BroadSoft, Inc
Aug 5, 2013

BroadSoft Reports Second Quarter 2013 Financial Results

GAITHERSBURG, MD -- (Marketwired) -- 08/05/13 -- BroadSoft, Inc. (NASDAQ: BSFT), the leading global provider of Internet protocol-based, or IP-based, communications services to the telecommunications industry, today announced financial results for the quarter ended June 30, 2013.

Financial Highlights for the Second Quarter of 2013

Results for the three months ended June 30, 2013

Total revenue rose to $44.0 million in the second quarter of 2013, an increase of 9% compared to $40.5 million in the second quarter of 2012.

Net loss for the second quarter of 2013 was $3.0 million, or $0.11 per basic and diluted common share, compared to net income of $2.4 million, or $0.08 per diluted common share, in the second quarter of 2012.

On a non-GAAP basis, net income in the second quarter of 2013 was $9.2 million, or $0.32 per diluted common share, compared to non-GAAP net income of $9.4 million, or $0.33 per basic and diluted common share, in the second quarter of 2012. A reconciliation of non-GAAP and GAAP results is included in the financial tables below.

Results for the six months ended June 30, 2013

Total revenue was $83.6 million for the first six months of 2013, compared to $78.9 million for the first six months of 2012, reflecting year-over-year growth of 6%.

Net loss for the first six months of 2013 was $5.3 million, or $0.19 per basic and diluted common share, compared to net income of $4.1 million, or $0.14 per diluted common share, for the first six months of 2012.

On a non-GAAP basis, net income for the first six months of 2013 was $14.3 million or $0.50 per diluted common share, compared to non-GAAP net income of $17.5 million, or $0.62 per diluted common share, in the first six months of 2012. A reconciliation of non-GAAP and GAAP results is included in the financial tables below.

Management Commentary

"Our second quarter performance was driven by the positive results our customers are experiencing with their hosted Unified Communications services in the marketplace," said Michael Tessler, president and chief executive officer, BroadSoft. "There are many factors driving the demand for hosted Unified Communications, including the growth of mobile workers. This workforce evolution is pushing enterprises to seek business tools, such as hosted Unified Communications, that speed decision-making, allow remote teams to easily collaborate and ensure enterprises run efficiently. The extensive mobile capabilities of our UC-One platform are designed to enable our service provider customers to meet the needs of the increasingly mobile enterprise."

"We were pleased with our results for the second quarter from a revenue, billings and profitability perspective," said Jim Tholen, chief financial officer, BroadSoft. "A highlight of the quarter was the 25% year-over-year growth in our software billings. This strength was driven by our enterprise-centric UC solutions which saw strong demand across products, end-market segments and geographies."

Guidance

For the third quarter of 2013, BroadSoft anticipates revenue of $42 to $46 million. The Company also expects to achieve earnings on a non-GAAP basis of $0.23 to $0.33 per diluted common share.

For the full year 2013, BroadSoft expects revenue of $181 to $186 million. The Company anticipates full year 2013 earnings on a non-GAAP basis of $1.15 to $1.40 per diluted common share.

Conference Call

BroadSoft will discuss its second quarter 2013 results and its business outlook today via teleconference at 5:00 p.m. Eastern Time. To participate in the teleconference, callers can dial the toll free number 1-877-312-5517 (U.S. callers only) or 1-760-666-3772 (from outside the U.S.). The conference call can also be heard live via audio webcast at http://investors.broadsoft.com/events.cfm. To help ensure the conference begins on time, please dial in or connect via the web five minutes prior to the scheduled start time.

For those unable to participate in the live call, a recording will be available shortly after the conclusion of the call at http://investors.broadsoft.com/events.cfm and will remain available until immediately prior to our next earnings call.

BroadSoft has provided in this release, and will provide on this afternoon's teleconference, 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 the Company'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 afternoon's teleconference to the most directly comparable GAAP financial measures is set forth below.

Non-GAAP financial measures:

Non-GAAP net income and net income per share. BroadSoft defines non-GAAP net income as net income plus stock-based compensation expense, amortization expense for acquired intangible assets, non-cash interest expense on the Company's convertible notes, and non-cash tax expense included in the GAAP tax provision. BroadSoft defines non-GAAP income per share as non-GAAP net income divided by the weighted average shares outstanding. BroadSoft considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of certain non-cash expenses so management and investors can compare BroadSoft's core business operating results over multiple periods.

Non-GAAP gross profit, license gross profit, subscription and maintenance support gross profit, and professional services and other gross profit. BroadSoft defines non-GAAP gross profit as gross profit plus stock-based compensation expense and amortization expense for acquired intangible assets. BroadSoft considers 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 its investors can compare BroadSoft's sales margins over multiple periods. Where BroadSoft provides further breakdown of non-GAAP gross profit between license, subscription and maintenance support and professional services and other, the Company adds back the stock-based compensation expense and amortization expense, as applicable, to the related gross profit.

Non-GAAP license cost of revenue, subscription and maintenance support cost of revenue, and professional services and other cost of revenue. BroadSoft defines non-GAAP cost of revenue as cost of revenue less stock-based compensation expense and amortization expense for acquired intangible assets. BroadSoft considers 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 its investors can compare BroadSoft's cost of revenue over multiple periods. Where BroadSoft provides further breakdown of non-GAAP cost of revenue between license, subscription and maintenance support and professional services and other, the Company subtracts the stock-based compensation expense and amortization expense, as applicable, to the related cost of revenue.

Non-GAAP income from operations. BroadSoft defines non-GAAP income from operations as income from operations plus stock-based compensation expense and amortization expense for acquired intangible assets. BroadSoft considers non-GAAP income from operations 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 BroadSoft's core business operating results over multiple periods. Where BroadSoft provides further breakdown of non-GAAP operating expenses for sales and marketing, research and development and general and administrative, the Company deducts stock-based compensation expense included in the applicable expense item.

Billings. BroadSoft defines billings as revenue plus the net change in our deferred revenue balance for a particular period. BroadSoft believes that billings is a key measure of our business activity.

With respect to our expectations under "Guidance" above, reconciliation of non-GAAP earnings per share guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures, in particular, the measures and effects of non-cash income taxes, which are extremely difficult to project as a result of our tax status in a number of foreign jurisdictions, and stock-based compensation expense specific to equity compensation awards that are directly impacted by unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP financial results.

The presentation of non-GAAP net income, non-GAAP net income per share, non-GAAP gross margin, non-GAAP income from operations, billings and other non-GAAP financial measures in this release and on this afternoon'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," "billings" 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," "billings" 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, and such forward-looking statements include, but are not limited to, the statements regarding the Company's future financial performance set forth under the heading "Guidance." 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: the Company's dependence on the success of BroadWorks® and on its service provider customers to sell services using its applications; the Company's dependence in large part on service providers' continued deployment of, and investment in, their IP-based networks; claims that the Company infringes the intellectual property rights of others; the Company's ability to integrate and achieve the expected benefits from its recent acquisitions; and the Company's ability to expand its product offerings, as well as those factors contained in the "Risk Factors" sections of the Company's Form 10-K for the year ended December 31, 2012 filed with the SEC on February 27, 2013, and in the Company's other filings with the SEC. All information in this release is as of August 5, 2013. Except as required by law, the Company 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 the Company's expectations.

About BroadSoft

BroadSoft is the leading provider of software and services that enable mobile, fixed-line and cable service providers to offer Unified Communications over their Internet Protocol networks. The Company's core communications platform enables the delivery of a range of enterprise and consumer calling, messaging and collaboration communication services, including private branch exchanges, video calling, text messaging and converged mobile and fixed-line services.

Financial Statements

The financial statements set forth below are not the complete set of the Company's financial statements for the quarter 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 June 30, 2013, including all financial statements contained therein and the footnotes thereto, when it 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.

BSFT-F

BroadSoft, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
June 30,
2013
December 31,
2012
(In thousands, except share
and per share data)
Assets:
Current assets:
Cash and cash equivalents $ 80,191 $ 90,545
Short-term investments 71,921 73,075
Accounts receivable, net of allowance for doubtful accounts of $72 and $139 at June 30, 2013 and December 31, 2012, respectively 49,334 48,980
Deferred tax assets 4,331 3,732
Other current assets 11,487 10,796
Total current assets 217,264 227,128
Long-term assets:
Property and equipment, net 8,201 7,361
Long-term investments 54,632 30,102
Restricted cash 581 584
Intangible assets, net 9,631 11,247
Goodwill 37,377 37,529
Other long-term assets 21,852 12,955
Total long-term assets 132,274 99,778
Total assets $ 349,538 $ 326,906
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued expenses $ 15,459 $ 15,686
Notes payable and bank loans, current portion 547 555
Deferred revenue, current portion 53,822 49,368
Total current liabilities 69,828 65,609
Convertible senior notes 88,953 86,451
Notes payable and bank loans 409 414
Deferred revenue 7,144 11,781
Other long-term liabilities 1,448 1,416
Total liabilities 167,782 165,671
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized at June 30, 2013 and December 31, 2012; no shares issued and outstanding at June 30, 2013 and December 31, 2012 - -
Common stock, par value $0.01 per share; 100,000,000 shares authorized at June 30, 2013 and December 31, 2012; 28,106,231 and 27,913,471 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively 281 279
Additional paid-in capital 234,664 208,073
Accumulated other comprehensive loss (3,748 ) (3,008 )
Accumulated deficit (49,441 ) (44,109 )
Total stockholders' equity 181,756 161,235
Total liabilities and stockholders' equity $ 349,538 $ 326,906
BroadSoft, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2013 2012 2013 2012
(In thousands, except per share data)
Revenue:
License software $ 24,699 $ 22,501 $ 45,541 $ 43,766
Subscription and maintenance support 16,306 13,794 31,491 26,167
Professional services and other 3,004 4,221 6,602 8,926
Total revenue 44,009 40,516 83,634 78,859
Cost of revenue:
License software 2,119 2,652 4,579 4,873
Subscription and maintenance support 4,780 3,457 9,393 6,845
Professional services and other 2,872 2,212 5,565 4,675
Total cost of revenue 9,771 8,321 19,537 16,393
Gross profit 34,238 32,195 64,097 62,466
Operating expenses:
Sales and marketing 15,536 11,608 29,265 22,680
Research and development 12,935 9,131 25,303 17,607
General and administrative 8,078 5,880 15,597 11,694
Total operating expenses 36,549 26,619 70,165 51,981
(Loss) Income from operations (2,311 ) 5,576 (6,068 ) 10,485
Other expense (income):
Interest income (117 ) (120 ) (231 ) (237 )
Interest expense 1,817 1,723 3,606 3,419
Total other expense, net 1,700 1,603 3,375 3,182
(Loss) Income before income taxes (4,011 ) 3,973 (9,443 ) 7,303
(Benefit from) provision for income taxes (996 ) 1,617 (4,111 ) 3,246
Net (loss) income $ (3,015 ) $ 2,356 $ (5,332 ) $ 4,057
Net (loss) income per common share:
Basic $ (0.11 ) $ 0.09 $ (0.19 ) $ 0.15
Diluted $ (0.11 ) $ 0.08 $ (0.19 ) $ 0.14
Weighted average common shares outstanding:
Basic 28,055 27,550 28,015 27,392
Diluted 28,055 28,253 28,015 28,238
Stock-based compensation expense included above:
Cost of revenue $ 1,269 $ 483 $ 2,266 $ 891
Sales and marketing 3,799 1,391 6,557 2,528
Research and development 3,609 1,101 6,487 1,900
General and administrative 2,536 806 4,447 1,653
BroadSoft, Inc.
Summary of Consolidated Cash Flow Activity
(Unaudited)
Six Months Ended
June 30,
2013 2012
(in thousands)
Net cash provided by operating activities 8,395 8,233
Net cash used in investing activities (25,238 ) (17,103 )
Net cash provided by (used in) financing activities 6,834 (904 )
Billings
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2013 2012 2013 2012
Beginning of period deferred revenue balance $ 59,580 $ 51,631 $ 61,149 $ 57,136
End of period deferred revenue balance 60,966 48,794 60,966 48,794
Increase (decrease) in deferred revenue 1,386 (2,837 ) (183 ) (8,342 )
Revenue 44,009 40,516 83,634 78,859
Revenue plus net change in deferred revenue $ 45,395 $ 37,679 $ 83,451 $ 70,517
Software Billings
(Unaudited)
Three Months Ended
June 30,
2013 2012
Beginning of period deferred license software revenue balance $ 15,600 $ 14,382
End of period deferred license software revenue balance 17,258 12,933
Increase (decrease) in deferred license software revenue 1,658 (1,449 )
License software revenue 24,699 22,501
License software revenue plus net change in deferred license software revenue $ 26,357 $ 21,052
BroadSoft, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2013 2012 2013 2012
(In thousands)
Non-GAAP gross profit:
GAAP gross profit $ 34,238 $ 32,195 $ 64,097 $ 62,466
(percent of total revenue) 78 % 79 % 77 % 79 %
Plus:
Stock-based compensation expense 1,269 483 2,266 891
Amortization of acquired intangible assets 798 557 1,596 1,116
Non-GAAP gross profit $ 36,305 $ 33,235 $ 67,959 $ 64,473
(percent of total revenue) 82 % 82 % 81 % 82 %
GAAP license gross profit $ 22,580 $ 19,849 $ 40,962 $ 38,893
(percent of related revenue) 91 % 88 % 90 % 89 %
Plus:
Stock-based compensation expense 321 174 554 315
Amortization of acquired intangible assets 210 239 422 480
Non-GAAP license gross profit $ 23,111 $ 20,262 $ 41,938 $ 39,688
(percent of related revenue) 94 % 90 % 92 % 91 %
GAAP subscription and maintenance support gross profit $ 11,526 $ 10,337 $ 22,098 $ 19,322
(percent of related revenue) 71 % 75 % 70 % 74 %
Plus:
Stock-based compensation expense 653 191 1,197 353
Amortization of acquired intangible assets 588 318 1,174 636
Non-GAAP subscription and maintenance support gross profit $ 12,767 $ 10,846 $ 24,469 $ 20,311
(percent of related revenue) 78 % 79 % 78 % 78 %
GAAP professional services and other gross profit $ 132 $ 2,009 $ 1,037 $ 4,251
(percent of related revenue) 4 % 48 % 16 % 48 %
Plus:
Stock-based compensation expense 295 118 515 223
Non-GAAP professional services and other gross profit $ 427 $ 2,127 $ 1,552 $ 4,474
(percent of related revenue) 14 % 50 % 24 % 50 %
BroadSoft, Inc.
Reconciliation of Non-GAAP Financial Measures (continued)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2013 2012 2013 2012
(In thousands)
Non-GAAP income from operations:
GAAP (loss) income from operations $ (2,311 ) $ 5,576 $ (6,068 ) $ 10,485
(percent of total revenue) (5 )% 14 % (7 )% 13 %
Plus:
Stock-based compensation expense 11,213 3,781 19,757 6,972
Amortization of acquired intangible assets 798 557 1,596 1,116
Non-GAAP income from operations $ 9,700 $ 9,914 $ 15,285 $ 18,573
(percent of total revenue) 22 % 24 % 18 % 24 %
GAAP operating expense $ 36,549 $ 26,619 $ 70,165 $ 51,981
Less:
Stock-based compensation expense 9,944 3,298 17,491 6,081
Non-GAAP operating expense $ 26,605 $ 23,321 $ 52,674 $ 45,900
(as percent of total revenue) 60 % 58 % 63 % 58 %
GAAP sales and marketing expense $ 15,536 $ 11,608 $ 29,265 $ 22,680
Less:
Stock-based compensation expense 3,799 1,391 6,557 2,528
Non-GAAP sales and marketing expense $ 11,737 $ 10,217 $ 22,708 $ 20,152
(as percent of total revenue) 27 % 25 % 27 % 26 %
GAAP research and development expense $ 12,935 $ 9,131 $ 25,303 $ 17,607
Less:
Stock-based compensation expense 3,609 1,101 6,487 1,900
Non-GAAP research and development expense $ 9,326 $ 8,030 $ 18,816 $ 15,707
(as percent of total revenue) 21 % 20 % 22 % 20 %
GAAP general and administrative expense $ 8,078 $ 5,880 $ 15,597 $ 11,694
Less:
Stock-based compensation expense 2,536 806 4,447 1,653
Non-GAAP general and administrative expense $ 5,542 $ 5,074 $ 11,150 $ 10,041
(as percent of total revenue) 13 % 13 % 13 % 13 %
BroadSoft, Inc.
Reconciliation of Non-GAAP Financial Measures (continued)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2013 2012 2013 2012
(In thousands, except per share data)
Non-GAAP net income and income per share:
GAAP net (loss) income $ (3,015 ) $ 2,356 $ (5,332 ) $ 4,057
(as percent of total revenue) (7 )% 6 % (6 )% 5 %
Adjusted for:
Stock-based compensation expense 11,213 3,781 19,757 6,972
Amortization of acquired intangible assets 798 557 1,596 1,116
Non-cash interest expense on our convertible notes 1,367 1,273 2,706 2,515
Non-cash tax (benefit) provision (1,183 ) 1,425 (4,403 ) 2,888
Non-GAAP net income $ 9,180 $ 9,392 $ 14,324 $ 17,548
(as percent of total revenue) 21 % 23 % 17 % 22 %
GAAP net (loss) income per basic common share $ (0.11 ) $ 0.09 $ (0.19 ) $ 0.15
Adjusted for:
Stock-based compensation expense 0.40 0.14 0.70 0.25
Amortization of acquired intangible assets 0.03 0.02 0.06 0.04
Non-cash interest expense on our convertible notes 0.05 0.04 0.10 0.09
Non-cash tax (benefit) provision (0.04 ) 0.05 (0.16 ) 0.11
Non-GAAP net income per basic common share $ 0.33 $ 0.34 $ 0.51 $ 0.64
GAAP net (loss) income per diluted common share $ (0.11 ) $ 0.08 $ (0.19 ) $ 0.14
Adjusted for:
Stock-based compensation expense 0.39 0.13 0.69 0.25
Amortization of acquired intangible assets 0.03 0.02 0.06 0.04
Non-cash interest expense on our convertible notes 0.05 0.05 0.09 0.09
Non-cash tax (benefit) provision (0.04 ) 0.05 (0.15 ) 0.10
Non-GAAP net income per diluted common share * $ 0.32 $ 0.33 $ 0.50 $ 0.62

* For the quarter and the six-month period ended June 30, 2013, the diluted non-GAAP earnings per share calculation included the dilutive effect of stock-based awards on the weighted average common shares outstanding. Total shares outstanding for the non-GAAP diluted earnings per share calculation was 28,742,324 for the second quarter of 2013 and 28,722,106 for the first six months of 2013.

Source: BroadSoft, Inc.

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