News Column

ADVENT SOFTWARE INC /DE/ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 8, 2014

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes included under Item 1 of this Form 10-Q. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, including, but not limited to statements referencing our expectations relating to future revenues, expenses and operating margins. Forward-looking statements can be identified by the use of terminology such as "may," "will," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," "intends" or other similar terms and the negative of such terms regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include, among others, statements referencing our expectations relating to future revenues, expenses and operating margins, product releases, the future of the investment management market and opportunities for us related thereto, future expansion, acquisition, divestment of or investment in other businesses, projections of revenues, future cost and expense levels, expected timing and amount of amortization expenses related to past acquisitions, future effective tax rates, future exchange rates, the adequacy of resources to meet future cash requirements, renewal rates, estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, future client wins, future hiring and future product introductions and acceptance. Such forward-looking statements are based on our current plans and expectations and involve known and unknown risks and uncertainties which may cause our actual results or performance to be materially different from any results or performance expressed or implied by such forward-looking statements. Such factors include, but are not limited to the "Risk Factors" set forth in "Item 1A. Risk Factors" in this Form 10-Q, as well as other risks identified from time to time in other Securities and Exchange Commission ("SEC") reports. You should not place undue reliance on our forward-looking statements, as they are not guarantees of future results, levels of activity or performance and represent our expectations only as of the date they are made.



Unless expressly stated or the context otherwise requires, the terms "we", "our", "us", the "Company" and "Advent" refer to Advent Software, Inc. and its subsidiaries.

Overview We offer software products and services for automating and integrating data and work flows across the investment management organization, as well as between the investment management organization and external parties. Our products are intended to increase operational efficiency, improve the accuracy of client information and enable better decision-making. Each solution focuses on specific mission-critical functions of the investment management organization (portfolio accounting and reporting; trade order management and post-trade processing; research management; account management; and custodial reconciliation) and is tailored to meet the needs of the particular market segment of the investment management industry, as determined by size, assets under management and complexity of the investment process.



The results of MicroEdge, a former subsidiary which we sold in 2009, have been reclassified as a discontinued operation for all periods presented. Unless otherwise noted, discussion in this document pertains to our continuing operations.

Recent Developments



Quarterly cash dividend. In April 2014, our Board of Directors declared a quarterly cash dividend of $0.13 per common share payable to the Company's shareholders of record as of June 30, 2014. On July 15, 2014, we paid this dividend which totaled $6.7 million.

Operating Overview



Operating highlights of our second quarter of 2014 include:

Annualized Recurring Run Rate. Annualized Recurring Run Rate of all of our contracted recurring revenue streams was $366.1 million at June 30, 2014, an increase of 3% compared to $356.6 million at June 30, 2013. Renewal rates. Initially disclosed renewal rates, which are based on cash collections and therefore reported one quarter in arrears, were 94% for the first quarter of 2014, the same as in the first quarter of 2013. New and incremental bookings. The term license Advent OnDemand and Black Diamond contracts signed in the second quarter of 2014 will contribute approximately $7.7 million in annual revenue ("annual contract value" or "ACV") once they are fully implemented, compared to $6.7 million of ACV booked from contracts signed in the same period last year. 20 --------------------------------------------------------------------------------



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Operating cash flows. Cash flows from operations in the second quarter of 2014 were $22.4 million which represents an increase of 3% compared with $21.9 million in the same period last year.



Repurchase of common stock. We repurchased approximately 426,000 shares of our common stock for a total cash outlay of $12.4 million at an average price of $29.11 per share during the second quarter of 2014.

Financial Overview



Financial highlights of our second quarter of 2014 and 2013 were as follows (in thousands, except per share amounts, percentages and margin changes):

Percentage / Three Months Ended June 30 Margin 2014 2013 Change Net revenues $ 100,370$ 96,123 4 % Gross margin $ 70,579$ 65,727 7 % Gross margin percentage 70.3 % 68.4 % 1.9 pts Operating income (loss) $ 21,753$ (5,849 ) 472 % Operating margin percentage 21.7 % (6.1 )% 27.8 pts Net income (loss) from continuing operations $ 12,655$ (4,155 ) 405 % Net income (loss) from continuing operations per diluted share $ 0.24 $ (0.08 ) 394 % Operating cash flows $ 22,439$ 21,875 3 % We incurred a loss from continuing operations in the second quarter of 2013 due to costs incurred in connection with our recapitalization transaction. These costs included, on a pre-tax basis, $6.7 million of third party costs which were not included in capitalized debt issue costs and $21.9 million of stock-based compensation expense associated with the modification of equity awards.



Term License and Term License Deferral

Term license revenues comprise substantially all of our license revenues. When a customer purchases a term license together with implementation services, we do not recognize any revenue under the contract until the implementation services are substantially complete. If the implementation services are still in progress as of quarter-end, we defer all of the contract revenues to a subsequent quarter. When professional services are substantially completed, we recognize a pro-rata amount of the term license revenue, professional services fees earned and related expenses, based on the elapsed time from the start of the term license to the substantial completion of professional services. Term license revenue for the remaining contract years and the remaining deferred professional services revenue and related expenses are recognized ratably over the remaining contract term. The term license component of the deferred revenue balance related to implementations in process will increase or decrease in the future depending on the amount of new term license bookings relative to the number of implementations that reach completion in a particular quarter. For the three and six months ended June 30, 2014 and 2013, changes in the net term license component of deferred revenues increased (decreased) the Company's revenues, costs and operating income as follows (in thousands): Three Months Ended June 30



Six Months Ended June 30

2014 2013 Change 2014 2013 Change Term license revenues $ 767 $ 206 $ 561$ 495$ (1,469 )$ 1,964 Professional services and other 1,058 (549 ) 1,607 2,723 (2,000 ) 4,723 Total net revenues $ 1,825 $ (343 )$ 2,168$ 3,218$ (3,469 )$ 6,687 Professional services costs $ 871 $ (382 )$ 1,253$ 1,973$ (1,275 )$ 3,248 Sales commissions costs 179 69 110 294 (216 ) 510 Total net costs $ 1,050 $ (313 )$ 1,363$ 2,267$ (1,491 )$ 3,758 Operating income $ 775 $ (30 ) $ 805$ 951$ (1,978 )$ 2,929 21

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As of June 30, 2014 and December 31, 2013, deferred revenue and directly related expense balances associated with our term licensing deferral were as follows (in thousands): June 30 December 31 2014 2013 Deferred revenues Short-term $ 30,452$ 33,505 Long-term 6,593 6,758 Total $ 37,045$ 40,263 Directly-related expenses Short-term $ 9,055$ 11,055 Long-term 4,199 4,467 Total $ 13,254$ 15,522



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

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2014 as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.



Recent Accounting Pronouncements

With the exception of the below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2014, as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, that are of significance, or potential significance, to our condensed consolidated financial statements. In April 2014 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." This update raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures for discontinued operations and disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014, which means that it will be effective for our fiscal year beginning January 1, 2015. Early adoption of ASU 2014-08 is permitted, but only for disposals or assets held for sale that have not been reported in previously issued (or available to be issued) financial statements. We have not early adopted the provisions of ASU 2014-08. We expect to adopt this new standard in the first quarter of fiscal year 2015 and do not expect the adoption to have a material impact on our condensed consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles when it becomes effective. ASU 2014-09 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2016, which means that it will be effective for our fiscal year beginning January 1, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt the standard and early adoption is not permitted. We are evaluating the impact of the adoption of ASU 2014-09 on our condensed consolidated financial statements. In June 2014, the FASB issued ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period." ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015, which means that it will be effective for our fiscal year beginning January 1, 2016. Early adoption of ASU 2014-12 is permitted. We will adopt ASU 2014-12 effective January 1, 2016 and do not expect the adoption to have a material impact on our condensed consolidated financial statements. 22

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RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

The following table summarizes, for the periods indicated, certain items in the condensed consolidated statements of operations as a percentage of net revenues. The financial information and the ensuing discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto: Three Months Ended June 30 Six Months Ended June 30 2014 2013 2014 2013 Net revenues: Recurring revenues 92 % 92 % 92 % 92 % Non-recurring revenues 8 8 8 8 Total net revenues 100 100 100 100 Cost of revenues: Recurring revenues 21 19 20 18 Non-recurring revenues 7 10 8 10 Amortization of developed technology 2 2 2 3 Total cost of revenues 30 32 30 31 Gross margin 70 68 70 69 Operating expenses: Sales and marketing 18 24 19 21 Product development 17 19 18 18 General and administrative 11 24 11 17 Amortization of other intangibles 1 1 1 1 Recapitalization costs * 6 * 3 Restructuring charges 2 1 1 2 Total operating expenses 49 74 50 63 Income (loss) from continuing operations 22 (6 ) 21 5 Interest and other income (expense), net (2 ) (1 ) (2 ) (1 ) Income (loss) from continuing operations before income taxes 20 (7 ) 19 5 Provision (benefit) for income taxes 7 (3 ) 7 * Net income (loss) from continuing operations 13 (4 ) 12 4 Discontinued operation: Net loss from discontinued operation * * * * Net income (loss) 13 % (4 )% 12 % 4 %



Percentages are based on actual values. Totals may not sum due to rounding.

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* Less than 1%. 23

-------------------------------------------------------------------------------- Table of Contents NET REVENUES Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change



Total net revenues (in thousands) $ 100,370$ 96,123$ 4,247$ 197,174$ 188,613$ 8,561

We derive our revenues from two sources: recurring revenues and non-recurring revenues. Recurring revenues are comprised of term license, perpetual maintenance arrangements and other recurring revenues (which includes revenues from Black Diamond, Advent OnDemand and incremental Assets Under Administration ("AUA") fees from perpetual licenses). The revenues from a term license, which includes both software license and maintenance services, are earned under a time based contract. Maintenance revenues are derived from maintenance fees on perpetual license arrangements. Other recurring revenues are derived from our subscription services and transaction-based services as well as AUA fees for certain perpetual arrangements. Non-recurring revenues consists of professional services and other revenue and perpetual license fees. Professional services and other revenues include fees for consulting, fees from training, project management services and our client conferences. Perpetual license revenues are derived from the licensing of software products under a perpetual arrangement. Sales returns, which we generally do not provide to customers, are accounted for as deductions to these two revenue categories based on our historical experience. Revenues derived from sales outside the U.S. were 18% and 17% of total net revenues in the second quarter of 2014 and 2013, respectively, and were 18% for the six months ended June 30, 2014 and 2013. The increase as a percentage of total revenues during the second quarter of 2014 primarily reflects a slight rebound in growth outside the U.S. We plan to continue expanding our sales efforts outside the U.S., both in our current markets and elsewhere. Except for the U.S., the revenues from customers in any single country did not exceed 10% of total net revenues.



We expect total net revenues from continuing operations to be between $99 million and $102 million in the third quarter of 2014.

Recurring Revenues Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Term license revenues $ 49,265$ 45,030$ 4,235$ 96,304$ 86,282$ 10,022 Maintenance revenues 16,571 16,334 237 32,712 32,770 (58 ) Other recurring revenues 26,698 26,899 (201 ) 52,648 53,694 (1,046 ) Total recurring revenues $ 92,534$ 88,263$ 4,271$ 181,664$ 172,746$ 8,918 Percent of total net revenues 92 % 92 % 92 % 92 % Revenues from term licenses, which include both software license and maintenance services for term licenses, increased $4.2 million and $10.0 million during the three and six months ended June 30, 2014, respectively, when compared to the same periods of 2013. This growth reflects strong renewals, the continued layering of incremental annual contract value (ACV) of term licenses sold in previous periods into our term revenue, the continued market acceptance of our products and less deferral of term license revenue in both of the three and six month comparative periods.



For our term licenses, we defer all revenue on new bookings until our implementation services are complete. The change in our term license implementation deferral increased/(decreased) term license revenues for the periods presented as follows (in thousands):

Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change Term license revenues $ 767 $ 206 $ 561

$ 495$ (1,469 )$ 1,964 During the three and six months ended June 30, 2014, the dollar value associated with projects that completed the implementation phase exceeded the dollar value of projects that commenced compared to the same periods last year, respectively, resulting in less deferral of term license revenues and a corresponding increase in term license revenues. Maintenance revenues from perpetual licenses increased by $0.2 million and was flat during the three and six months ended June 30, 2014, respectively, when compared to the same periods last year. Generally, we sell very few perpetual licenses to new customers and therefore have seen a trend of declining maintenance revenues due to maintenance de-activations from customer attrition, maintenance level downgrades, reductions in products licensed or number of users by clients, perpetual license customers migrating to term licenses, and a decrease in new perpetual license customers, partially offset by the impact of price increases. 24

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During the second quarter of 2014, strong renewals led to maintenance revenues increasing slightly year over year. We expect to continue to see a long-term downward trend in maintenance revenues from perpetual licenses as we continue to sell predominantly term licenses. Other recurring revenues primarily include revenues from incremental assets under administration ("AUA") fees from perpetual licenses, data services, outsourced services, Advent OnDemand, web-based services and Black Diamond. The decrease of $0.2 million and $1.0 million in other recurring revenues for the three and six months ended June 30, 2014, respectively, compared to the same periods last year, primarily reflect lower fees of $2.2 million per quarter in both the first and second quarters of 2014 from a renewed agreement with one of our larger clients effective in the third quarter of 2013. In addition, incremental assets under administration fees from perpetual licenses in the three and six months ended June 30, 2013 included $1.1 million due to an AUA report received in the first quarter of 2013 that typically reports in the fourth quarter. These decreases were partially offset by continued growth in our Black Diamond product of $0.5 million and $3.5 million during the three and six months ended June 30, 2014, respectively, and to a lesser extent, growth in revenues from data services, outsourced services, and web-based services. Our renewal rates are based on cash collections and are disclosed one quarter in arrears. We disclose our renewal rates one quarter in arrears in order to include substantially all payments received against the invoices for that quarter. We also update our renewal rates from the initially disclosed rates to include all cash collections subsequent to the initial disclosure. The following summarizes our initial and updated renewal rates (operational metric) since the first quarter of 2013: Renewal Quarter Renewal Rates Q214 Q114 Q413 Q313 Q213 Q113 Based on cash collections relative to prior year collections



Initially Disclosed Renewal Rate (1) (2 ) 94 % 95 % 97 % 92 % 94 % Updated Disclosed Renewal Rate (3) n/a n/a 99 % 100 % 95 % 99 %

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(1) "Initially Disclosed Renewal Rate" is based on cash collections and reported one quarter in arrears.

(2) The initially disclosed renewal rate for the second quarter of 2014 is not currently available as it is disclosed one quarter in arrears in order to include substantially all payments against invoices for this quarter.



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

Non-Recurring Revenues Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Professional services and other revenues $ 7,293 $



7,341 $ (48 )$ 14,536$ 14,393$ 143 Perpetual license fees

543 519 24 974 1,474 (500 ) Total non-recurring revenues $ 7,836 $



7,860 $ (24 )$ 15,510$ 15,867$ (357 )

Percent of total net revenues 8 % 8 % 8 % 8 % Non-recurring revenues consists of perpetual license fees, professional services and other revenues. Professional services and other revenues include fees for consulting, project management, custom implementation and integration, custom report writing, training and our client conference. Perpetual license revenues are derived from the licensing of software products under a perpetual arrangement. Professional services projects related to Axys, Moxy and Partner products generally can be completed in a two- to six-month time period, while services related to Geneva and APX products may require four to nine months. We defer professional services revenue for services performed on term license implementations that are not considered substantially complete. Service revenue is deferred until the implementation is complete and remaining services are substantially completed. Upon substantial completion, we recognize a pro-rata amount of professional services fees earned based on the elapsed time from the start of the term license to the substantial completion of professional services. The remaining deferred professional services revenue is recognized ratably over the remaining contract term. 25 --------------------------------------------------------------------------------



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Professional services and other revenues changed due to the following (in thousands): Change From Change From 2013 to 2014 2013 to 2014 QTD YTD Increased revenue related to release of term license implementation deferral $ 1,607$ 4,723 Decreased consulting services (379 ) (1,537 ) Decreased project management (322 ) (838 ) Decreased custom reports (282 ) (641 ) Decreased data conversion (417 ) (751 ) Various other items (255 ) (813 ) Total change $ (48 ) $ 143 The total change in professional services and other revenues during the three and six months ended June 30, 2014, compared to the same periods last year, primarily reflects the increase in recognition of net deferred revenue resulting from more projects being completed compared to the same periods last year. These increases were offset by less professional services and other revenue, as the decrease in recent bookings activity since the fourth quarter of 2013 led to less demand for these professional services.



The change in our term license implementation deferral increased/(decreased) professional services and other revenues for the three and six months ended June 30, 2014, as follows (in thousands):

Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change

Professional services and other $ 1,058 $ (549 )$ 1,607$ 2,723$ (2,000 )$ 4,723



Total perpetual license fees were flat and decreased $0.5 million in the three and six month periods ended June 30, 2014, respectively, primarily due to a decrease in sales of perpetual seat licenses and modules to our existing perpetual client base as we now sell predominantly term licenses.

COST OF REVENUES Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Stock-based compensation expense $ 1,188 $



3,036 $ (1,848 )$ 2,405$ 3,906$ (1,501 ) All other cost of revenues

$ 28,603 $



27,360 $ 1,243$ 55,868$ 54,969$ 899 Percent of total net revenues

28 % 28 % 28 % 29 % Total cost of revenues $ 29,791 $



30,396 $ (605 )$ 58,273$ 58,875$ (602 ) Percent of total net revenues

30 % 32 % 30 % 31 % Cost of revenues is made up of three components: cost of recurring revenues, cost of non-recurring revenues and amortization of developed technology, and are discussed individually in the narrative below. Gross margin improved to 70% in the three and six months ended June 30, 2014 from 68% and 69%, respectively, in the comparable periods of 2013 as we improved efficiency in our global support organization and recognized less amortization expense as certain technology-related intangible assets became fully amortized. Gross margin in the three and six months ended June 30, 2014 reflects lower stock-based compensation expense associated with the equity award modification as compared with the same periods last year, as expense related to fully vested shares was recognized entirely in the second quarter of 2013, as disclosed previously in our 2013 Annual Report on Form 10-K. This was partially offset by higher payroll costs to support our recurring revenues. Prior to April 1, 2014, we had a number of employees who had a dual role of both client satisfaction and revenue retention and were classified within sales and marketing expense. Beginning in the second quarter of 2014, we divided the team and reclassified those employees that were exclusively focused on client success into cost of recurring revenue resulting in approximately of $1.5 million of additional cost during the period. 26 --------------------------------------------------------------------------------

Table of Contents Cost of Recurring Revenues Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Stock-based compensation expense $ 834 $



1,306 $ (472 )$ 1,676$ 1,794$ (118 ) All other cost of recurring revenues

$ 19,755 $



16,673 $ 3,082$ 37,540$ 32,597$ 4,943 Percent of total recurring revenues

21 % 19 % 21 % 19 % Total cost of recurring revenues $ 20,589 $



17,979 $ 2,610$ 39,216$ 34,391$ 4,825 Percent of total recurring revenues

22 % 20 % 22 % 20 % Cost of recurring revenues consists of the direct costs related to providing and supporting our outsourced services, providing technical support services under maintenance and term license agreements and other services for recurring revenues, and royalties paid to third party vendors.



Cost of recurring revenues changed due to the following (in thousands):

Change From Change From 2013 to 2014 2013 to 2014 QTD YTD Increased payroll and related $ 1,452$ 2,214 Increased outside services 1,376 2,275 Decreased stock-based compensation (472 ) (118 ) Various other items 254 454 Total change $ 2,610$ 4,825 The increase in the cost of recurring revenues for the three and six months ended June 30, 2014 was primarily due to increased payroll and related costs and increased outside services. Headcount in our client support group increased to 342 at June 30, 2014 from 339 at June 30, 2013. During the second quarter of 2014, we re-categorized 15 relationship management employees from sales and marketing to cost of recurring as their responsibilities have evolved to focus primarily on customer satisfaction. The increase in outside services costs reflects increased utilization of third-party contractors in advance of the release of our new cloud platform, Advent Direct, anticipated in the second half of 2014. Stock-based compensation cost decreased during the three and six months ended June 30, 2014 compared to the same periods last year, as expense on fully vested stock options and stock appreciation rights (SARs) associated with the equity award modification was recognized entirely in the second quarter of 2013.



Cost of Non-Recurring Revenues

Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Stock-based compensation expense $ 354 $



1,730 $ (1,376 ) $ 729 $ 2,112$ (1,383 ) All other cost of non-recurring revenues

$ 7,160 $



8,289 $ (1,129 )$ 14,840$ 17,475$ (2,635 ) Percent of total non-recurring revenues

91 % 105 % 96 % 110 % Total cost of non-recurring revenues $ 7,514 $



10,019 $ (2,505 )$ 15,569$ 19,587$ (4,018 ) Percent of total non-recurring revenues

96 % 127 % 100 % 123 % Cost of non-recurring revenues consists of expenses associated with professional services and other fees, and perpetual license fees. Costs associated with professional services and other revenue consists primarily of personnel-related costs associated with the professional services organization in providing consulting, custom report writing and data conversion from clients' previous systems. Costs associated with perpetual license fees consists primarily of royalties and other fees paid to third parties, the fixed direct labor and third party costs involved in producing and distributing our software, and cost of product media including duplication, manuals and packaging materials. Also included are direct costs associated with third party consultants. At the point professional services are substantially completed, we recognize a pro-rata amount of the related expenses based on the elapsed time from the start of the term license to the substantial completion of professional services. The remainder of the related expenses is recognized ratably over the remaining contract term. Indirect costs such as management and other overhead expenses are recognized in the period in which they are incurred. 27 --------------------------------------------------------------------------------



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Cost of non-recurring revenues changed due to the following (in thousands):

Change From Change From 2013 to 2014 2013 to 2014 QTD YTD Decreased payroll and related $ (889 )$ (2,022 ) Decrease stock-based compensation (1,376 ) (1,383 ) Decreased outside contractors (1,140 ) (2,472 ) Decreased allocation-in of facility and infrastructure expenses (342 ) (598 ) Decreased travel and entertainment (212 ) (581 ) Increased cost related to release of term license implementation deferral 1,253 3,249 Various other items 201 (211 ) Total change $ (2,505 )$ (4,018 ) The decrease in cost of non-recurring revenues during the three and six months ended June 30, 2014 primarily reflects decreased payroll and related costs and decreased outside contractor utilization, as well as decreased stock-based compensation. Payroll and related costs, and the allocation of facility and infrastructure expenses reflect a reduction in headcount in our professional services group to 95 at June 30, 2014 from 126 at June 30, 2013 as a result of the reorganization plan approved in the fourth quarter of 2012. Third-party contractor costs and related travel and entertainment costs decreased due to lower demand for implementation projects. Stock-based compensation cost decreased in the three and six months ended June 30, 2014 compared to the same periods last year, due to the equity award modification in the second quarter of 2013. These decreases were partially offset by increases in deferred professional services costs as more projects were completed in the three and six months ended June 30, 2014 compared to the same periods last year.



The change in our term license deferral increased/(decreased) professional services costs for the three and six months ended June 30, 2014 and 2013 as follows (in thousands):

Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change



Professional services costs $ 871 $ (382 ) $ 1,253

$ 1,973$ (1,276 )$ 3,249 Gross margins for non-recurring revenues were 4% and (27)% for the three months ended June 30, 2014 and 2013, respectively, and were break-even and (23)% for the six months ended June 30, 2014 and 2013, respectively. Non-recurring gross margins during the first half of 2014 improved primarily as a result of increased revenues and related costs from the release of professional services revenues and costs associated with our term license implementation and improved efficiency in our global support organization. We defer only the direct costs associated with services performed on these arrangements. Indirect costs such as management and other overhead expenses are recognized in the period in which they are incurred, with no revenue to offset them. When the deferred professional service revenues and costs are released, our gross margins benefit as was the case during the first half of 2014.



Amortization of Developed Technology

Three Months Ended June 30



Six Months Ended June 30

2014 2013 Change 2014 2013 Change Amortization of developed technology (in thousands) $ 1,688$ 2,398$ (710 )$ 3,488$ 4,897$ (1,409 ) Percent of total net revenues 2 % 2 % 2 % 3 % Amortization of developed technology represents amortization of acquisition-related intangibles and capitalized software development costs. The decrease for the three and six months ended June 30, 2014 compared to the same periods last year resulted primarily from decreased amortization from certain technology-related intangible assets associated with Tamale Software, Inc. in the third quarter of 2013, which we acquired in October 2008, and other capitalized software development assets that fully amortized prior to April 1, 2014. 28

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Table of Contents OPERATING EXPENSES Sales and Marketing Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Stock-based compensation expense $ 2,661$ 6,523$ (3,862 )$ 5,296$ 8,046$ (2,750 ) All other sales and marketing $ 15,638$ 16,694$ (1,056 )$ 32,733$ 32,375$ 358 Percent of total net revenues 16 % 17 % 17 % 17 % Total sales and marketing expense $ 18,299$ 23,217$ (4,918 )$ 38,029$ 40,421$ (2,392 ) Percent of total net revenues 18 % 24 % 19 % 21 %



Sales and marketing expenses consist primarily of the costs of personnel involved in the sales and marketing process, sales commissions, advertising and promotional materials, sales facilities expense, trade shows, and seminars.

Sales and marketing expense changed due to the following (in thousands):

Change From Change From 2013 to 2014 2013 to 2014 QTD YTD



Decreased stock-based compensation $ (3,862 )$ (2,750 ) (Decreased) increased payroll and related

(906 ) 510 Decreased marketing (254 ) (515 ) Various other items 104 363 Total change $ (4,918 )$ (2,392 ) The decrease in total sales and marketing expenses during the three and six months ended June 30, 2014 compared to the same periods last year was primarily due to decreased stock-based compensation expense as a result of the equity award modification in the second quarter of 2013 and, to a lesser extent, decreased spend on marketing. Payroll expense decreased during the three months ended June 30, 2014 primarily due to lower salary and bonus expense as headcount in our sales and marketing group decreased to 172 at June 30, 2014 from 181 at June 30, 2013. During the second quarter of 2014, we re-categorized 15 relationship management employees from sales and marketing to cost of recurring revenues as their responsibilities have evolved to focus primarily on customer satisfaction. Payroll expense increased during the six months ended June 30, 2014 primarily due to increased costs in the first quarter of 2014 to support the release of our cloud platform. Product Development Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Stock-based compensation expense $ 1,923 $



3,532 $ (1,609 )$ 3,848$ 4,858$ (1,010 ) All other product development expense

$ 15,281 $



14,391 $ 890$ 30,995$ 30,027$ 968 Percent of total net revenues

15 % 15 % 16 % 16 % Total product development expense $ 17,204$ 17,923$ (719 )$ 34,843$ 34,885$ (42 ) Percent of total net revenues 17 % 19 % 18 % 18 % Product development expenses consist primarily of salary and benefits for our development staff as well as contractors' fees and other costs associated with the enhancements of existing products and services and development of new products and services. 29

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Product development expenses changed due to the following (in thousands):

Change From Change From 2013 to 2014 2013 to 2014 QTD YTD Decreased stock-based compensation $ (1,609 )$ (1,010 ) Increased capitalization of internal use software (1,376 ) (2,650 ) Increased payroll and related (129 ) (64 ) Increased outside contractors 920 2,216 Decreased capitalization of software development 1,425 953 Various other items 50 513 Total change $ (719 ) $ (42 ) The decrease in total product development expenses during the three and six months ended June 30, 2014 compared to the same periods last year was primarily due to decreased stock-based compensation expense as a result of the equity award modification in the second quarter of 2013 and increased capitalization of internal use software developments costs related to our cloud platform, Advent Direct. These decreases to expense were partially offset by increased utilization of third-party contractors on product development activities and decreased capitalization of software development associated with the timing of our product releases resulting in less costs being capitalized in the second quarter of 2014. General and Administrative Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percent of total net revenues) 2014 2013 Change 2014 2013 Change Stock-based compensation expense $ 1,912 $



14,098 $ (12,186 )$ 3,763$ 15,396$ (11,633 ) All other general and administrative expense

$ 8,801 $



8,543 $ 258$ 17,507$ 17,605$ (98 ) Percent of total net revenues

9 % 9 % 9 % 9 % Total general and administrative expense $ 10,713$ 22,641$ (11,928 )$ 21,270$ 33,001$ (11,731 ) Percent of total net revenues 11 % 24 % 11 % 17 %



General and administrative expenses consist primarily of personnel costs for information technology, finance, administration, operations and general management, as well as legal and accounting expenses.

General and administrative expenses changed due to the following (in thousands): Change From Change From 2013 to 2014 2013 to 2014 QTD YTD Decreased stock-based compensation $ (12,186 )$ (11,633 ) Increased allocation-out of facility and infrastructure expenses (406 ) (752 ) Increased computers and telecom 522



765

Increased payroll and related 167 73 Various other items (25 ) (184 ) Total change $ (11,928 )$ (11,731 ) The decrease in total general and administrative expenses for the three and six months ended June 30, 2014 was primarily due to decreased stock-based compensation expense as a result of the equity award modification in the second quarter of 2013 and the increased allocation of facility and infrastructure expense. Corporate expenses, such as facility and information costs, are initially recognized in our general and administrative department and then allocated out to other departments based on relative headcount. As our facility costs increased and headcount in our other departments grew at a higher rate than our general and administrative department, we allocated-out more facility and information technology costs during the three and six months ended June 30, 2014 than in the comparable periods last year. These cost decreases were partially offset by increased computers and telecom due to costs from more maintenance contracts and higher phone usage during the second quarter of 2014. 30

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Amortization of Other Intangibles

Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change

Amortization of other intangibles (in thousands) $ 870 $ 953 $ (83 )$ 1,779$ 1,910$ (131 ) Percent of total net revenues 1 % 1 % 1 % 1 % Other intangibles represent amortization of non-technology related to acquired intangible assets. The slight decrease in the three and six months ended June 30, 2014 compared to the same periods last year reflects certain assets that fully amortized in the third quarter of 2013 associated with Tamale Software, Inc., which we acquired in October 2008. Recapitalization Costs Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change Recapitalization costs (in thousands) $ - $ 6,041 $ (6,041 ) $ - $ 6,041 $ (6,041 ) Percent of total net revenues 0 % 6 % 0 % 3 %



We had no recapitalization costs during 2014. During the three months ended June 30, 2013, in conjunction with the debt modification, special dividend and equity award modification, we incurred a total of $6.0 million in operating expenses related to advisory fees from third parties including financial advisory fees, legal fees and valuation fees.

Restructuring Charges Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change Restructuring charges (in thousands) $ 1,740 $ 801$ 939$ 1,914$ 3,116$ (1,202 ) Percent of total net revenues 2 % 1 % 1 % 2 % We incurred restructuring charges of $1.7 million and $1.9 million in the three and six months ended June 30, 2014, respectively, which were primarily due to employee termination benefits associated with the re-organization plan approved in April 2014. In our continuous efforts to expand operating margins, we will replace approximately 32 functional roles with lower cost resources or move them to lower cost regions. As a result, we expect annual operating expense run rate savings of approximately $3 million which will be used to fund investments in other areas of our business to improve productivity, efficiency and client experience. For additional analysis of the components of the payments and charges made against the restructuring accrual during the first half of 2014, see Note 14, "Restructuring Charges" to the accompanying condensed consolidated financial statements.



Interest and Other Income (Expense), Net

Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change Interest and other income (expense), net (in thousands) $ (1,948 )$ (1,330 )$ (618 )$ (4,173 )$ (1,633 )$ (2,540 ) Percent of total net revenues (2 )% (1 )% (2 )% (1 )%



Interest and other income (expense), net consists of interest income and interest expense, realized gains and losses on investments and foreign currency gains and losses.

Interest and other income (expense), net changed due to the following (in thousands): Change From Change From 2013 to 2014 2013 to 2014 QTD YTD Increase in interest expense $ (393 )$ (1,920 ) Decrease in interest income (131 ) (283 ) Impact of foreign exchange (90 ) (363 ) Various other items (4 ) 26 Total change $ (618 )$ (2,540 ) 31

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Interest and other income (expense), net increased during the three and six months ended June 30, 2014 compared to the same periods last year, primarily due to increased interest expense and, to a lesser extent, the impact of foreign exchange and decreased interest income. Interest expense increased in the 2014 periods primarily as a result of higher average balance of debt during the first half of 2014 (approximately $300 million) compared to the first half of 2013 (approximately $95 million); and amortization of debt issuance costs associated with our most recent debt agreement executed in the second quarter of 2013. The change in foreign exchange impact was due to fluctuations in the U.S. Dollar exchange rate against certain foreign currencies. Interest income decreased primarily due to a decrease in cash, cash equivalents and marketable securities to $41.3 million at June 30, 2014 from $404.0 million at June 30, 2013.



Provision (Benefit) for Income Taxes

Three Months Ended June 30 Six Months Ended June 30 2014 2013 Change 2014 2013 Change Provision (benefit) for income taxes (in thousands) $ 7,150$ (3,024 )$ 10,174$ 13,331$ 829$ 12,502 Effective tax provision rate 36 % (42 )% 36 % 9 % The effective tax rates for the three and six months ended June 30, 2014 were significantly higher than the rates for the same periods last year. As of June 30, 2014, the federal research credit was suspended for 2014, resulting in a higher tax rate for the first half of 2014. Additionally, the reinstatement of the federal research credit in January 2013 resulted in our recognition of the benefit of the entire 2012 credit in the first quarter of 2013. During the second quarter of 2013 we recognized a tax benefit of $(3.0) million at an effective tax rate of (42)% as a result of our $(7.2) million loss before income taxes. The increase in the effective tax rate for the quarter was due to a significant reduction in our expected per-tax book income for the year as a result of expenses associated with the recapitalization during the period.



LIQUIDITY AND CAPITAL RESOURCES

Cash, Cash Equivalents and Cash Flows

The following is a summary of our cash and cash equivalents (in thousands):

June 30December 31 2014 2013



Cash and cash equivalents $ 41,332$ 33,828

Cash and cash equivalents primarily consist of cash and money market mutual funds purchased with an original or remaining maturity of 90 days or less at the date of purchase.

The table below, for the periods presented, provides selected cash flow information (in thousands): Six Months Ended June 30 2014 2013 Net cash provided by operating activities from continuing operations $ 43,314



$ 39,066 Net cash (used in) provided by investing activities from continuing operations

$ (5,506 )



$ 152,054 Net cash (used in) provided by financing activities from continuing operations

$ (30,063 )$ 139,972 Net cash used in operating activities from discontinued operation $ (223 )$ (208 )



Cash Flows from Operating Activities for Continuing Operations

Our cash flows from operating activities for continuing operations represent the most significant source of funding for our operations. The major uses of our operating cash include funding payroll (salaries, commissions, bonuses and benefits), general operating expenses (marketing, travel, computer and telecommunications, legal and professional expenses, and office rent), cost of revenues, interest from debt service and taxes. Our cash provided by operating activities generally follows the trend in our net revenues, operating results and bookings. Our cash provided by operating activities from continuing operations of $43.3 million during the six months ended June 30, 2014 was primarily the result of our net income plus non-cash charges including stock-based compensation, net of related excess tax benefit, and depreciation and amortization. Cash flows resulting from changes in assets and liabilities include decreases in deferred revenues, accrued liabilities and prepaid and other assets; and an increase in accounts payable. The decrease in deferred revenues 32 --------------------------------------------------------------------------------



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primarily resulted from the ratable recognition of deferred term license, maintenance and other recurring revenues over their contract period during the six months ended June 30, 2014, and the release of deferred revenue associated with our term license implementations. Accrued liabilities decreased primarily as a result of cash payments for fiscal 2013 liabilities including year-end bonuses, commissions, RSU dividend equivalents and payroll taxes. Accrued liabilities include accrued dividend equivalent payments on restricted stock units (RSUs) in connection with the equity modification associated with the special dividend in 2013. During the first half of 2014, we made dividend equivalent payments of $2.7 million to RSU holders compared to zero in the first half of 2013. Prepaid and other assets decreased due to amortization of prepaid balances and a reduction in income taxes receivable. Accounts payable increased due to invoices received that were not paid during the period. Other changes in assets and liabilities included a decrease in accounts receivable. Days' sales outstanding were 54 days during the six months ended June 30, 2014, compared to 53 days during the same period last year. Our cash provided by operating activities from continuing operations of $39.1 million during the six months ended June 30, 2013 was primarily the result of our net income plus non-cash charges including stock-based compensation, and depreciation and amortization. Cash flows resulting from changes in assets and liabilities include decreases in accounts receivable and deferred revenues, and an increase in accrued liabilities. Days' sales outstanding were 53 days during the six months ended June 30, 2013, compared to 58 days in the same period of 2012. The decrease in deferred revenue primarily resulted from the ratable recognition of deferred term license, maintenance and other recurring revenues over their contract period during the six months ended June 30, 2013, and the release of deferred revenue associated with our term license implementations. The increase in accrued liabilities reflects the accrual of $5.4 million for cash payments due to certain equity award holders as a result of the equity award modification in the second quarter of 2013. This increase was partially offset by cash payments of fiscal 2012 liabilities including year-end bonuses, commissions, and payroll taxes. Other changes in assets and liabilities included an increase in accounts payable and a decrease in income taxes payable. We expect that cash provided by operating activities for continuing operations may fluctuate in future periods as a result of a number of factors including fluctuations in our net revenues and operating results, new term license bookings and renewals that increase deferred revenue, collection of accounts receivable, payment of federal income taxes and timing of payments. We expect cash provided by operating activities to be between $105 million and $115 million for fiscal year 2014.



Cash Flows from Investing Activities for Continuing Operations

Net cash used in investing activities from continuing operations of $5.5 million for the six months ended June 30, 2014 reflects capital expenditures of $4.4 million primarily related to internally developed software and the expansion of our Beijing office, and $1.0 million of capitalized software development costs. Net cash provided by investing activities from continuing operations of $152.1 million for the six months ended June 30, 2013 reflects sales and maturities of marketable securities of $213.4 million, partially offset by purchases of marketable securities of $57.9 million, capitalized software development costs of $1.9 million and capital expenditures of $1.6 million primarily related to information technology purchases. Proceeds from the sales and maturities of marketable securities were used to finance the special dividend of $470.1 million that was paid in July 2013.



We expect capital expenditures to be between $8 million and $11 million for fiscal year 2014, which includes our normal rate of capital expenditure plus an additional investment for technology investments to improve productivity, efficiency and client experience, and further build out of our Beijing and Jacksonville offices.

Cash Flows from Financing Activities for Continuing Operations

Net cash used in financing activities was $30.1 million for the six months ended June 30, 2014 and primarily reflected the net payment of debt of $25.0 million and the repurchase of $12.4 million of the our common stock, partially offset by tax benefits relating to excess stock-based deductions of $6.8 million, which represents the reduction in income taxes payable resulting from tax deductions from stock-based compensation. Net cash provided by financing activities was $140.0 million for the six months ended June 30, 2013 and primarily reflected proceeds from debt of $225.0 million and from stock option exercises of $16.2 million. This was partially offset by the repayment of debt of $95.0 million and payments totaling $6.5 million to satisfy withholding taxes on equity awards that are net share settled. In April 2014, our Board of Directors declared our first quarterly cash dividend of $0.13 per common share payable to shareholders of record as of June 30, 2014. We paid this dividend totaling $6.7 million on July 15, 2014.



Effective with the third quarter of 2014, we expect cash used in financing activities to include approximately $7 million per quarter to pay future quarterly cash dividends, subject to Board approval. Any future dividends are subject to the approval of the Company's Board of Directors.

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Working Capital and Stockholders' Deficit

As of June 30, 2014, our continuing operations had negative working capital of $(98.7) million, compared to negative working capital of $(105.5) million at December 31, 2013. Our negative working capital as of these dates was primarily due to payment of the special dividend of $470.1 million in July 2013 and stock repurchases totaling $41.3 million in the second half of 2013. The increase in our working capital of $6.8 million during the six months ended June 30, 2014 was primarily due to cash generated from operating activities and a reduction in deferred revenues, partially offset by the pay down of long-term debt and repurchases of our common stock. Our negative working capital at June 30, 2014 includes approximately $175.3 million of short-term deferred revenues, which represent invoiced bookings not yet recognized as revenue. Generally, deferred revenues do not require cash settlement. Instead, these represent revenue to recognize upon fulfillment of an obligation to customers. The cash costs incurred in fulfilling the obligation are a fraction of the amount of deferred revenue and are evidenced by the Company's recurring revenue gross margins of approximately 80% during the six month periods ended June 30, 2014 and 2013. As a result, we do not believe that our negative working capital balance reflects an inability to service our obligations over the next 12 months. As of June 30, 2014, our cash and cash equivalents totaled $41.3 million. We have additional borrowing capacity under our credit facility, as well as future cash flows generated by operating activities, to fund our working capital needs. After making the special dividend of $470.1 million in July 2013 and stock repurchases totaling $41.3 million in the second half of 2013, there remained a stockholders' deficit balance of $(111.8) million on our balance sheet as of December 31, 2013, which has declined to a stockholders' deficit of $(86.0) million as of June 30, 2014. We believe the Company generates significant liquidity from our backlog, predominance of recurring revenues and historically high renewal rates that are in the mid-90% range, and we believe our cash balances, cash generated from operations and availability under our debt agreement will be sufficient to satisfy our working capital needs, capital expenditures, and interest payments, repayment of debt principal, share repurchases and payment of quarterly dividends (subject to Board approval) on common shares for the next 12 to 24 months.



Term Loan and Revolving Credit Facility

On June 12, 2013, we entered into a Restated Credit Agreement. The Restated Credit Agreement amended and restated Advent's prior Credit Agreement, dated November 30, 2011. The Restated Credit Agreement provides for (i) a $200 million revolving credit facility, with a $25 million letter of credit sublimit and a $10 million swingline loan sublimit and (ii) a $225 million term loan facility. Advent may request revolving loans, swingline loans or the issuance of letters of credit until June 12, 2018, subject to demonstrating pro forma compliance with the financial covenant requirement under the Restated Credit Agreement. The Restated Credit Agreement also contains an incremental facility permitting Advent, subject to certain requirements, to arrange with the Lenders and/or new lenders for up to an aggregate of $75 million in additional commitments in the form of revolving loans or term loans. The proceeds of the revolving loans and term loans under the Restated Credit Agreement may be used for general purposes, including to finance dividends, repurchase common shares, finance acquisitions, or to finance other investments. 34 --------------------------------------------------------------------------------



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At June 30, 2014, we had a total debt balance of $280.0 million under our Restated Credit Agreement, of which $75.0 million was under the revolving credit facility; and at December 31, 2013, we had a total debt balance of $305.0 million under our Restated Credit Agreement, of which $90.0 million was under the revolving credit facility.



We were in compliance with all covenants associated with our Restated Credit Agreement as of June 30, 2014 as follows:

Ratio Calculation Covenant as of Covenant Requirement June 30, 2014 Leverage ratio (1) Maximum 3.75x (2) 2.2x Interest coverage ratio (3) Minimum 2.5x 13.6x



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(1) Calculated as the ratio of total debt to EBITDA, as defined by the Restated Credit Agreement, for the period of four consecutive fiscal quarters on the measurement date.

(2) The leverage ratio covenant requirement lowers to a maximum of 3.50x on June 30, 2015 and 3.25x on June 30, 2016.

(3) Calculated as the ratio of EBITDA to interest expense, as defined by the Restated Credit Agreement, for the period of four consecutive fiscal quarters on the measurement date.



Off-Balance Sheet Arrangements and Contractual Obligations

The following table summarizes our contractual cash obligations as of June 30, 2014 (in thousands):

Six Months Ending December 31 Years Ending December 31 2014 2015 2016 2017 2018 Thereafter Total Operating lease obligations, net of sub-lease income $ 5,388 $ 10,509$ 9,643$ 4,634$ 3,631$ 18,418$ 52,223 Debt* 10,000 20,000 20,000 20,000 210,000 - 280,000 Total $ 15,388$ 30,509$ 29,643$ 24,634$ 213,631$ 18,418$ 332,223



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*Excludes interest payments on our variable rate debt as amounts are uncertain. Refer to Note 5 "Debt" in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, for information about the terms of our debt.

As of June 30, 2014, the principal outstanding balance under our Restated Credit Agreement was $280.0 million, which is due in full no later than June 12, 2018. Our Restated Credit Agreement includes covenants requiring us to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio. As of June 30, 2014, we were in compliance with all of our covenants. We believe maintaining compliance with these covenants will not restrict our ability to execute our business plan in this fiscal year. At June 30, 2014, we had a gross liability of $15.0 million for uncertain tax positions. If recognized, the impact on our statement of operations would be to decrease our income tax expense and increase our net income by $12.3 million. The impact on net income reflects the liabilities for unrecognized tax benefits net of the federal tax benefit of state income tax items. Since almost all of this liability relates to reserves against deferred tax assets that we do not expect to utilize in the short term, we cannot estimate the timing of potential future cash settlements and have not included any estimates in the table of contractual cash obligations above. We expect our cash payments for federal income taxes will be 20% or less of taxable income through 2014 as we have significant net operating losses and tax credit carryforwards to utilize. At June 30, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. Dividends In April 2014, our Board of Directors declared the Company's first quarterly cash dividend of $0.13 per common share payable to shareholders of record as of June 30, 2014. On July 15, 2014, we paid this dividend which totaled $6.7 million. Any future dividends are subject to the approval of the Board of Directors. 35

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Other Liquidity and Capital Resources Considerations

Our liquidity and capital resources in any period could also be affected by the exercise of outstanding employee stock options and SARs, and issuance of common stock under our employee stock purchase plan. The resulting increase in the number of outstanding shares from this and from the issuance of common stock from our RSUs could also affect our per share results of operations. However, we cannot predict the timing or amount of proceeds from the exercise of these securities, or whether they will be exercised at all. We expect that for the next two years, our debt service costs and other operating expenses and any future quarterly dividends declared by our Board of Directors will constitute a significant use of cash flow. Accordingly, we anticipate having less available cash to fund acquisitions, repurchase additional common stock, or invest in other businesses when opportunities arise. Based upon the predominance of our revenues from recurring sources, bookings performance and current expectations, we believe that our cash balances, cash generated from operations and availability under our debt agreement will be sufficient to satisfy our working capital needs, capital expenditures and interest, repayment of debt principal, share repurchases and payment of quarterly dividends (subject to Board approval) on common shares for the next 12 to 24 months. However, we may identify opportunities that require us to raise funds, such as acquisitions or other investments in complementary businesses, products or technologies, and may raise such additional funds through public or private debt or additional borrowings under our current line of credit facility or equity financing. However, such financing may not be available at all, or if available, may not be obtainable on favorable terms, and could be dilutive. The Company has reviewed its needs in the United States for possible repatriation of undistributed earnings or cash of its non-U.S. subsidiaries. The Company presently intends to use indefinitely all earnings and cash outside of the United States of all non-U.S. subsidiaries to fund investments or meet working capital and property, plant and equipment requirements in those locations. At June 30, 2014, we had approximately $6.3 million of cash in our non-U.S. subsidiaries.


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