BroadSoft Reports Third Quarter 2017 Financial Results

11/06/17

GAITHERSBURG, Md., Nov. 06, 2017 (GLOBE NEWSWIRE) -- BroadSoft, Inc. (NASDAQ:BSFT), a global market leader in cloud business software for unified communication as a service (UCaaS), and provider of team collaboration and contact center as a service (CCaaS), today announced financial results for the quarter ended September 30, 2017.

Financial Highlights for the Third Quarter of 2017

  • Total revenue increased 9% year-over-year to $91.5 million

  • GAAP gross profit equaled 71% of total revenue; non-GAAP gross profit equaled 75% of total revenue

  • GAAP income from operations totaled $0.6 million; non-GAAP income from operations totaled $16.8 million or 18% of revenue

  • GAAP basic and diluted net loss per share equaled $(0.09) per common share; non-GAAP diluted earnings per share equaled $0.38 per common share

Results for the three months ended September 30, 2017

Total revenue rose to $91.5 million in the third quarter of 2017, an increase of 9% compared to $84.1 million in the third quarter of 2016.

Net loss for the third quarter of 2017 was $(2.7) million, or $(0.09) per basic and diluted common share, compared to net loss of $(0.6) million, or $(0.02) per basic and diluted common share in the third quarter of 2016.

On a non-GAAP basis, net income in the third quarter of 2017 was $12.4 million, or $0.38 per diluted common share, compared to non-GAAP net income of $12.7 million, or $0.40 per diluted common share, in the third quarter of 2016.

Results for the nine months ended September 30, 2017

Total revenue rose to $259.9 million for the first nine months of 2017, an increase of 9% compared to $239.0 million for the first nine months of 2016.

Net loss for the first nine months of 2017 was $(16.2) million, or $(0.53) per basic and diluted common share, compared to a net loss of $(5.0) million, or $(0.17) per basic and diluted common share for the first nine months of 2016.

On a non-GAAP basis, net income for the first nine months of 2017 was $27.0 million, or $0.84 per diluted common share, compared to non-GAAP net income of $33.0 million, or $1.08 per diluted common share, for the first nine months of 2016. 

Conference Call

As previously announced on October 23, 2017, the Company has entered into a merger agreement with Cisco Systems, Inc. ("Cisco") under which Cisco will acquire the Company for $55.00 per share in an all-cash transaction.  The acquisition is expected to close during the first quarter of calendar year 2018, subject to customary closing conditions and regulatory review.

Due to the pending merger, the Company will not be updating its outlook for fiscal 2017 and will not be hosting a conference call for its third quarter 2017 business results.

Non-GAAP Methodology Change

In the third quarter of 2017, we changed our method of calculating our non-GAAP provision for income taxes in accordance with the SEC's Non-GAAP Financial Measures Compliance and Disclosure Interpretation. To assist investors to better understand the change, we are providing the calculations under our new method and the prior method - please see "Reconciliation of Non-GAAP Financial Measures" below.

The "New Method" consists of current and deferred income tax expense commensurate with the non-GAAP measure of profitability utilizing our projected effective long-term statutory tax rate (i.e. the rate we expect to be applicable to us after we implement our planned international restructuring and without giving effect to the merger with Cisco). We currently believe this effective long-term statutory tax rate will be approximately 26% of Non-GAAP pre-tax income. The "Prior Method" consists of current and deferred income tax expense commensurate with our cash income tax rate. We believe our long-term effective GAAP tax rate will be lower than the U.S. statutory tax rate based upon the planned restructuring (and without giving effect to the merger).

Non-GAAP financial measures:

BroadSoft has provided in this release financial information that has not been prepared in accordance with generally accepted accounting principles, or GAAP. BroadSoft uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating BroadSoft’s ongoing operational performance. BroadSoft’s management regularly uses these non-GAAP financial measures to understand and manage its business and believes these non-GAAP financial measures provide meaningful supplemental information regarding BroadSoft’s performance by excluding certain non-cash expenses, and may include additional adjustments for items that are infrequent in nature. BroadSoft believes the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial results with other companies in BroadSoft’s industry, many of which present similar non-GAAP financial measures to investors. A reconciliation of the non-GAAP financial measures included in this release and to be discussed on this morning’s teleconference to the most directly comparable GAAP financial measures is set forth below.

Non-GAAP cost of revenue, license software cost of revenue, subscription and maintenance cost of revenue and professional services and other cost of revenue. We define non-GAAP cost of revenue as a cost of revenue less stock-based compensation expense and amortization expense for acquired intangible assets. We consider non-GAAP cost of revenue to be a useful metric for management and our investors because it excludes the effect of certain non-cash expenses so management and investors can compare our cost of revenue over multiple periods.

Non-GAAP gross profit, license software gross profit, subscription and maintenance support gross profit and professional services and other gross profit. We define non-GAAP gross profit as gross profit plus stock-based compensation expense and amortization expense for acquired intangible assets. We consider non-GAAP gross profit to be a useful metric for management and our investors because it excludes the effect of certain non-cash expenses so management and investors can compare our sales margins over multiple periods.

Non-GAAP income from operations. We define non-GAAP operating income as income from operations plus stock-based compensation expense and amortization expense for acquired intangible assets. We consider non-GAAP operating income to be a useful metric for management and investors because it excludes the effect of certain non-cash expenses so management and investors can compare our core business operating results over multiple periods.

Non-GAAP operating expenses, sales and marketing expense, research and development expense and general and administrative expense. We define non-GAAP operating expenses as operating expense plus stock-based compensation expense allocated to sales and marketing, research and development and general and administrative expenses. Similarly, we define non-GAAP sales and marketing, research and development and general and administrative expenses as the relevant GAAP measure plus stock-based compensation expense allocated to the particular expense item.

Non-GAAP net income and net income per share. We define non-GAAP net income as net income plus stock-based compensation expense, amortization expense for acquired intangible assets, non-cash interest expense on our convertible senior notes, foreign currency transaction gains and losses adjusted for our non-GAAP tax provision, which is our estimated current and deferred income tax expense commensurate with the non-GAAP measure of profitability utilizing our projected effective long-term statutory tax rate to which we expect that we will be subject after we implement our expected reorganization of our international operations (and without giving effect to the Merger). We define non-GAAP income per share as non-GAAP net income divided by the weighted average shares outstanding.

The presentation of non-GAAP net income, non-GAAP net income per share, non-GAAP gross margin, non-GAAP income from operations, and other non-GAAP financial measures in this release and on this morning’s teleconference is not meant to be a substitute for “net income,” “net income per share,” “gross margin,” “income from operations” or other financial measures presented in accordance with GAAP, but rather should be evaluated in conjunction with such data. BroadSoft’s definition of “non-GAAP net income,” “non-GAAP net income per share,” “non-GAAP gross margin,” “non-GAAP income from operations” and other non-GAAP financial measures may differ from similarly titled non-GAAP measures used by other companies and may differ from period to period. In reporting non-GAAP measures in the future, management may make other adjustments for expenses and gains it does not consider reflective of core operating performance in a particular period and may modify “non-GAAP net income,” “non-GAAP net income per share,” “non-GAAP gross margin,” “non-GAAP income from operations” and such other non-GAAP measures by excluding these expenses and gains.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by their use of terms and phrases such as “anticipate,” “expect,” “will,” “believe,” “continue” and other similar terms and phrases. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including, but not limited to: BroadSoft's ability to expand its BroadCloud offering geographically and increase the associated recurring service revenue; BroadSoft’s dependence on the success of BroadWorks and on its service provider customers to sell services using its applications; BroadSoft’s dependence in large part on service providers’ continued deployment of, and investment in, their IP-based networks; claims that BroadSoft infringes the intellectual property rights of others; BroadSoft’s ability to integrate and achieve the expected benefits from its recent acquisitions; and BroadSoft’s ability to expand its product offerings, as well as those factors contained in the “Risk Factors” sections of BroadSoft’s Form 10-K for the year ended December 31, 2016 filed with the SEC on February 23, 2017, and in BroadSoft’s other filings with the SEC. All information in this release is as of November 6, 2017. Except as required by law, BroadSoft undertakes no obligation to update publicly any forward-looking statement made herein for any reason to conform the statement to actual results or changes in BroadSoft’s expectations.  

About BroadSoft

BroadSoft is the technology innovator in cloud PBX, unified communications, collaboration, and contact center solutions for businesses and service providers across 80 countries.  We are the market share leader for cloud unified communications with an open, mobile and secure platform trusted by 25 of the world's top 30 service providers by revenue.  Our BroadSoft Business application suite empowers users and teams to share ideas and work simply to achieve breakthrough performance.

Financial Statements

The financial statements set forth below are not the complete set of BroadSoft’s financial statements for the quarter and the year and are presented below without footnotes. Readers are encouraged to obtain and carefully review BroadSoft’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, including all financial statements contained therein and the footnotes thereto, once the report is filed with the SEC. Once filed with the SEC, the Form 10-Q may be retrieved from the SEC’s website at www.sec.gov or from BroadSoft’s website at www.broadsoft.com.

Contact Information

For further information contact:

Investor Relations:
Chris Martin
+1-561-404-2130
cmartin@broadsoft.com 

Media Contact:
Niaobh Levestam
+240-720-9643
nlevestam@broadsoft.com 

BSFT-F

 
BroadSoft, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
  September 30,
 2017
  December 31,
 2016
  (Unaudited)    
Assets:
Current assets:      
Cash and cash equivalents $ 129,546     $ 82,993  
Short-term investments 241,521     136,428  
Accounts receivable, net of allowance for doubtful accounts of $240 and $108 at September 30, 2017 and December 31, 2016, respectively 109,086     121,817  
Other current assets 30,295     17,431  
Total current assets 510,448     358,669  
Long-term assets:      
Property and equipment, net 29,409     22,626  
Long-term investments 25,221     144,159  
Intangible assets, net 23,246     27,839  
Goodwill 85,559     82,758  
Deferred tax assets 31,929     7,042  
Other long-term assets 8,354     8,107  
Total long-term assets 203,718     292,531  
    Total assets $ 714,166     $ 651,200  
Liabilities and stockholders’ equity:
Current liabilities:      
Current portion of convertible senior notes $ 65,787     $  
Accounts payable and accrued expenses 41,002     33,854  
Deferred revenue, current portion 86,764     97,037  
    Total current liabilities 193,553     130,891  
Convertible senior notes 145,339     201,015  
Deferred revenue 10,582     12,152  
Other long-term liabilities 9,477     5,908  
    Total liabilities $ 358,951     $ 349,966  
Commitments and contingencies      
Stockholders’ equity:      
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized at September 30, 2017 and December 31, 2016; no shares issued and outstanding at September 30, 2017 and December 31, 2016      
Common stock, par value $0.01 per share; 100,000,000 shares authorized at September 30, 2017 and December 31, 2016; 31,520,196 and 30,353,127 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively. 315     304  
Additional paid-in capital 427,416     383,268  
Accumulated other comprehensive loss (15,047 )   (21,845 )
Accumulated deficit (57,469 )   (60,493 )
Total stockholders’ equity 355,215     301,234  
Total liabilities and stockholders’ equity $ 714,166     $ 651,200  
               


 
BroadSoft, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (Unaudited)   (Unaudited)
Revenue:              
License software $ 30,587     $ 31,486     $ 94,683     $ 95,992  
Subscription and maintenance support 43,520     36,509     127,106     106,348  
Professional services and other 17,366     16,127     38,112     36,639  
Total revenue 91,473     84,122     259,901     238,979  
Cost of revenue:              
License software 1,463     1,799     4,655     5,697  
Subscription and maintenance support 15,002     11,894     42,085     34,060  
Professional services and other 10,226     10,060     30,577     27,340  
Total cost of revenue 26,691     23,753     77,317     67,097  
Gross profit 64,782     60,369     182,584     171,882  
Operating expenses:              
Sales and marketing 30,519     26,112     88,296     75,386  
Research and development 20,814     19,931     62,545     58,120  
General and administrative 12,880     12,759     40,295     36,675  
Total operating expenses 64,213     58,802     191,136     170,181  
Income (loss) from operations 569     1,567     (8,552 )   1,701  
Other expense:              
Interest expense 4,260     3,959     12,471     11,738  
Interest income (855 )   (683 )   (2,457 )   (1,950 )
Other, net 316     (207 )   93     (533 )
Total other expense, net 3,721     3,069     10,107     9,255  
Loss before income taxes (3,152 )   (1,502 )   (18,659 )   (7,554 )
Benefit from income taxes (478 )   (897 )   (2,466 )   (2,545 )
Net loss $ (2,674 )   $ (605 )   $ (16,193 )   $ (5,009 )
Net loss per common share:              
Basic and diluted $ (0.09 )   $ (0.02 )   $ (0.53 )   $ (0.17 )
Weighted average common shares outstanding:              
Basic and diluted 31,175     29,878     30,807     29,491  
Stock-based compensation expense included above:              
Cost of revenue $ 2,516     $ 2,225     $ 6,930     $ 6,118  
Sales and marketing 6,184     4,973     15,548     13,321  
Research and development 3,341     4,249     9,979     11,414  
General and administrative 2,589     2,574     7,500     7,454  
                       



 
BroadSoft, Inc.
SUMMARY OF CONSOLIDATED CASH FLOW ACTIVITY
(Unaudited)
 
  Nine Months Ended
 September 30,
  2017   2016
  (in thousands)
Cash provided by (used in):      
Operating activities $ 40,724     $ 47,937  
Investing activities (1,151 )   (124,049 )
Financing activities 3,336     828  
           


 
BroadSoft, Inc.
BILLINGS (REVENUE PLUS NET CHANGE IN DEFERRED REVENUE)
(Unaudited)
 
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (in thousands)
Beginning of period deferred revenue balance $ 99,244     $ 107,305     $ 109,189     $ 111,054  
End of period deferred revenue balance 97,346     102,049     97,346     102,049  
Decrease in deferred revenue (1,898 )   (5,256 )   (11,843 )   (9,005 )
Revenue 91,473     84,122     259,901     238,979  
Revenue plus net change in deferred revenue $ 89,575     $ 78,866     248,058     229,974  
                           


 
BroadSoft, Inc.
LICENSE SOFTWARE BILLINGS
(Unaudited)
 
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (in thousands)
Beginning of period deferred license software revenue balance $ 9,856     $ 26,798     $ 17,662     $ 33,200  
End of period deferred license software revenue balance 10,464     19,476     10,464     19,476  
Increase (decrease) in deferred license software revenue 608     (7,322 )   (7,198 )   (13,724 )
License software revenue 30,587     31,486     94,683     95,992  
License software revenue plus net change in deferred license software revenue $ 31,195     $ 24,164     $ 87,485     $ 82,268  
                               


 
BroadSoft, Inc.
SUBSCRIPTION AND MAINTENANCE SUPPORT BILLINGS
(Unaudited)
 
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (in thousands)
Beginning of period deferred subscription and maintenance support revenue balance $ 63,060     $ 60,381     $ 72,559     $ 61,399  
End of period deferred subscription and maintenance support revenue balance 65,804     58,154     65,804     58,154  
Increase (decrease) in deferred license software revenue 2,744     (2,227 )   (6,755 )   (3,245 )
Subscription and maintenance support revenue 43,520     36,509     127,106     106,348  
Subscription and maintenance support revenue plus net change in deferred subscription and maintenance support revenue $ 46,264     $ 34,282     $ 120,351     $ 103,103  
                               


 
BroadSoft, Inc.
PROFESSIONAL SERVICES AND OTHER BILLINGS
(Unaudited)
 
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (in thousands)
Beginning of period deferred professional services and other revenue balance $ 26,328     $ 20,126     $ 18,968     $ 16,455  
End of period deferred professional services and other revenue balance 21,078     24,419     21,078     24,419  
Increase (decrease) in deferred license software revenue (5,250 )   4,293     2,110     7,964  
Professional services and other revenue 17,366     16,127     38,112     36,639  
Professional services and other revenue plus net change in deferred professional services and other revenue $ 12,116     $ 20,420     $ 40,222     $ 44,603  
                               


 
BroadSoft, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
 
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (in thousands)
Non-GAAP cost of revenue:              
GAAP license cost of revenue $ 1,463     $ 1,799     $ 4,655     $ 5,697  
(percent of related revenue) 5 %   6 %   5 %   6 %
Less:              
Stock-based compensation expense 105     146     312     472  
Amortization of acquired intangible assets 265     334     1,034     1,003  
Non-GAAP license cost of revenue $ 1,093     $ 1,319     $ 3,309     $ 4,222  
(percent of related revenue) 4 %   4 %   3 %   4 %
               
               
GAAP subscription and maintenance support cost of revenue $ 15,002     $ 11,894     $ 42,085     $ 34,060  
(percent of related revenue) 34 %   33 %   33 %   32 %
Less:              
Stock-based compensation expense 1,184     952     3,136     2,438  
Amortization of acquired intangible assets 1,139     1,197     3,449     3,431  
Non-GAAP subscription and maintenance support cost of revenue $ 12,679     $ 9,745     $ 35,500     $ 28,191  
(percent of related revenue) 29 %   27 %   28 %   27 %
               
               
GAAP professional services and other cost of revenue $ 10,226     $ 10,060     $ 30,577     $ 27,340  
(percent of related revenue) 59 %   62 %   80 %   75 %
Less:              
Stock-based compensation expense 1,227     1,127     3,482     3,208  
Amortization of acquired intangible assets 175     175     525     525  
Non-GAAP professional services and other cost of revenue $ 8,824     $ 8,758     $ 26,570     $ 23,607  
(percent of related revenue) 51 %   54 %   70 %   64 %
                       


  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (in thousands)
Non-GAAP gross profit:              
GAAP gross profit $ 64,782     $ 60,369     $ 182,584     $ 171,882  
(percent of total revenue) 71 %   72 %   70 %   72 %
Plus:              
Stock-based compensation expense 2,516     2,225     6,930     6,118  
Amortization of acquired intangible assets 1,579     1,706     5,008     4,959  
Non-GAAP gross profit $ 68,877     $ 64,300     $ 194,522     $ 182,959  
(percent of total revenue) 75 %   76 %   75 %   77 %
               
               
GAAP license gross profit $ 29,124     $ 29,687     $ 90,028     $ 90,295  
(percent of related revenue) 95 %   94 %   95 %   94 %
Plus:              
Stock-based compensation expense 105     146     312     472  
Amortization of acquired intangible assets 265     334     1,034     1,003  
Non-GAAP license gross profit $ 29,494     $ 30,167     $ 91,374     $ 91,770  
(percent of related revenue) 96 %   96 %   97 %   96 %
               
               
GAAP subscription and maintenance support gross profit $ 28,518     $ 24,615     $ 85,021     $ 72,288  
(percent of related revenue) 66 %   67 %   67 %   68 %
Plus:              
Stock-based compensation expense 1,184     952     3,136     2,438  
Amortization of acquired intangible assets 1,139     1,197     3,449     3,431  
Non-GAAP subscription and maintenance support gross profit $ 30,841     $ 26,764     $ 91,606     $ 78,157  
(percent of related revenue) 71 %   73 %   72 %   73 %
               
               
GAAP professional services and other gross profit (loss) $ 7,140     $ 6,067     $ 7,535     $ 9,299  
(percent of related revenue) 41 %   38 %   20 %   25 %
Plus:              
Stock-based compensation expense 1,227     1,127     3,482     3,208  
Amortization of acquired intangible assets 175     175     525     525  
Non-GAAP professional services and other gross profit $ 8,542     $ 7,369     $ 11,542     $ 13,032  
(percent of related revenue) 49 %   46 %   30 %   36 %


  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016
  (in thousands)
Non-GAAP income from operations:              
GAAP income (loss) from operations $ 569     $ 1,567     $ (8,552 )   $ 1,701  
(percent of total revenue) 1 %   2 %   (3 )%   1 %
Plus:              
Stock-based compensation expense 14,630     14,021     39,957     38,307  
Amortization of acquired intangible assets 1,579     1,706     5,008     4,959  
Non-GAAP income from operations $ 16,778     $ 17,294     $ 36,413     $ 44,967  
(percent of total revenue) 18 %   21 %   14 %   19 %
               
               
GAAP operating expense $ 64,213     $ 58,802     $ 191,136     $ 170,181  
(percent of total revenue) 70 %   70 %   74 %   71 %
Less:              
Stock-based compensation expense 12,114     11,796     33,027     32,189  
Non-GAAP operating expense $ 52,099     $ 47,006     $ 158,109     $ 137,992  
(percent of total revenue) 57 %   56 %   61 %   58 %
               
               
GAAP sales and marketing expense $ 30,519     $ 26,112     $ 88,296     $ 75,386  
(percent of total revenue) 33 %   31 %   34 %   32 %
Less:              
Stock-based compensation expense 6,184     4,973     15,548     13,321  
Non-GAAP sales and marketing expense $ 24,335     $ 21,139     $ 72,748     $ 62,065  
(percent of total revenue) 27 %   25 %   28 %   26 %
               
               
GAAP research and development expense $ 20,814     $ 19,931     $ 62,545     $ 58,120  
(percent of total revenue) 23 %   24 %   24 %   24 %
Less:              
Stock-based compensation expense 3,341     4,249     9,979     11,414  
Non-GAAP research and development expense $ 17,473     $ 15,682     $ 52,566     $ 46,706  
(percent of total revenue) 19 %   19 %   20 %   20 %
               
               
GAAP general and administrative expense $ 12,880     $ 12,759     $ 40,295     $ 36,675  
(percent of total revenue) 14 %   15 %   16 %   15 %
Less:              
Stock-based compensation expense 2,589     2,574     7,500     7,454  
Non-GAAP general and administrative expense $ 10,291     $ 10,185     $ 32,795     $ 29,221  
(percent of total revenue) 11 %   12 %   13 %   12 %
                       


       
  NEW METHOD (1)   PRIOR METHOD (1) (2)
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2017   2016   2017   2016   2017   2016   2017   2016
  (in thousands)                
                               
Non-GAAP net income and income per share:                              
GAAP net income (loss) $ (2,674 )   $ (605 )   $ (16,193 )   $ (5,009 )   $ (2,674 )   $ (605 )   $ (16,193 )   $ (5,009 )
(percent of total revenue) (3 )%   (1 )%   (6 )%   (2 )%   (3 )%   (1 )%   (6 )%   (2 )%
Adjusted for:                              
Stock-based compensation expense 14,630     14,021     39,957     38,307     14,630     14,021     39,957     38,307  
Amortization of acquired intangible assets 1,579     1,706     5,008     4,959     1,579     1,706     5,008     4,959  
Non-cash interest expense on our notes 3,429     3,197     10,112     9,428     3,429     3,197     10,112     9,428  
Foreign currency transaction losses (gains) 316     (207 )   93     (533 )   316     (207 )   93     (533 )
Non-GAAP tax provision (4,847 )   (5,373 )   (11,959 )   (14,143 )   (2,049 )   (1,758 )   (5,022 )   (4,775 )
Non-GAAP net income $ 12,433     $ 12,739     $ 27,018     $ 33,009     $ 15,231     $ 16,354     $ 33,955     $ 42,377  
(percent of total revenue) 14 %   15 %   10 %   14 %   17 %   19 %   13 %   18 %
                               
                               
GAAP net income (loss) per basic common share $ (0.09 )   $ (0.02 )   $ (0.53 )   $ (0.17 )   $ (0.09 )   $ (0.02 )   $ (0.53 )   $ (0.17 )
Adjusted for:                              
Stock-based compensation expense 0.47     0.47     1.30     1.30     0.47     0.47     1.30     1.30  
Amortization of acquired intangible assets 0.05     0.06     0.16     0.17     0.05     0.06     0.16     0.17  
Non-cash interest expense on our notes 0.11     0.11     0.33     0.32     0.11     0.11     0.33     0.32  
Foreign currency transaction losses (gains) 0.01     (0.01 )       (0.02 )   0.01     (0.01 )       (0.02 )
Non-GAAP tax provision (0.16 )   (0.18 )   (0.39 )   (0.48 )   (0.07 )   (0.06 )   (0.16 )   (0.16 )
Non-GAAP net income per basic common share $ 0.40     $ 0.43     $ 0.88     $ 1.12     $ 0.49     $ 0.55     $ 1.10     $ 1.44  
                               
                               
GAAP net income (loss) per diluted common share $ (0.09 )   $ (0.02 )   $ (0.53 )   $ (0.17 )   $ (0.09 )   $ (0.02 )   $ (0.53 )   $ (0.17 )
Adjusted for:                              
Stock-based compensation expense 0.44     0.44     1.24     1.25     0.44     0.44     1.24     1.25  
Amortization of acquired intangible assets 0.05     0.05     0.16     0.16     0.05     0.05     0.16     0.16  
Non-cash interest expense on our notes 0.10     0.10     0.31     0.31     0.10     0.10     0.31     0.31  
Foreign currency transaction losses (gains) 0.01     (0.01 )       (0.02 )   0.01     (0.01 )       (0.02 )
Non-GAAP tax provision (0.15 )   (0.17 )   (0.37 )   (0.46 )   (0.06 )   (0.06 )   (0.16 )   (0.16 )
Non-GAAP net income per diluted common share * $ 0.38     $ 0.40     $ 0.84     $ 1.08     $ 0.46     $ 0.52     $ 1.05     $ 1.39  
                                                               

* For the three and nine months ended September 30, 2017 and 2016, the non-GAAP net income per diluted common share calculation included the dilutive effect of stock-based awards and the dilutive effect of the premium feature of the convertible senior notes (which, in each case, were not reflected in the corresponding GAAP diluted share calculations, as their effect would have been anti-dilutive as a result of the net losses for these periods). Total diluted weighted average common shares outstanding used for calculating non-GAAP net income per diluted common share were 33,114 thousand and 31,584 thousand for the three months ended September 30, 2017 and 2016 and 32,284 thousand and 30,547 thousand for the nine months ended September 30, 2017 and 2016, respectively.

(1) In the third quarter of 2017, we changed our method of calculating our non-GAAP provision for income taxes in accordance with the SEC's Non-GAAP Financial Measures Compliance and Disclosure Interpretation. To assist investors to better understand the change, we are providing the calculations under our new method and the prior method. The "New Method" consists of current and deferred income tax expense commensurate with the non-GAAP measure of profitability utilizing our projected effective long-term statutory tax rate (i.e. the rate we expect to be applicable to us after we implement our planned international restructuring and without giving effect to the merger with Cisco). We currently believe this effective long-term statutory tax rate will be approximately 26% of Non-GAAP pre-tax income. The "Prior Method" consists of current and deferred income tax expense commensurate with our cash income tax rate. We believe our long-term effective GAAP tax rate will be lower than the U.S. statutory tax rate based upon the planned restructuring (and without giving effect to the merger).

(2) During the third quarter of 2017, we have updated the 2017 cash income tax rate used in the “Prior Method” from 5% to 7%. The non-GAAP tax provision using the Prior Method for the three months ended September 30, 2017 will reflect the true-up of non-GAAP tax provision for the six months ended June 30, 2017 to the 7% cash income tax rate.

The impact of the change described in (1) above on prior periods with respect to non-GAAP net income and non-GAAP diluted net income per share is as follows:

               
      NEW METHOD        
  30-Sep   30-Jun   31-Mar   31-Dec   30-Sep   30-Jun   31-Mar
  2017   2017   2017   2016   2016   2016   2016
Non-GAAP net income and income per share:                          
GAAP net (loss) income $ (2,674 )   $ (2,983 )   $ (10,536 )   $ 5,826     $ (605 )   $ (2,895 )   $ (1,509 )
(percent of total revenue) (3 )%   (3 )%   (13 )%   6 %   (1 )%   (4 )%   (2 )%
Adjusted for:                          
Stock-based compensation expense 14,630     12,934     12,393     13,200     14,021     13,612     10,674  
Amortization of acquired intangible assets 1,579     1,727     1,702     1,649     1,706     1,693     1,560  
Non-cash interest expense on our convertible notes 3,429     3,371     3,311     3,256     3,197     3,144     3,087  
Foreign currency transaction losses (gains) 316     (31 )   (192 )   717     (207 )   185     (511 )
Non-GAAP tax provision (4,847 )   (5,259 )   (1,853 )   (3,445 )   (5,373 )   (4,091 )   (4,679 )
Non-GAAP net income 12,433     9,759     4,825     21,203     12,739     11,648     8,622  
(percent of total revenue) 14 %   11 %   6 %   21 %   15 %   14 %   12 %
                           
                           
GAAP net (loss) income per basic common share $ (0.09 )   $ (0.10 )   $ (0.35 )   $ 0.19     $ (0.02 )   $ (0.10 )   $ (0.05 )
Adjusted for:                          
Stock-based compensation expense 0.47     0.42     0.41     0.44     0.47     0.46     0.37  
Amortization of acquired intangible assets 0.05     0.06     0.06     0.05     0.06     0.06     0.05  
Non-cash interest expense on our convertible notes 0.11     0.11     0.11     0.11     0.11     0.11     0.11  
Foreign currency transaction losses (gains) 0.01         (0.01 )   0.02     (0.01 )   0.01     (0.02 )
Non-GAAP tax provision (0.16 )   (0.17 )   (0.06 )   (0.11 )   (0.18 )   (0.14 )   (0.16 )
Non-GAAP net income per basic common share $ 0.40     $ 0.32     $ 0.17     $ 0.70     $ 0.43     $ 0.40     $ 0.30  
                           
                           
GAAP net (loss) income per diluted common share $ (0.09 )   $ (0.10 )   $ (0.35 )   $ 0.18     $ (0.02 )   $ (0.10 )   $ (0.05 )
Adjusted for:                          
Stock-based compensation expense 0.44     0.41     0.39     0.42     0.44     0.44     0.36  
Amortization of acquired intangible assets 0.05     0.05     0.05     0.05     0.05     0.06     0.05  
Non-cash interest expense on our convertible notes 0.10     0.11     0.10     0.10     0.10     0.10     0.10  
Foreign currency transaction losses (gains) 0.01         (0.01 )   0.02     (0.01 )   0.01     (0.02 )
Non-GAAP tax provision (0.15 )   (0.17 )   (0.06 )   (0.11 )   (0.17 )   (0.13 )   (0.16 )
Non-GAAP net income per diluted common share $ 0.38     $ 0.31     $ 0.15     $ 0.67     $ 0.40     $ 0.38     $ 0.29  


      PRIOR METHOD        
  30-Sep   30-Jun   31-Mar   31-Dec   30-Sep   30-Jun   31-Mar
  2017   2017   2017   2016   2016   2016   2016
Non-GAAP net income and income per share:                          
GAAP net (loss) income $ (2,674 )   $ (2,983 )   $ (10,536 )   $ 5,826     $ (605 )   $ (2,895 )   $ (1,509 )
(percent of total revenue) (3 )%   (3 )%   (13 )%   6 %   (1 )%   (4 )%   (2 )%
Adjusted for:                          
Stock-based compensation expense 14,630     12,934     12,393     13,200     14,021     13,612     10,674  
Amortization of acquired intangible assets 1,579     1,727     1,702     1,649     1,706     1,693     1,560  
Non-cash interest expense on our convertible notes 3,429     3,371     3,311     3,256     3,197     3,144     3,087  
Foreign currency transaction losses (gains) 316     (31 )   (192 )   717     (207 )   185     (511 )
Non-cash tax provision (2,049 )   (2,489 )   (484 )   4,054     (1,758 )   (786 )   (2,232 )
Non-GAAP net income 15,231     12,529     6,194     28,702     16,354     14,953     11,069  
(percent of total revenue) 17 %   14 %   8 %   28 %   19 %   18 %   15 %
                           
                           
GAAP net (loss) income per basic common share $ (0.09 )   $ (0.10 )   $ (0.35 )   $ 0.19     $ (0.02 )   $ (0.10 )   $ (0.05 )
Adjusted for:                          
Stock-based compensation expense 0.47     0.42     0.41     0.44     0.47     0.46     0.37  
Amortization of acquired intangible assets 0.05     0.06     0.06     0.05     0.06     0.06     0.05  
Non-cash interest expense on our convertible notes 0.11     0.11     0.11     0.11     0.11     0.11     0.11  
Foreign currency transaction losses (gains) 0.01         (0.01 )   0.02     (0.01 )   0.01     (0.02 )
Non-cash tax provision (0.07 )   (0.08 )   (0.02 )   0.13     (0.06 )   (0.03 )   (0.08 )
Non-GAAP net income per basic common share $ 0.49     $ 0.41     $ 0.20     $ 0.95     $ 0.55     $ 0.51     $ 0.38  
                           
                           
GAAP net (loss) income per diluted common share $ (0.09 )   $ (0.10 )   $ (0.35 )   $ 0.18     $ (0.02 )   $ (0.10 )   $ (0.05 )
Adjusted for:                          
Stock-based compensation expense 0.44     0.41     0.39     0.42     0.44     0.44     0.36  
Amortization of acquired intangible assets 0.05     0.05     0.05     0.05     0.05     0.06     0.05  
Non-cash interest expense on our convertible notes 0.10     0.11     0.10     0.10     0.10     0.10     0.10  
Foreign currency transaction losses (gains) 0.01         (0.01 )   0.02     (0.01 )   0.01     (0.02 )
Non-cash tax provision (0.06 )   (0.08 )   (0.02 )   0.13     (0.06 )   (0.03 )   (0.07 )
Non-GAAP net income per diluted common share $ 0.46     $ 0.40     $ 0.19     $ 0.91     $ 0.52     $ 0.49     $ 0.37  

Source: BroadSoft, Inc.