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Advent Software, Inc. (NASDAQ:ADVS)

Q3 2009 Earnings Call Transcript

October 27, 2009 5:00 pm ET

Executives

Heidi Flaherty – VP, Finance and IR

Stephanie DiMarco – CEO

Jim Cox – CFO

Peter Hess – President

Analysts

Andrey Glukhov – Brean Murray

David Scharf – JMP Securities

John Maietta – Needham & Company

Gil Luria – Wedbush

Sterling Auty – JP Morgan

Operator

Good afternoon, ladies and gentlemen. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Ms. Heidi Flaherty, you may begin your conference.

Heidi Flaherty

Thank you, Sarah. Good afternoon. I am Heidi Flaherty, Vice President of Finance and Investor Relations. Thank you for joining us today for Advent’s third quarter 2009 earnings call. Hosting our call today are Stephanie DiMarco, Advent's Chief Executive Officer; and Jim Cox, Advent’s Chief Financial Officer. Also with us today is our President, Peter Hess.

To begin, Stephanie will give a brief overview of the quarter, and then Jim will review the financials. Stephanie will then return to discuss Advent’s recent business highlights, after which we will open up the call for your questions. On our Investor Relations home page, you will find an updated summary of trended operating metrics disclosed from 2005 through the third quarter of 2009 as well as a presentation summarizing our third quarter results. This presentation includes a disclosure of Advent’s quarterly results for our continuing operations for 2008 and 2009 year-to-date.

Most of you participating in this call are aware of the regulations regarding forward-looking statements. Accordingly, we would like to note that during the course of this conference call, we will make forward-looking statements regarding future events or the future performance of the company including estimated future operating results, the anticipated proceeds of the financial impact of divesting our MicroEdge subsidiary, anticipated benefits of acquisitions including our acquisition of Tamale Software, market demand, international growth, market acceptance of our products and the development and timing of our new product releases, market conditions and the general momentum in the business.

We wish to caution you that such statements are just predictions that involve risks and uncertainties and that actual events or results could differ materially. We discuss a number of these business risks in detail in the company's SEC reports, including our quarterly reports on Form 10-Q and our 2008 Annual Report on Form 10-K and any forward-looking statements must be considered in the context of such risks and uncertainties. The company disclaims any intention or obligation to publicly update or revise any forward-looking statements whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

As a reminder, we include non-GAAP financial measures in our disclosures. These non-GAAP financial results are not meant to be considered in isolation or as a substitute for results prepared on a GAAP basis. Please refer to the tables entitled Reconciliation of Selected Continuing Operations GAAP Measures to Non-GAAP Measures in our earnings release, which is filed with the SEC on Form 8-K and available on our Website for a reconciliation of GAAP to non-GAAP financial measures.

I will now turn the call over to Stephanie.

Stephanie DiMarco

Thanks, Heidi, and welcome everyone. Thank you for joining us this afternoon. I am very pleased to report that Advent had an excellent third quarter. Revenues from continuing operations were $64 million, up 10% year-over-year. New annual term license contracts value was $6 million. GAAP operating income from continuing operations was up 83% year-over-year and non-GAAP operating income from continuing operations was up 49% year-over-year. Earnings per share from continuing ops were $0.15 on a GAAP basis and $0.30 on a non-GAAP basis. Third quarter operating cash flow from continuing ops was $19.8 million, up 13% year-over-year.

Later in the call, I will talk more about our third quarter results and highlights, but first, let me turn the call over to Jim who will provide further details on our financial results.

Jim Cox

Thanks, Stephanie. There are five areas I will cover today. First, bookings and revenue; second, expenses and profitability; third, key balance sheet items; fourth, the divestiture of our MicroEdge segment; and finally, I will update you on guidance. Please note that all figures discussed today will be for Advent’s continuing operations unless we explicitly note it.

First, bookings and revenue. New term license annual contract value, ACV, signed during the quarter with $6 million, reflecting an improvement in the demand environment over the first two quarters of this year. Revenue was $63.8 million, up 10% over the third quarter of 2008. Term license revenue was up almost $9 million over the third quarter of 2008, and was the primary growth driver as we continued to layer incremental bookings in previous quarters into our term revenue stream. The portion of total revenue that is recurring has been growing consistently and is now 87% of total revenue, up from 81% in the same period last year.

In the third quarter, revenue released from completed term license implementations again exceeded the revenue deferred from new bookings. This release increased total third quarter revenue by $2.3 million, with $700,000 to the term line and a $1.55 million increase to professional services revenue. This release from deferred revenue had only $900,000 of expense associated with it, leading to an additional 2 points of operating margin within the quarter.

Turning to our renewal rates, our initial blended renewal rate for the second quarter was 87%. As we predicted last quarter, the renewal rate stabilized. We are anticipating the third quarter renewal rate, which will be disclosed in early February will continue to be in the mid-80% range.

Turning to expenses, cost of revenue for the third quarter was $21 million compared to $22.3 million in the same period last year. That makes gross margin 67% compared to 62% in the same period last year. The increase in gross margin relative to last year was caused by the release of deferred revenue from term implementation from better margins in our core recurring businesses and from the cancellation of this year’s client conference. Total third quarter operating expense was $36.9 million compared to $32.7 million in the same period last year, an increase of 13% primarily as a result of additional headcount from our Tamale acquisition, which occurred October 1st, 2008, and to a lesser extent the timing of capitalization of product development expenses. Headcount aside from the Tamale acquisition has been flat for the past five quarters.

It’s worth noting that with the opening of our Beijing office in the fourth quarter, we expect to convert 51 of our current third-party contract developers in Beijing into Advent employees. Obviously, reported headcount will increase, but the related expense run rate will not change significantly as a result of this transition. However, there will be costs obviously to start up the Beijing office of less than $1 million, which we expect to incur in Q4 and Q1.

Capitalized costs related to product development and internally used software decreased expenses by $1.4 million in this quarter. That compares to $2.8 million in the same period last year. Depreciation in the third quarter was $2.3 million compared to $2.2 million in the same period last year. GAAP operating income for the third quarter was $5.8 million, up 83% over the same period last year, representing GAAP operating margin expansion from 5% of revenues to 9% of revenues. Net income of $3.9 million was up 114% from the same quarter last year. GAAP diluted EPS was $0.15 in the third quarter compared to $0.06 in the same quarter last year, representing a 127% increase. Non-GAAP operating income for the third quarter was $12.3 million or 19% of revenue. Non-GAAP diluted EPS was $0.30 for the quarter, up significantly over $0.19 in the same period last year.

Turning to the balance sheet, as of September 30th, we had $69 million in cash and cash equivalents compared with $45 million on June 30th. DSOs in the third quarter was an impressive 55 days, down from 60 days in the second quarter. Capital additions in the third quarter were $1.6 million, up from $0.5 million in the second quarter. Total deferred revenue at September 30th was $133 million, down $4 million from the June 30th balance. Operating cash flow for the quarter was $19.8 million, up 13% from the same period last year.

Turning to MicroEdge, in our last earnings call, we announced that we had signed a definitive agreement to sell MicroEdge for approximately $30 million. On October 1st, we closed the transaction and received approximately $27 million in cash. The remaining $3 million is in escrow that will release in 18 months. Since the transaction closed on October 1st, our September 30th cash balance does not reflect the additional $27 million received on the 1st. The gain resulting from this sale will be reported within discontinued operations in the fourth quarter.

Turning to guidance, I will now be making forward-looking statements, so I will remind you the Safe Harbor statements in Heidi’s opening remarks. Additionally, I will remind you that this guidance reflects only our continuing operations. In the fourth quarter, we expect revenue to be between $64 million and $66 million. As a result, we have narrowed the range for our full-year guidance to $257 million to $259 million, which is an 8% to 9% increase over 2008. We are also raising the bottom of the range of our annual non-GAAP operating margin to 19%, resulting in a full-year range for our non-GAAP operating margin of 19% to 20%, a 3 to 4 point improvement over 2008. Year-to-date, non-GAAP operating margin is just over 20%, but we expect fourth quarter expenses to be higher than Q3 for several reasons, increased variable compensation, the Beijing office opening that I discussed, and additional rent expense from our new lease in New York that we signed on September 30th. While we build out the new facility in New York and occupy our current facility, we will have rent expense for both spaces. We are anticipating vacating our current space by the end of the second quarter of 2010.

As for capital expenditures, we are reducing full-year CapEx guidance by $1 million to $7 million to $9 million, which includes some fourth quarter expenditures to start the buildout of our new space in New York. It’s worth noting that next year, we will build out the New York space and we will also build out a new space in Boston. As such, we expect approximately $12 million to $14 million of CapEx related to the buildout of those facilities in 2010. Full-year 2009 operating cash flow guidance remains unchanged at $70 million to $75 million. As for 2010, we are still in the process of developing our three-year plan and look forward to sharing our thoughts with you about 2010 in our year-end earnings call in February.

In summary, we are pleased with our performance in the third quarter of 2009. We believe our results continue to validate the strength and stability of our term business model and the attractiveness of our product portfolio to our customers. Now, let me turn the call back to Stephanie.

Stephanie DiMarco

Thank you, Jim. As you have just heard, we achieved strong results across all of our key financial metrics in the third quarter, including new bookings, revenue, GAAP and non-GAAP earnings and operating cash flow. In addition to our strong financial results, we saw an improved demand environment and strong interest from prospects in customers across all the markets we serve. On the customer front, we added 10 new Geneva customers in the quarter. This is a very exciting time in the lifecycle of Geneva. It is unquestionably the gold standard for hedge fund and alternative investment accounting, and the work we are doing now for future releases of Geneva will capitalize on that leadership and we believe significantly extend it.

For example, we are working to provide real-time actionable views of critical risk and exposure data that address our clients’ needs and deliver the value of Geneva to the entire firm. We are also enhancing our bank loan and asset-backed security processing, which are key to supporting firms investing in distressed debt. We are thrilled to be taking Geneva to the next level and solidifying our position as the industry leading solution in this space.

We are also seeing continued momentum with Tamale as well in both customer wins and market segment expansion, which is very exciting. A big win for us in the third quarter was adding one of the largest university endowments to Tamale’s growing list of clients. Given the challenging market environment, we see Tamale’s success as evidence that more and more of the industry is viewing research management as a competitive necessity. In Q4, we will be releasing Tamale Version 4.5, which will include powerful new calendar functionality, new search capabilities, optimized collaboration with new privacy features, and customizable workflows. We continue to be very pleased with the adoption rate of Tamale and the value that it’s bringing to our clients.

We are also pleased with the market’s response to both the locally installed and outsourced versions of APX. We signed 19 locally installed contracts in the third quarter, which combined with our Q3 APX outsourced contracts brings to total number of APX licenses sold to over 500 worldwide, up 100 from last quarter. In addition, we are very excited about our most significant release of APX to date, Version 3.0, which will include a new reporting environment enterprise platform and enhancements to APX’s client service and marketing features. Version 3.0 is currently in limited release with a broad release scheduled for Q1 of 2010.

Delivering APX on a fully outsourced space continues to be a strong driver of growth from that product in both direct and channel sales. The growing demand for outsourcing we see in the market overall let us to greatly expand the menu of capabilities we offer on an outsourced basis. Now, we offer clients a full spectrum of delivery options. Our traditional locally installed model at one end, a fully hosted business process outsourcing model at the other end, and finally, our latest offering which delivers any of our products in software and services or SAS model. In some, we offer clients total flexibility when it comes to how they get our industry-leading products delivered.

On the international front, we continue to see improved demand in Europe and the Middle East with several competitive wins in the third quarter. We had a very strong bookings quarter in EMEA, which we believe is a good indication that the business climate is improving overseas. We had significant customer wins in Switzerland, the Middle East and Scandinavia, and the pipeline remains healthy. We are also making great strides in Asia-Pacific. We opened up our Hong Kong office last year and have acquired several new clients in the APAC region. And as Jim mentioned, we are in the process of transitioning over 50 contract developers in China to Advent employees. We have also just opened an office in Beijing.

We are now well positioned to take advantage of the business opportunities we see in Asia. On an organizational note, we promoted Jim Cox to the position of CFO last month. I worked closely with Jim over the past year on a wide range of activities, in acquisition, the divestitures, stock buybacks, international expansion, as well as the daily blocking and tackling of running a finance organization for a public company. I have the highest confidence in Jim and know he will be an outstanding CFO.

While the IT spending move remains cautious, we believe our third quarter performance reflects an improving demand environment. There is strong need for our products as firms increasingly look to drive greater operational efficiency and more effectively manage risk. The outsourcing business is gaining a lot of traction and remains a significant growth market for us, and we see the international opportunities for Advent as a very exciting part of our future growth.

In summary, we are pleased with our third quarter performance, continued focus on helping customers address their most pressing business priorities, helped us to grow revenues, profits and future revenues. Our customer base, strategy, financial position and competitive position remains strong. We will continue to build on these strengths to deliver value for our shareholders over the long term.

Thank you for joining us, and now I would like to open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Andrey Glukhov with Brean Murray.

Andrey Glukhov – Brean Murray

Yes. Thanks for taking the question. Congrats on the strong bookings quarter. I guess, first of all, Stephanie, there is a very sharp rebound in the number of APX deals here on a sequential basis. Can you give us a little bit more color what’s really underlying it, is it the European improvement, is it some of the latest enhancements to the APX products, kind of what’s driving that?

Stephanie DiMarco

I am going to let Pete take that, because he’s closer to it.

Peter Hess

Andrey, I would say it’s pretty much across the board. We had a great quarter with on-site domestic, APX, both new clients and conversion, so there was a bit of a rebound in the migration. From Axys, couple of really nice big sized contracts, and then internationally, they had a good quarter more with new client acquisition with APX, and then also the outsourcing, we had a really good quarter in terms of typically the firms that are going to APX in the outsourced environment a little bit smaller to the higher volume of those. But we had a strong quarter there as well. So, it’s both on-site and hosted, both domestic and international was all pretty good.

Andrey Glukhov – Brean Murray

Okay, and I mean, presumably so, it was a little bit weaker historically in terms of the renewal rate relative to the Geneva. I guess, what are you starting to see there?

Peter Hess

Can you repeat –?

Jim Cox

We are sorry about the background really.

Peter Hess

The Geneva units, Andrey?

Andrey Glukhov – Brean Murray

The question was, the APX products had a little bit lower renewal rate historically relative to, let’s say, the Geneva product in the last few quarters. Are you starting to see that tick back up?

Peter Hess

Yes, I wouldn’t think that those products are behaving differently.

Stephanie DiMarco

And we don’t break them out. We don’t break them out. So, I don’t think that is the actual trend.

Peter Hess

That’s right.

Andrey Glukhov – Brean Murray

Okay. I guess lastly, Geneva, there were 10 Geneva deals in the quarter. Stephanie, can you comment, and one of the trends we are seeing in the market is the emergence of mini primes, can you comment as to kind of – do you view it as an opportunity for you and maybe handicap the size of that opportunity?

Stephanie DiMarco

I think we definitely see it as an opportunity, and we actually see a lot of change in evolution and consolidation and spin-offs in that whole alternative asset market. And those characteristics of the market really create opportunities for us. It’s probably challenging to put a dollar amount specifically on just the mini primes, but we are seeing a fair number of new entrants come into the business.

Andrey Glukhov – Brean Murray

Okay. Thank you.

Operator

Your next question comes from the line of David Scharf with JMP Securities.

David Scharf – JMP Securities

Hi, good afternoon. Thanks for taking the call. Maybe just want to follow up a little bit on the renewal, Stephanie. We have seen a couple of companies vendors to the buy side sort of report this dichotomy where their bookings are picking up and at the same time, their renewal rates are still, while may be showing some evidence of bottoming, not materially increasing, there is still a fair amount of attrition out there. Can you give us a sense just where we are in the cycle? I mean, we are obviously 10 months through the year, it’s been a lot of upheaval this year, lot of funds have shut their doors, yours is a product where it’s not really discretionary in my senses over these years when somebody doesn’t renew it, because they are no longer around. Can you give us a little color behind the expectation of renewals will stay in that mid-80% range going out another quarter and when do you think will return to more normalized levels?

Jim Cox

Sure, David. This is Jim. So, I guess the one thing to recall is that the number that we are reporting now is actually our second quarter renewals, right, the activities that have occurred in April, May and June.

David Scharf – JMP Securities

Sure.

Jim Cox

And so, I think when you think about when the crisis occurred, it was Q3, Q4, we have a lot of annual renewal events. And so, I think that to think of a meaningful change before you get through the Q3 and Q4 renewals, I think you wouldn’t expect that to be different before that.

David Scharf – JMP Securities

Okay. And is your expectation a quarter from now when you provide sort of new and updated Q3 number to reflect cash collections, it will probably be the same trend as the last few quarters, or is it probably a couple of percentage points higher than the initial report?

Jim Cox

So, that’s what we have always found is, as we continue to update, we continue to collect cash and we get a pickup just like we got in this quarter in the Q1 results that we showed. So, yes, I don’t think that, that trend differs.

David Scharf – JMP Securities

Got you. In shifting to the pure demand side, obviously there was a material reacceleration in bookings this quarter, but I just wanted to get a sense for the pipeline particularly given that we are still on the cusp of a couple of more releases, you know, Geneva, APX, I know revenue was just put out. Should we view this even more positively in the sense that bookings reaccelerated off the bottom, yet there may be potentially more pent-up demand, I mean, do you get a sense that there are fair number in the pipeline that have been waiting for the new releases?

Jim Cox

I think that Q3 was – the improvement we saw in Q3 was a function of really two things. One, there is an improved count in the market. So, our activity levels, our pipeline, when we spoke a quarter ago, we could see that there was an improvement coming and I think that played out. There was also though in Q3, I think an expression of some hold-over contracts and some decisions that we would normally have seen happen in Q2 but didn’t and they carried over into Q3. So, I think you had combination of some carryover business as well as an improved demand environment that gave us the result that we saw in Q3. Pipeline looks good for Q4. So, I think we feel cautiously optimistic about the bookings in Q4. We don’t guide to it, but we are still very busy and the pipeline looks pretty good.

David Scharf – JMP Securities

Got you. Next question, just looking at what potential catalysts are out there. With APX and Geneva, you made reference to your focus on more asset classes, distressed and so forth, just wondering, are all the regulatory things are being contemplated right now particularly as it relates to OTC derivatives and the likelihood that all of those are going to be cleared and going to have to be priced more accurately and so forth. Is there anything in all the financial regulatory reforms particularly on the derivative side that your clients are specifically discussing with you that they want a change in a more robust accounting application, is that a potential catalyst going forward?

Jim Cox

I think so. I think everyone is still in a lot of wait and see mode, but I think everybody assumes that they are going to have to register with the SEC, and so that by itself brings some disciplines into the mix that they may not have historically exercised. So, I think we are seeing some of – we are seeing on the hedge fund side, we are seeing both small funds and large funds right now, and with large funds in many instances, it’s being driven more by their investors looking for paying more attention to the infrastructure that they have and the systems they use, then it is a particular regulatory change. And with most of the smaller firms, it’s maybe they have been displaced by their primes and they need to actually put a back office for the first time. So, I do expect when the regulatory changes do come down to pipe that, it will help us, but I don’t think we have seen a huge impact yet from that just given that, that’s still up in the air.

David Scharf – JMP Securities

Got you. And then last question, I don’t think it was mentioned, it’s probably still a small number. Is there a point at which you will be disclosing the revenue levels attributable to APX [ph] to hosted offerings?

Jim Cox

So, those revenues are included as part of the recurring line on the income statement. I think we will look at that as we look every year in the beginning of each year as to what we are going to disclose and perhaps disclose bookings if not revenues associated with that hosted solution.

David Scharf – JMP Securities

Okay. But, it doesn’t have some materiality special yet for you?

Jim Cox

No, no.

David Scharf – JMP Securities

Okay. Great. Thank you very much.

Operator

Your next question comes from the line of John Maietta with Needham & Company.

John Maietta – Needham & Company

I just wanted to follow up on bookings as well. $6 million healthy number, were there any would you consider to be large deals in that number?

Jim Cox

There were some that were larger than others, but none that rank with deals that you have heard about before. So, nothing outrageous.

Stephanie DiMarco

Yes, it definitely wasn’t titled by a single deal.

John Maietta – Needham & Company

So, pretty balanced, okay. And then, Pete, just in terms of close rates, what have you seen sort of quarter-to-date here in Q4 versus Q3? Is it a similar pace, is it a little bit faster or how do you describe it?

Peter Hess

Well, it’s tough. We don’t do a whole bunch of business in the first three weeks of any quarter. So, it’s probably too early to say on that. But like I said before, we have got a lot of activity going with a good pipeline. So, we will see. I mean, it’s not a – the thing to remember is as good as Q3 was, we are still in a much tougher environment than we were pre-crisis. So, normally Q4 is great for us. We don’t know exactly what to expect from this Q4, but we do have a pretty active pipeline.

John Maietta – Needham & Company

Got it, okay. And then, Jim, just tightening the revenue range on the high end, is that just general conservatism as Pete just highlighted as well as maybe some volatility on the perpetual license line, which is always tough to predict?

Jim Cox

Right, exactly. If you look at the perpetual license and the professional services has come down, but equally, it was more aligning to some of the first three quarters plus what we were guiding for Q4.

John Maietta – Needham & Company

And then just last question, Jim, I had missed it when you – you talked about $12 million to $14 million in CapEx, was that related to the New York and Boston facilities or is there something else in there as well?

Jim Cox

Precisely, precisely, yes.

John Maietta – Needham & Company

Thanks very much.

Jim Cox

Thanks, John.

Operator

Your next question comes from the line of Gil Luria with Wedbush.

Gil Luria – Wedbush

Just taking my questions, first, if you wouldn’t mind giving us an update of where you are in terms of Fidelity and TIAA, and in terms of the ramp of those, have you started or are you going to start soon, do you have any change in how much you expect to get on an annualized basis for those?

Jim Cox

We’ve successfully completed both of those in the third quarter, not a lot of revenue in the third quarter. And I think the way we had guided in the past of 8 to 10 kind of once we are up and running on that run rate on an annual basis is what we are staying with here.

Gil Luria – Wedbush

Great. And then a few clarifications on some of the metrics. Capital expenditure of $12 million to $14 million, is that just for the New York and Boston improvements, so that’s in additional to the, let’s call it, maintenance CapEx of $7 million to $9 million that you showed this year?

Jim Cox

Yes.

Gil Luria – Wedbush

Okay. So, that’s in addition to the regular run rate?

Jim Cox

Yes.

Gil Luria – Wedbush

And then, I think the renewals for the third quarter, you said you expect mid-80s, so that’s flat to down in terms of renewal rates in the third quarter?

Jim Cox

Yes. I think 87, in the middle 80s as well, yes.

Gil Luria – Wedbush

Got it. And last question about the implementation deferrals, those seem to make a lot of difference to your margins. And last year, it was a 3 percentage point drag, so far this year was 2% or 3% benefit. As you see projects line up for next year, is your expectation that, that line will be a drag or a boost as it has been this year?

Jim Cox

The real driver on that is bookings in the period. It will as a result cause a drag. So, I guess we would hope it would be a drag next year, net bookings continue to come back.

Gil Luria – Wedbush

Got it. So, if it’s a drag, that’s really 2 to 3 percentage points of a difference, of a delta from this year to next year, because this year, it’s been a 2 to 3 percentage point benefit?

Jim Cox

Right.

Gil Luria – Wedbush

Got it, thank you very much.

Jim Cox

Thanks.

Operator

Your next question comes from the line of Sterling Auty with JP Morgan.

Sterling Auty – JP Morgan

Yes, thanks. Hi guys.

Jim Cox

Hi.

Sterling Auty – JP Morgan

So, I want you to help me understand in terms of the deferred revenue release into the income statement, again help you this quarter, how do I reconcile that with the improvement in books? So, in other words, when should we expect that crossover to happen where the bookings are big enough where you are contributing in terms of the expense side, so that we don’t see this contribution from the deferred revenue having the impact that it has?

Jim Cox

Sure. And so, if you think about the first two quarters, it’s here, that’s $3 million, is a pretty low number, kind of in the $3 million range for the bookings for each quarter and then $6 million starts to build that up, but that’s probably not going to affect Q3, right because those term deals are being booked, and so the critical revenue that’s being deferred isn’t really going to be affected until Q4 on those specific deal. And so, it varies. I generally think as for a large deal, it’s kind of 6 to 12 months from the time it’s booked to the time it’s recognized, if that helps, Sterling. And then, as we model out 2010, we have some assumptions around what we are going to do, and that’s when we cross back over into the deferral hurting the P&L.

Sterling Auty – JP Morgan

Okay, because I almost look at it wondering is this really kind of like a book to bill, in that mature sense, but from a certain degree because the expenses associated that’s there by deferring the revenue versus having the revenue come in, it almost feels like when you hit the crossover point, it’s highlighting other businesses getting their book to bill that goes back above 1.

Jim Cox

Yes, yes, you could think of it that way. But not exactly right, but that’s probably reasonable.

Sterling Auty – JP Morgan

Okay. And then I jumped out late, so I do apologize. Could you give some color in terms of the solid performance in the quarter across, Stephanie kind of specific about the next release, what was the performance in the quarter and how does that look in the pipeline for the end of the year? Is there something that you might hope gets a little bit more benefit if there’s actually any kind of end of year kind of budget spending?

Jim Cox

Well, Tamale, we feel had a strong Q3, and we thought it had a strong Q2, and the pipeline looks pretty good for Q4. I don’t know what benefits we may get from budget flush or anything in Q4, because this year is so different than any other, but there’s a lot of activity with that product, and it’s coming from a broader, a more diverse prospect base than we expect it when we bought it. We thought we would be selling a lot of hedge funds and we are actually producing pretty good numbers selling to manager of managers, university endowments, asset managers and hedge funds, so that’s been an unexpected surprise, that’s been good.

Sterling Auty – JP Morgan

All right, thank you.

Operator

At this time, there are no further questions.

Heidi Flaherty

Great. Thank you everyone for joining us and we will speak to you again next quarter.

Operator

This concludes today’s conference call. You may now disconnect.

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Source: Advent Software, Inc. Q3 2009 Earnings Call Transcript

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