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Advent Software, Inc. (NASDAQ:ADVS)

Q2 2010 Earnings Call Transcript

July 26, 2010 5:00 pm ET

Executives

Heidi Flaherty – VP, Finance and IR

Stephanie DiMarco – CEO

Jim Cox – CFO

Peter Hess – President

Analysts

David Scharf – JMP Securities

Tim Fox – Deutsche Bank North America

John Maietta – Needham & Company

Gil Luria – Wedbush Securities

Sasa Zorovic – Janney Montgomery Scott

Saket Kalia – JP Morgan

Brian Murphy – Sidoti & Company

Del Warmington – Delwar Capital Management

Operator

Good day, ladies and gentlemen. Welcome to the Q2 2010 Advent Software earnings conference call. My name is Keith, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Miss Heidi Flaherty, Vice President of Finance and Investor Relations. Please proceed, ma’am.

Heidi Flaherty

Thanks, Keith. Good afternoon, everyone. Thank you for joining us today for Advent’s second quarter 2010 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.

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. 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 risks in detail in the company’s SEC reports, including our quarterly report on Form 10-Q and our 2009 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 a Form 8-K and available on our Web site for a reconciliation of the GAAP to non-GAAP financial measures.

I’ll now turn the call over to Stephanie.

Stephanie DiMarco

Thanks, Heidi, and welcome everyone. Thank you for joining us this afternoon. I’m pleased to report that Advent had a very strong second quarter. Revenues from continuing operations were $69 million, a new quarterly record and an increase of 10% year over year. New bookings or ACV, were $6.5 million, up 51% year over year.

GAAP operating income from continuing operations was $8 million and non-GAAP operating income was $14 million, representing a margin of 20%.

Diluted earnings per share from continuing operations were $0.18 on a GAAP basis and $0.33 on a non-GAAP basis. Operating cash flow from continuing operations was $18 million.

As the financial industry has moved beyond the crisis environment that characterize the first half of 2009, we are seeing continuing strong demand for our market-leading suite of software and services from customers around the world.

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

Jim Cox

Thanks, Stephanie. There are four areas I will cover today; first, bookings and revenue; second, expenses and profitability; third, cash and cash flows; and finally, guidance.

Customer demand remains strong with $6.5 of annual contract value or ACV for term license and Advent OnDemand contracts signed during the second quarter. This represents a 51% increase over the $4.3 million booked in the second quarter of last year. Both figures include Advent OnDemand bookings, which are now included in our ACV metric.

The ACV numbers reflect bookings strength across all of our geographies, all of our product lines, and deployment models. In addition, we’ve included in our Q2 2010 ACV number, one perpetual license contract that is economically similar to a 5-year term license agreement, except that the license is generally irrevocable after the fifth year’s payment of annual license and maintenance period fees.

Revenue in the second quarter was $69.3 million, up 10% over the second quarter of 2009 driven by growth in term fees, other recurring revenue and professional services revenues.

Term fees increased as a result of the invigorated bookings activity we’ve experienced over the last 12 months. Other recurring revenue increased year over year as a result of the TIAA-CREF data services and Fidelity on-demand contracts, which went live last September. Professional services revenue increased as a result of increased activity and utilization.

As a reminder, we defer all term license and professional services revenue on new contracts until we have substantially completed the implementation services. This deferral fluctuates considerably from quarter to quarter depending on project timelines. In the second quarter, the net revenue deferred for term implementations was $1.3 million. This revenue deferral had $400,000 of expense associated with it, which led to a 1-point reduction to operating margin in the quarter. For comparison, completion of term implementations in Q2 2009 increased revenue by $1.7 million and operating margin by 2%.

We were pleased to see our renewal rate over 90% in the first quarter. Our annual rate is based on cash collections, and is therefore reported one quarter in arrears. This renewal rate for the first quarter was 1-point higher than the fourth quarter's initial rate. When all cash is collected on first quarter renewals, we expect that 90% rate to increase by 2 percentage points to 4 percentage points. Additional collections from fourth quarter renewals brought that renewal rate up from 89% as initially reported to an updated 92%. We continue to expect our renewal rate to improve slowly throughout the year.

Turning to expense; cost of revenue for the second quarter was $20.8 million, up 2% over the same period last year. Gross margin was 70%, which was up 2 points over last year. The margin increase was primarily due to a $1.2 million reduction in professional services expenses as more of our work is done through third-party providers to improve our professional services margins.

Total second quarter operating expense was $40.9 million, up 15% over the same period last year. There are some elements of operating expense, which bear some additional discussion. Sales and marketing expense was up $1.9 million or 13% year-over-year as a result of the additional international activity throughout the world, but particularly including our EMEA Client Conference and additional travel expenses associated with the additional sales activity.

Product development expense increased $1.9 million or 17% year over year, primarily as a result of increased headcount as well as approximately $1 million left in capitalized costs in Q2 2010 when compared to Q2 ’09.

General and administrative expense was up $1.2 million year over year or 14%, primarily due to additional rent and moving expenses as we build out our new facilities both in New York City and in Boston. We are happy to say we moved into our new space in New York City at the end of May. Accordingly, we expect total rent expense to come down by approximately $200,000 in the third quarter. We expect to move into our Boston space in August and we expect total rent expense to come down by an equal amount in the fourth quarter as well.

In the second quarter, we booked a restructuring charge of approximately $555,000 relating to vacating our lease for Tamale’s office space as we combine both offices into one facility in the Grace Building.

The resulting second quarter GAAP operating income was $7.6 million, up 5% over the same period last year. Net income was $4.8 million, down 32% from the same quarter last year. GAAP diluted earnings per share from continuing operations were $0.18 in the second quarter compared to $0.27 in the same quarter last year. Recall that last year's second quarter earnings per share included $0.08 for the second and final installment of the earn-out related to our gain from the 2007 sale of our investment in Latent Zero.

With respect to non-GAAP earnings, I remind you of Heidi’s opening comments. Non-GAAP operating income for the second quarter was $13.8 million or 20% of revenue, up $500,000 from the prior year, but down 1 point as a percentage of revenue. Non-GAAP diluted EPS was $0.33 a share equal to Q2 2009.

Turning to cash and cash flow; as of June 30, we had $103 million in cash, cash equivalents and marketable securities. That compares to $112 million at March 31.

In the second quarter, we repurchased approximately $24 million worth of Advent’s stock at an average price of $43.02 per share. In May, our Board of Directors authorized an additional 1 million shares for repurchase. As of the end of the quarter, we had approximately 1.2 million shares remaining under our repurchase authorization.

Operating cash flow for the quarter was $17.8 million, down $3.2 million or 15% over the same period last year as day sales outstanding improved from 60 days to 62 days and net accounts receivable grew by $4.7 million from the end of the first quarter, March 31. I should remind you all we are maintaining our full-year guidance for opening cash flow.

Turning to guidance, I’ll now be making forward-looking statements, so I’ll remind you of the Safe Harbor statement in Heidi’s opening remarks. In the third quarter, we expect revenue to be between $70 million and $72 million, including revenue from the Advent Client Conference scheduled in September. That guidance reflects growth of 10% to 13% over the third quarter of 2009.

Our improved renewal rates, growth in bookings and the resulting revenues have shown continued strength throughout this year, and accordingly we are increasing full-year revenue guidance range with full-year revenue to be between $277 million and $281 million, which will reflect an annual growth rate of 7% to 8%. All other full-year guidance measures remain the same.

In summary, Advent is showing continued strength in the first half of 2010. We delivered growth in both bookings and revenues and we continue to make the investments that position us to achieve our goals for 2010 and beyond.

Now, let me turn the call back to Stephanie.

Stephanie DiMarco

Thank you, Jim. As we just heard, we achieved very positive results across our business and continued strong momentum in bookings. We believe that the demand environment continues to improve and IT spending has increased from this time last year. The Dodd-Frank bill has become law, and as anticipated we believe the new legislation in addition to the ongoing market focus on compliance, risk management, investor transparency and operating efficiency are all positive trends for Advent.

Hedge funds managing over $150 million need to register with the SEC and will be subject to increased regulatory reporting, scrutiny and audit. Enabling our investment advisor clients to produce the information required by regulators has long been a core strength of Advent, and we're well suited to extend this capabilities to hedge funds.

The Volcker rule restricts the ability of investment firms to have large proprietary trading operations, as these units are likely spun out into independent organizations they will require their own portfolio accounting and trading applications.

We also believe the greater constraints imposed on investment banks in proprietary trading could create opportunities for new start-up firms. OTC derivatives are now subject to centralized clearing and this will likely create new reporting and tracking requirements. Also we believe research management systems are becoming a must-have for investment firms, hedge funds and endowments. Having an audit trail of investment rationale and being able to show all the research on a name are areas where we hear the regulators are putting more emphasize. Increasingly, the RMS is important for compliance.

Advent is well positioned to enable the industry to address the requirements of the new laws. Regulatory bodies around the world are also reshaping their regulatory oversight and this will also rightly create further requirements for financial services institutions around the world.

Our continuing investment in product development has produced a steady stream of new releases this year in all of our major products, Geneva, Tamale, APX, Axys, Moxy, Rules Manager and our recently acquired Tradex product.

As the demand on our market increases as a result of greater regulation, investor scrutiny and business complexity there is no shortage of work to do on new releases. We believe the capabilities we are adding to the products are increasing our global competitiveness.

In the second quarter, we saw strong results across all business areas and geographies. Geneva, our award-winning portfolio management and fund accounting solution, was a solid contributor to bookings in the second quarter. Allen & Company chose to upgrade their infrastructure to Geneva providing them a platform for consolidating all business areas of the firm. Diamondback, a large hedge fund, also signed on with Geneva as their strategic platform for future growth.

We continue to be pleased with the results we are seeing with Tamale. Among the notable clients added in the quarter was the State of Wisconsin Investment Board. SWIB chose Tamale after a thorough due diligence process. They saw Tamale offered the most robust functionality to address the unique workflows of their diverse investment team.

More and more managers are being asked to answer questions they've never had to answer before. Returns matter, but today research and the investment decision-making process matters more than ever. Investors want to know what is behind the returns and how a manager executes on their investment process. As one of our Tamale clients put it, I start every client meeting explaining how we use Tamale to manage our investment process.

APX also had a strong second quarter and our OnDemand offering continues to gain traction in the market as firms look to outsource some of their operations. In addition to investing in product development, Advent’s growth strategy includes expanding our global footprint and business overseas.

As you heard from Jim, second quarter international revenues were 15% of total revenues, a strong result and an improving trend. Our presence is strong in EMEA. We hosted a very successful Client Conference in Vienna in May, where we had the opportunity to highlight all the exciting new features across the product portfolio, in addition to launching Tradex, the shareholder services product we acquired in the first quarter with the acquisition of Goya.

In the second quarter, we signed Emirates NBD, the biggest banking group in the Middle East in terms of assets. Emirates NBD was seeking to find a single solution for both their private banking and their asset management division. APX, Moxy, Rules Manager and Tradex were selected from a field of over 14 competitors.

To expand our reach in Asia and to support our growing client base, we opened an office in Singapore, our third office in Asia, in May. Our client base has more than doubled in Asia in the past 15 months. The new Singapore office will support our rapid growth in APAC as well as further expand our ability to deliver Advent’s comprehensive solutions to the region’s dynamic investment management community.

We remain encouraged by what we are seeing in the investment management market around the world. Notwithstanding the challenging markets in the second quarter the concerns about the euro zone, and the business destruction caused by the Iceland volcano, our strong Q2 bookings are evidence that Advent software and services are meeting the market’s requirement and give us confidence in our ability to execute our full-year plan and beyond.

In summary, I'm very pleased with our second quarter results. Business metrics including bookings and renewal rates show healthy trends. We achieved record quarterly revenues, expanding operating margins and generated strong cash flow. And our investments in product development and international expansion, keys to our growth strategy, are showing tangible results. We are making real strides in our business and are well positioned for both the short and the long term.

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

Question-and-Answer Session

Operator

Certainly. (Operator instructions) Your first question is from the line of David Scharf with JMP Securities. Please proceed.

David Scharf – JMP Securities

Thank you. Hi. Good afternoon, Stephanie. First question, sort of general, you addressed the issue of Dodd-Frank and FinReg in your prepared remarks. I am just curious, did you sense that there was any backlog or maybe still pent-up demand out there by firms that were waiting for final passage before they would pull the trigger or is it just sort of an ongoing secular theme and it’s going to be gradually accretive to your business trends? Or is there a possibility that Q3 may see an unusual number of bookings given that we finally have a legislation passed and signed?

Stephanie DiMarco

Yes, we think it is more of an ongoing secular trend and I think quite frankly some of the specific requirements of the law have been believed by the industry that they were going to – they would be included for a long time. So I think a lot of firms have been getting ahead of the regulation. So I don't think the nature of it will cause a hockey stick, any sort of a hockey stick, but it does put a date on things, and there are now deadlines and for people who have been standing on the sidelines I think it’s a good opportunity for us.

David Scharf – JMP Securities

Got you. Just two more questions. One is as we think about international in the mix, and it is up to 15% compared to about 10% not too long ago. Clearly, you’ve been making a lot of investments lately, the new offices that you’ve highlighted. Should we be thinking about correlating a certain mix coming from international and a target margin, and I guess what I am getting at is as long as international is growing as rapidly as it is should we be thinking that the incremental booking isn’t quite as profitable as the domestic one? Or in fact is there a lot of kind of fixed cost already incurred by opening these new offices and we should see some more than usual margin expansion as that mix improves?

Stephanie DiMarco

Let me make one comment and then I will turn it over to Jim on the specific margin comment. International includes EMEA, and we’ve been operating in EMEA for a while, and so I think we have scale and profitability in EMEA that isn't requiring huge incremental business, incremental investment. Asia is more the area where we are putting more money in right now.

Jim Cox

Yes, I think Stephanie is absolutely right. I think what we are seeing now is unique period expenses. I don't think you would think of the nature of those bookings to be any more or less profitable than what we think of the entire portfolio. There is just one other thing to say is that our revenue is 15% but when you look at bookings and growth and bookings we don’t really break that out but obviously for international to grow those bookings have to grow faster than the whole population, David.

David Scharf – JMP Securities

Right, right. Okay. I was also curious; I was looking my notes from a few quarters back and I think at the end of the year you had made the remark that you were going to start to sell Geneva 8.0 a lot more aggressively in 2010 to non-hedge funds. I know you're not releasing number of licenses anymore, but can you give us a sense about the profile of who is taking a look at Geneva now, the latest version, if it is a little more broad than perhaps the types of customers that were looking at it 12 months or 18 months ago.

Peter Hess

This is Pete. I’ll take that. I wouldn’t say there has been a big change in who is looking at Geneva, predominantly hedge funds, hedge fund administrators. Lot of the things that we talked about in calls prior, changes in the hedge fund landscape where smaller hedge funds are starting to take a look at us, those firms that used to be taken care of by their primes or either bringing infrastructure in-house or looking to their administrators to do it for them.

So I would say that the bulk for the activity is still around the hedge fund and fund administration space. That said we're proactively banging on a lot more doors than we used to in the asset management space and especially internationally. And so we are engaged in, I would characterize, more opportunities than a year ago, but that – a year ago, we also were in a much more depressed market environment. But proactively we have got a lot of focus on trying to get Geneva bigger foothold in the asset management space, that institutional asset management area.

David Scharf – JMP Securities

Right, right. That's what I was focused on. And then lastly, boy, this is sort of a knit picking question, but I’ll through it out anyway. If I plug in what you just reported for the second quarter as low as the revenue guidance for Q3 of $70 million to $72 million, the implication is Q4 is $70 million to $74 million and we usually see a more substantial, sequential uptick in that seasonally strong fourth quarter. Is this just a dose of conservatism? I realize it is difficult to forecast precisely, but as we see $70 million to $72 million in Q3 and $70 million to $74 million in Q4, any general comments and why they are presented as essentially flat?

Jim Cox

Well, I think we’ll see kind of sequential quarter improvement in our revenue throughout the end of the year.

David Scharf – JMP Securities

Okay, thanks a lot.

Stephanie DiMarco

Thank you.

Operator

Your next question comes from the line of Tim Fox with Deutsche Bank. Please proceed.

Tim Fox – Deutsche Bank North America

Hi, thanks. Good afternoon. My question was around guidance, again maybe a little knit picky, but you did increase the revenue guidance for the year but not cash flow from ops, any particular driver there?

Jim Cox

So where we sit after Q2 is kind of we're over $30 million year to date in that, and we’ve always said that this is a backend loaded year. So we gradually increased revenue. I wouldn't call it markedly increasing, and we're continuing to do investments. I think we are comfortable in the range that we are at on operating cash flow, and as the rest of the year plays out we will get more specific.

Tim Fox – Deutsche Bank North America

Okay. And secondly just on some of the new offerings. Any sense of from a decision-making perspective relatively to last year you have got a lot of new products coming in to the potential pipeline. How quickly do you think some of these new products are going to generate incremental bookings as we get into the back half of the year? Or is this going to be more of a 2011 incremental improvement in bookings, do you think?

Jim Cox

I think we will do better this year overall than last year in bookings. And I think some of that will have to do with the products. Next year, we will try and grow bookings again, not just on the releases that we put out this year but then we will have new releases and product coming out next year as well. So I would say in general bookings is partially a function of the new products that we have and we have certainly seen a little bit of benefit from what we have done this year. But a lot of it, bookings increases also had to do with the coverage model, our investments in sales force, geography and then also just the more accounts you win the easier it is to win more.

And so time passes, if we're successful bookings should grow even if product was held constant, which of course we are not doing. We're investing and putting out new product, so that's just tailwind for us.

Tim Fox – Deutsche Bank North America

Got it. Lastly, if I may, just a follow-up from your analyst day in talking about your view on margins relative to the outsourced business, any further thinking around the margin structure there in the outsourced business? You’ve been at it for some time now but how do you think that affects the overall margin structure of the company as you see more and more adoption of Aboss [ph] and other outsourced offerings?

Jim Cox

Tim, I think we continue to learn in that business and we continue to learn how to make that business more profitable. And so I think that we don’t – I think it’s still a little early as you can see our gross margins are up again this quarter. So I think it’s a little early to determine any specific trend as it relates to OnDemand margins versus other core product margins.

Stephanie DiMarco

Directionally as we think about our three-year and five-year plan, we’ve guided that we will be increasing profitability and margin each and every year and we think we have the leverage in the business to do that with a greater percentage of revenues coming from OnDemand services. Our target for profitability is 30% in our investor presentation. So we are still marching towards that and believe we can do that with the OnDemand service.

Tim Fox – Deutsche Bank North America

Okay, great. That’s all I had. Thank you.

Operator

Your next question is from the line of John Maietta with Needham & Company. Please proceed.

John Maietta – Needham & Company

Thanks very much. First question I had was around the pipeline, Pete, maybe if you could qualitatively talk about the level of activities in the pipeline today, particularly I guess in Europe given that's where there are lot of investors focused at the moment.

Peter Hess

Well, I would say our pipeline – we feel good about our pipeline, so I am a broken record. Last quarter as I said, we didn't drain the pipeline and once again we didn't drain the pipeline. It is a summer quarter. Q3 is always a little bit tough to get people’s focus because of vacations and other things. But we feel pretty good about the way the pipeline looks for the rest of the year.

John Maietta – Needham & Company

Directionally, is Q3 a flattish quarter, a down quarter, an up quarter? I know it is early to tell.

Peter Hess

It’s hard to say sequentially.

Jim Cox

Yes. We have got in baseball analogy we have got lots of base hits, doubles, triples and a couple home runs in the pipeline, and you never know with those home runs whether they are going to come in Q3 or Q4 or whatever. So it’s really tough to predict.

Stephanie DiMarco

I think especially with the summer quarter when things get signed, you lose a lot of productivity especially in Europe in August.

Jim Cox

Yes.

John Maietta – Needham & Company

Got it. Okay. Jim, you showed some good improvement on the professional services margin. How should we think about that maybe in the second half of the year? Should we carry that margin going forward or is there more room for improvement this year versus next year?

Jim Cox

I think one thing to think about in Q3 is we have our Client Conference, which flows through both that professional services and other line as well as the performance services and other expense line, and that’s probably negative to margins, as you think about Q3. But I think that it probably isn't a bad way to think about it. One thing to recall, though, is we don’t run our business to maximize on that line. We have kind of said we would like to shrink the size of our professional services business and make it breakeven. So that’s kind of where we were in Q2, and so we will hope to try and stay there.

John Maietta – Needham & Company

Got it. Okay. It’s helpful. Thanks.

Jim Cox

Thanks.

Operator

Your next question is from the line of Gil Luria with Wedbush Securities. Please proceed.

Gil Luria – Wedbush Securities

Good afternoon.

Jim Cox

Hi, Gill.

Gil Luria – Wedbush Securities

Have you hired any sales people this year? How many sales people have you hired year to date?

Jim Cox

I would say total sales quota carrying and then also sales support between 5 and 10. On a basis of geographical expansion, you get some sales people with the Goya acquisition. And then – sorry?

Gil Luria – Wedbush Securities

I guess my question is how many sales people did you have at the beginning of the year?

Jim Cox

I don’t have that number right off the top of my head.

Stephanie DiMarco

5,900.

Jim Cox

Yes. Direct sales probably about 60 direct sales, and then if you take Pete’s, I would say it’s up 10% when you take Pete’s and then add onto what we'll call solutions consultants.

Gil Luria – Wedbush Securities

As we look at bookings for the rest of the year, you have a little more sales people and is there anything that's happened, anything that you see obviously without trying to forecast things that we don’t know about that would change the normal seasonality of bookings?

Jim Cox

I don’t think so. I think we will see similar seasonality. Q4 is generally our best quarter. Q2 is usually our second best and then one and three are kind of similar.

Gil Luria – Wedbush Securities

Got it. And then in terms of renewal rates, at what point do we wash out all the fund closures that we had last year? How long is that before that’s out of the renewal rates?

Jim Cox

I would say it’s going to be another six months before that stuff is washed out.

Gil Luria – Wedbush Securities

Then back to question we’ve talked about in a couple of last conference calls, at that point when it’s all washed out, is it fair to assume we’d get closer or above the 100% renewal rates again?

Jim Cox

I think that’s fair. Yes, definitely closer.

Gil Luria – Wedbush Securities

Then finally, the deferred implementation that kind of add back or subtraction, I think you may have addressed it in the previous questions but should we expect that to be at a – remain at a similar level to Q2 going forward as far as you can tell? Or is the Client Conference going to flow through that?

Jim Cox

So the Client Conference is a little bit different than the term service deferral. The Client Conference just occurs in Q3 and it flows within that professional services and other line item on the revenue statement – on the income statement. The term implementation, that is really dependent upon kind of the completion of implementations and comparing that to new bookings within a particular quarter. We have obviously had four quarters now of good booking strength.

We have lots of implementations in the pipeline there. So the timing of when those get done is in part up to the good management of our professional services team, but it is also up to our customers and how we are able to complete those implementations. The forecasting of any timing of those on any one quarter is – obviously you have seen the variability. It was $3 million between the two years, so that’s kind of a reasonable variance between any two quarters probably.

Gil Luria – Wedbush Securities

Got it. Thank you.

Operator

Next question comes from the line of Sasa Zorovic with Janneys. Please proceed.

Sasa Zorovic – Janney Montgomery Scott

Yes, thank you. Could you tell us a bit about what you're noticing regarding the sales cycles sort of any trends that you have noticed as they become sort of shorter, the things are moving through the pipeline somewhat faster and anything that would be different from just a seasonal uptick first to second quarter?

Jim Cox

I think we saw reaction to the euro credit crisis in that some of the European sales cycles were stretched longer than we normally see them; didn't affect us domestically as much. When we have this conservation a year ago, there was a distinctive slowing down of sales cycles, and then it started to pick back up towards the second half of the year to more normal sales cycles. I think we are staying in that more normal sales cycle pattern except like I said there was some reaction to the euro crisis which is starting to abate a bit and I think we're starting to feel more comfortable about the way Europe is going to go the second half of the year.

Sasa Zorovic – Janney Montgomery Scott

Have you also – I guess, second question will be regarding any kind of a competitive insight that you could provide to us. Would you say this relative strength that you have seen to what extent that would be the market or do you specifically think that you have been sort of share gains on your part also during the quarter?

Jim Cox

We’ve been – any time we displaced somebody we are gaining share, and so there are a fair number of displacement deals in the second quarter. And it is the usual suspects that we tend to displace. One thing I will say is that with APX 3.0 and the SQL Server Reporting Services component to that, that’s enabled us to win deals that we would have lost in the past, no question about it. So I feel we’ve never been competitively stronger and when we are engaged if we get towards the end of that sales cycle, we tend to win, and we can just compete now more effectively in a broader spectrum of deal just based on some of the functionality in the new releases.

And similarly with Geneva 8.0 release, that’s enabled us to make some strides in that international hedge fund space where we have historically struggled. The intent of that release was largely to make us more competitive in the hedge fund space internationally, and it seems as though that is working.

Sasa Zorovic – Janney Montgomery Scott

Then finally, regarding – given the strong cash generation that we’ve seen here in the quarter, should we sort of anticipate more share buybacks or maybe acquisitions or is this going to be going primarily towards supporting the international growth, and specifically in Asia, how should we look towards that use of cash?

Jim Cox

We're always very deliberate in how we use our cash and we always consider share buybacks as one of those options as well as other opportunities. So I think we just keep all of our options open at this point.

Sasa Zorovic – Janney Montgomery Scott

Thank you.

Operator

Your next question is from the line of Sterling Auty with JP Morgan. Please proceed.

Saket Kalia – JP Morgan

Hi guys, it’s Saket here for Sterling. Two questions from my side, one for Jim and one for Stephanie. For Jim, in the beginning your prepared comments you mentioned one special I want to say five-year deal that was included in bookings. So I was hoping you could elaborate on that just a little bit.

Then for Stephanie, you talked about the FinReg bill and the need for hedge funds over $150 million in AUM to start to register with the SEC as well as trading desk I guess spinning out of large investment banks. Can you kind of frame that opportunity for us? Thanks.

Jim Cox

Sure. Saket, I will go first. This is Jim. So, yes, we had – if you recall, ACV is our booking number and it’s really intended to provide you with the run rate for term license and OnDemand booking. We had one specific contract that was approximately maybe just under 10% of the total ACV bookings this year, and had a term in that contract, it is a five-year term contract and at the end of that fifth year the client has the ability to take that license and it becomes perpetual though obviously continue to pay maintenance after that first five-year term.

Because it looks economically like a term license agreement and we are trying to help you guys model that recurring run rate revenue, we put it into our ACV disclosure and I wanted to just make sure everybody knew that, that was what we were doing.

Stephanie DiMarco

On the financial regulation, I think David put it well; this is really a secular trend that we see in our industry and something that we’ve been seeing for the last several quarters post financial crisis. I think a really good example is in the quarter we signed a $5 billion hedge fund new client who never had a portfolio accounting system. So they relied on their custodian and didn't have any internal infrastructure and that’s a pretty big fund and they said we need to have some infrastructure. We're big enough, the rules are changing, infrastructure is important, and so they bit the bullet and are creating that capability within their organization.

So I think the industry is just maturing to an extent where if you have a certain size you just need to have these kinds of systems and the cost of compliance and being in the business is going to go up just like it did for every public company after Sarbanes-Oxley, and I think that's just going to be the nature of our industry is that people will be required to have a higher level of reporting and operational infrastructure that’s expect by investors and auditors and regulators. So it’s difficult to put an exact number on that. It’s more of a trend that I think fits right into where our company and our product plans are positioned.

Saket Kalia – JP Morgan

Great, thanks.

Operator

Your next question is from the line of Brian Murphy with Sidoti & Company. Please proceed.

Brian Murphy – Sidoti & Company

Hi, thanks for taking my questions. I may have missed this. Jim, did you say that there was a 10% bookings customer in the quarter?

Jim Cox

Just about that, yes.

Brian Murphy – Sidoti & Company

Okay. I know you guys have signed some pretty big deals for Tamale already. Can you just give us a sense for what that sort of average deal size trend looks like for Tamale?

Peter Hess

I would say that it’s probably fairly constant with where it was last year. From a trend perspective, we are selling – one thing I will say is that we are selling larger seat deployments because we're selling more asset managers who tend to have more users than hedge funds. But our price point for those profile firms is probably a little bit lower per seat. So I would say on average it is staying about the same.

Stephanie DiMarco

I think the distribution is starting to come closer to our traditional business because we are having success selling Tamale, as Pete said, into larger enterprises, so the average becomes less meaningful because we have some really big deals, and then we have a lot of base hits and smaller organization who may be taking 10, 15 seats and then we have the larger implementation where we've had, as I said, a bunch of success.

Brian Murphy – Sidoti & Company

Okay. Got it. Thanks very much.

Operator

Your next question is from the line of Del Warmington with Delwar Capital Management. Please proceed.

Del Warmington – Delwar Capital Management

Yes. Quick question about CapEx. I think you project between $18 million and $22 million for ’10. Could you break that down for me, please?

Jim Cox

On the breakout, I would consider probably about $8 million to $12 million – about $8 million in our normal – what I would call normal run rate CapEx, sometimes that goes up and down depending on how many small offices, and this year with our build-out of the Boston facility and the New York facility you had on top of that; I guess it’s $10 million to $14 million to get to $18 million to $22 million.

Del Warmington – Delwar Capital Management

Okay. Thanks a million.

Jim Cox

Thanks.

Operator

We have no other questions at this time. (Operator instructions)

Stephanie DiMarco

All right. Well, thank you everyone for joining us and we look forward to speaking with you next quarter.

Jim Cox

Thanks.

Stephanie DiMarco

Bye-bye.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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Source: Advent Software, Inc. Q2 2010 Earnings Call Transcript
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