Stock Option Plan and 2007 Plan and shares reserved for issuance under our 2007 Plan and our Employee Stock Purchase Plan.

A decline in the trading price of our common stock due to the occurrence of any future sales might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities and may cause stockholders to lose part or all of their investment in our shares of common stock.

Our largest stockholders and their affiliates have substantial control over us and this could limit other stockholders’ ability to influence the outcome of key transactions, including any change of control.

Our largest stockholders, the New Mountain Funds, own more than 60% of our outstanding common stock and 100% of our Class A common stock. As a result, the New Mountain Funds are able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other significant corporate transactions. The New Mountain Funds will retain the right to elect a majority of our directors so long as they own our Class A common stock and at least one-third of our outstanding common stock.

In addition, the New Mountain Funds will have the benefit of the rights conferred by the investor rights agreement, and New Mountain Capital, L.L.C. will continue to have certain rights under their advisory agreement. These rights include the ability to elect a majority of the members of the board of directors and control all matters requiring stockholder approval, including any transaction subject to stockholder approval (such as a merger or a sale of substantially all of our assets), as long as they collectively own a majority of the outstanding shares of our Class A common stock and at least one-third of the outstanding shares of our common stock.

The New Mountain Funds are also entitled to collect a transaction fee, unless waived by them, on a transaction by transaction basis, equal to 2% of the transaction value of each significant transaction exceeding $25 million in value directly or indirectly involving us or any of our controlled affiliates, including acquisitions, dispositions, mergers or other similar transactions, debt, equity or other financing transactions, public or private offerings of our securities and joint ventures, partnerships and minority investments. Although in 2009 the New Mountain Funds waived any right to collect a transaction fee in connection with our stock rights offering and the amendment of our credit agreement, their right to collect transaction fees otherwise remains in effect and continues until the New Mountain Funds cease to beneficially own at least 15% of our outstanding common stock or a change of control occurs.

The New Mountain Funds may have interests that differ from other stockholders’ interests, and they may vote in a way with

which other stockholders disagree and that may be adverse to their interests. The concentration of ownership of our common stock may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an

opportunity to receive a premium for their common stock as part of a sale of our company and may adversely affect the market price of our common stock.

 

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If we issue additional shares of our common stock, stockholders could experience dilution.

Our authorized capital stock consists of 200,000,000 shares of common stock, of which there were 67,374,351 shares outstanding as of May 3, 2010. The issuance of additional shares of our common stock or securities convertible into shares of our common stock could result in dilution of other stockholders’ ownership interest in us. In addition, if we issue additional shares of our common stock at a price that is less than the fair value of our common stock, other stockholders could, depending on their participation in that issuance, also experience immediate dilution of the value of their shares relative to what their value would have been had our common stock been issued at fair value. This dilution could be substantial.

Our stockholders do not have the same protections available to other stockholders of NASDAQ-listed companies because we are a “controlled company” within the meaning of The NASDAQ Global Select Market’s standards and, as a result, qualify for, and may rely on, exemptions from several corporate governance requirements.

Our controlling stockholders, the New Mountain Funds, control a majority of our outstanding common stock and have the ability to elect a majority of our board of directors. As a result, we are a “controlled company” within the meaning of the rules governing companies with stock quoted on The NASDAQ Global Select Market. Under these rules, a company as to which an individual, a group or another company holds more than 50% of the voting power is considered a “controlled company” and is exempt from several corporate governance requirements, including requirements that:

 

•

a majority of the board of directors consists of independent directors;

 

•

compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors; and

 

•

director nominees be selected or recommended for election by a majority of the independent directors or by a nominating committee that is composed entirely of independent directors.

We have availed ourselves of these exemptions. Accordingly, our stockholders do not have the same protections afforded to stockholders of other companies that are subject to all of The NASDAQ Global Select Market corporate governance requirements as long as the New Mountain Funds own a majority of our outstanding common stock.

Anti-takeover provisions in our charter documents, Delaware law and our shareholders’ agreement could discourage, delay or prevent a change in control of our company and may adversely affect the trading price of our common stock.

We are a Delaware corporation, and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us (as a public company with common stock listed on The NASDAQ Global Select Market) from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our certificate of incorporation and bylaws:

 

•

authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;

 

•

provide the New Mountain Funds, through their stock ownership, with the ability to elect a majority of our directors if they beneficially own one-third or more of our common stock;

 

•

do not provide for cumulative voting;

 

•

provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office (subject to the rights of the Class A stockholders);

 

•

limit the calling of special meetings of stockholders;

 

•

permit stockholder action by written consent if the New Mountain Funds and its affiliates own one-third or more of our common stock;

 

•

require supermajority stockholder voting to effect certain amendments to our certificate of incorporation; and

 

•

require stockholders to provide advance notice of new business proposals and director nominations under specific procedures.

In addition, certain provisions of our shareholders’ agreement require that certain covered persons (as defined in the shareholders’ agreement) vote their shares of our common stock in favor of certain transactions in which the New Mountain Funds propose to sell all or any portion of their shares of our common stock, or in which we propose to sell or otherwise transfer for value all or substantially all of the stock, assets or business of the company.

 

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Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

Not applicable.

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

 

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None.

 

Item 4.

REMOVED AND RESERVED

 

Item 5.

OTHER INFORMATION

None.

 

Item 6.

EXHIBITS

 

3.1		Amended and Restated Certificate of Incorporation. (1)
3.2		Amended and Restated Bylaws of Deltek, Inc. (2)
4.1		Form of specimen common stock certificate. (1)
31.1*		Certification of Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

*	Filed herewith.

(1)	Incorporated by reference to exhibit of same number filed with the Registrant’s Registration Statement on Form S-1 (No. 333-142737) on May 8, 2007.

(2)	Incorporated by reference to exhibit of same number filed on March 13, 2009 with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 2008.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				DELTEK, INC.
Dated: May 10, 2010				By:		/s/ KEVIN T. PARKER
						Kevin T. Parker
						Chairman, President and Chief Executive Officer (Principal Executive Officer)
				DELTEK, INC.
Dated: May 10, 2010				By:		/s/ MICHAEL P. CORKERY
						Michael P. Corkery
						Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Dated: May 10, 2010				By:		/s/ MICHAEL KRONE
						Michael Krone
						Senior Vice President, Corporate Controller and Assistant Treasurer (Principal Accounting Officer)

 

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EXHIBIT INDEX

 

3.1		Amended and Restated Certificate of Incorporation. (1)
3.2		Amended and Restated Bylaws of Deltek, Inc. (2)
4.1		Form of specimen common stock certificate. (1)
31.1*		Certification of Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

*	Filed herewith.

(1)	Incorporated by reference to exhibit of same number filed with the Registrant’s Registration Statement on Form S-1 (No. 333-142737) on May 8, 2007.

(2)	Incorporated by reference to exhibit of same number filed on March 13, 2009 with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 2008.

 

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