Advent Software (ADVS)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

for the quarterly period ended March 31, 2012

or

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

Commission file number:  0-26994

(Exact name of registrant as specified in its charter)

600 Townsend Street, San Francisco, California 94103

(Address of principal executive offices and zip code)

(415) 543-7696

(Registrant’s telephone number, including area code)

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

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

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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

The number of shares of the registrant’s Common Stock outstanding as of April 30, 2012 was 50,661,224.

Table of Contents

INDEX

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

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

3

Table of Contents

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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

Net income per share is based on actual calculated values and totals may not sum due to rounding.

4

Table of Contents

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

5

Table of Contents

ADVENT SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

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

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

6

Table of Contents

ADVENT SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Advent has prepared these condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in these interim statements pursuant to such SEC rules and regulations. These interim financial statements should be read in conjunction with the audited financial statements and related notes included in Advent’s Annual Report on Form 10-K for the year ended December 31, 2011. Interim results are not necessarily indicative of the results to be expected for the full year, and no representation is made thereto.

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

With the exception of the below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2012, as compared to the recent accounting pronouncements described in Advent’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of ASU is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05 (“ASU 2011-12”), which defers indefinitely the provision within ASU 2011-05 requiring entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the income statement and the statement in which other comprehensive income is presented.  ASU 2011-12 does not change the other provisions instituted within ASU 2011-05.  The Company adopted the provisions of ASU 2011-05 and ASU 2011-12 on January 1, 2012, and the adoption did not have a material impact on the condensed consolidated financial statements.

At March 31, 2012, cash equivalents and marketable securities primarily consisted of money market mutual funds, US government and US Government Sponsored Entities (GSE’s), foreign government debt securities and high credit quality corporate debt securities. The Company’s marketable securities are classified as available-for-sale, with long-term investments, if applicable, having a maturity date greater than one year from the date of the balance sheet.

7

Table of Contents

Marketable securities are summarized as follows (in thousands):

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

The gross unrealized losses related to marketable securities are primarily due to a decrease in the fair value of debt securities as a result of an increase in interest rates during the three months ending March 31, 2012. For fixed income securities that have unrealized losses as of March 31, 2012, the Company has determined that (i) it does not have the intent to sell any of these investments prior to maturity and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, the Company has evaluated these fixed income securities and has determined that no credit losses exist, as a majority of the Company’s portfolio is backed by the federal government. As of March 31, 2012, all securities in an unrealized loss position have been in an unrealized loss position for less than one year. The Company’s management has determined that the unrealized losses on its fixed income securities as of March 31, 2012 were temporary in nature.

During the first quarter of 2012 and 2011, $34.2 million and $29.4 million, respectively, of marketable securities matured, which did not have any associated material gross realized gains or losses.

Note 4—Derivative Financial Instruments

The Company enters into foreign currency forward contracts with financial institutions to reduce the risk that the Company’s cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. These forward contracts are not designated for trading or speculative purposes.

The Company recognizes derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value based on current market rates. The Company records changes in the fair value (e.g., gains or losses) of the derivatives in “Interest income and other income (expense), net” on the accompanying condensed consolidated statements of operations.

Non-designated Hedges

The Company uses foreign currency forward contracts to hedge a portion of the balances denominated in Euro, Swedish Krona, British Pounds, South African Rand and Norwegian Kroner. These derivative instruments are not designated as hedging instruments. The Company recognizes gains and losses on these contracts, as well as related costs, in “Interest and other income (expense), net” along with the gains and losses of the related hedged items. The Company records the fair value of derivative instruments as either “Prepaid expenses and other” or “Accrued liabilities” on the accompanying condensed consolidated balance sheets based on current market rates.

At March 31, 2012 and December 31, 2011, net derivative assets associated with the forward contracts of approximately $35,000 and $25,000, respectively, were included in “Prepaid expenses and other.” The effect of the derivative financial instruments on the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011 was to increase (decrease) foreign exchange gains and losses by approximately $19,000 and $(90,000), respectively, which reflects both realized and unrealized gains (losses) related to our derivative financial instruments.

8

Table of Contents

As of March 31, 2012, the Company had outstanding forward contracts with a notional value of R2.3 million South African Rand (ZAR), or approximately $303,000.

Note 5 — Acquisitions

Black Diamond Performance Reporting, LLC (“Black Diamond”)

On June 1, 2011, Advent acquired all the outstanding ownership units of Black Diamond, a privately held, Florida-based company which now operates as a wholly owned subsidiary of the Company. Black Diamond provides web-based, outsourced portfolio management and reporting platforms for investment advisors. The total purchase price of $72.4 million, net of cash acquired of $0.2 million, was paid in cash. Of the total purchase price, $7.0 million was placed into escrow until December 2012 to be held as partial security for any losses incurred by the Company in the event of certain breaches of the representation and warranties contained in the acquisition agreement or certain other events. Pro forma results of operations have not been presented because the effect of the acquisition was not material to the Company’s consolidated results of operations.

The acquisition was accounted for in accordance with the purchase method of accounting. The total purchase price was allocated to net tangible and intangible assets based on their estimated fair values as of June 1, 2011. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using valuation methods that discount expected future cash flows to present value using estimates and assumptions determined by management. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill, which is fully deductible for income tax purposes.

The allocation of the purchase price and the estimated useful lives associated with certain assets was as follows:

Black Diamond’s tangible assets and liabilities as of June 1, 2011 were reviewed and adjusted to their fair value as necessary. Current assets are primarily comprised of accounts receivable and prepaids. Non-current assets were primarily comprised of facility deposits and fixed assets. Current liabilities include accrued liabilities, accrued compensation and benefits, sales commissions payable, sales tax payable and deferred revenues. In connection with the acquisition of Black Diamond, Advent assumed Black Diamond’s contractual obligations related to its deferred revenues. Black Diamond’s deferred revenues were derived primarily from set up fees related to the implementation of its web-based services and from contracts where revenue is recognized upon completion of the project. Advent recorded an adjustment to reduce the carrying value of deferred revenues to represent the Company’s estimate of the fair value of the contractual obligations assumed.

9

Table of Contents

Syncova Solutions Ltd. (“Syncova”)

On February 28, 2011, Advent acquired all the outstanding shares of Syncova, a privately held, United Kingdom-based company, which now remains as a wholly-owned subsidiary of the Company. Syncova provides margin management and financing software to hedge funds and prime brokers. Syncova’s solutions enable hedge funds and prime brokers to calculate expected margin, reconcile and control differences. Syncova’s product offerings will be a part of Advent’s solution for the alternative and high end asset management markets. The total purchase price of $24.6 million, net of cash acquired of $0.8 million, was paid in cash.  Of the total proceeds, the equivalent of $4.8 million will be held in escrow subject to claims through February 2013. Pro forma results of operations have not been presented because the effect of the acquisition was not material to the Company’s consolidated results of operations.

The acquisition was accounted for in accordance with the purchase method of accounting. The total purchase price was allocated to net tangible and intangible assets based on their estimated fair values as of February 28, 2011. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using valuation methods that discount expected future cash flows to present value using estimates and assumptions determined by management. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill, which is fully deductible for income tax purposes.

The allocation of the purchase price and the estimated useful lives associated with certain assets was as follows:

*                 In-process research and development relates to costs attributed to a product version that was released in the fourth quarter of 2011 and is being amortized on a straight-line basis over the useful life of 3 years.

Syncova’s tangible assets and liabilities as of February 28, 2011 were reviewed and adjusted to their fair value as necessary. Current assets are primarily comprised of accounts receivable and deferred tax assets. Non-current assets were primarily comprised of facility deposits and fixed assets. Current liabilities include accrued liabilities, deferred tax assets and deferred revenues. In connection with the acquisition of Syncova, Advent assumed Syncova’s contractual obligations related to its deferred revenues. Syncova’s deferred revenues were derived primarily from term license arrangements, and service and maintenance related to perpetual licenses. As a result, Advent recorded an adjustment to reduce the carrying value of deferred revenues to represent the Company’s estimate of the fair value of the contractual obligations assumed.

Note 6—Discontinued Operation

During 2009, the Company decided to discontinue the operations of its MicroEdge subsidiary, which provided products and services to the not-for-profit business community, to concentrate on its core investment management business. In connection with this decision, the Company completed the sale of MicroEdge on October 1, 2009 to an affiliate of Vista Equity Partners III, LLC (“Purchaser”). The Company sold net assets in MicroEdge totaling $3.0 million.  The total consideration received by the Company in connection with the divestiture was approximately $30.0 million in cash, of which $27.0 million in cash was paid on the closing date. The remaining $3.0 million of the Purchase Price was held in escrow and was released to the Company in March 2011, resulting in the Company recording a net gain of $1.7 million in “net income from discontinued operation, net of applicable taxes” in the first quarter of 2011.

10

Table of Contents

As part of the disposition, certain assets and obligations of the Company’s discontinued operation were excluded from the sale and are reflected on the Company’s balance sheet as of March 31, 2012 and December 31, 2011. Assets excluded from the sale include cash and deferred tax assets. Liabilities excluded from the sale include sales tax and other tax-related obligations, future payments related to a two year service and maintenance agreement, and continuing lease obligations included as part of the restructuring noted below.

In connection with the sale of MicroEdge, the Company vacated its MicroEdge facilities in New York and entered into a sub-lease agreement with the Purchaser, whereby the Purchaser contracted to sub-lease the premises for two years with the option to extend the sub-lease term through the end of the lease term in 2018. The sub-lease agreement was amended during the first quarter of 2011. Under the amended sub-lease agreement, the Purchaser will sub-lease the premises through the end of the lease term, with an option to terminate in September 2013, subject to penalties.

The following table sets forth an analysis of the components of the restructuring charges related to the Company’s discontinued operation and the payments and non-cash charges made against the accrual during the first quarter of 2012 (in thousands):

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

11

Table of Contents

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

Note 7—Stock-Based Compensation

Equity Award Activity

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

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s closing stock price of $25.60 as of March 31, 2012 for options and SARs that were in-the-money as of that date.

The weighted average grant date fair value of options and SARs granted (as determined under ASC 718), total intrinsic value of options and SARs exercised and cash received from option exercises during the first quarter of 2012 and 2011 were as follows (in thousands, except weighted average grant date fair value):

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

12

Table of Contents

A summary of the status of the Company’s restricted stock unit (“RSU”) activity for the three months ended March 31, 2012 is as follows:

The weighted average grant date fair value was determined based on the closing market price of the Company’s common stock on the date of the award. The aggregate intrinsic value of RSUs outstanding at March 31, 2012 was $31.0 million, using the closing price of $25.60 per share as of March 31, 2012.

Stock-based employee compensation expense recognized on Advent’s condensed consolidated statement of operations for the first quarter of 2012 and 2011 was as follows (in thousands):