BroadSoft, Inc
Nov 4, 2013

BroadSoft Reports Third Quarter 2013 Financial Results

GAITHERSBURG, MD -- (Marketwired) -- 11/04/13 -- 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 September 30, 2013.

Financial Highlights for the Third Quarter of 2013

Results for the three months ended September 30, 2013

Total revenue rose to $42.9 million in the third quarter of 2013, an increase of 7% compared to $40.2 million in the third quarter of 2012.

Net loss for the third quarter of 2013 was $4.1 million, or $0.14 per basic and diluted common share, compared to net income of $3.1 million, or $0.11 per diluted common share, in the third quarter of 2012.

On a non-GAAP basis, net income in the third quarter of 2013 was $8.4 million, or $0.29 per diluted common share, compared to non-GAAP net income of $10.0 million, or $0.36 per diluted common share, in the third quarter of 2012. A reconciliation of non-GAAP and GAAP results is included in the financial tables below.

Results for the nine months ended September 30, 2013

Total revenue was $126.5 million for the first nine months of 2013, compared to $119.0 million for the first nine months of 2012, reflecting year-over-year growth of 6%.

Net loss for the first nine months of 2013 was $9.4 million, or $0.33 per basic and diluted common share, compared to net income of $7.2 million, or $0.25 per diluted common share, for the first nine months of 2012.

On a non-GAAP basis, net income for the first nine months of 2013 was $22.7 million or $0.78 per diluted common share, compared to non-GAAP net income of $27.5 million, or $0.97 per diluted common share, for the first nine months of 2012. A reconciliation of non-GAAP and GAAP results is included in the financial tables below.

Management Commentary

"We continue to successfully execute against our strategic initiatives, as evidenced by the recent signings of our first Voice over LTE wins," said Michael Tessler, president and chief executive officer, BroadSoft. "We also recently announced new service capabilities at our annual users' conference, BroadSoft Connections, which enable our customers to deliver unique, productivity enhancing Unified Communications offers. Our live demonstrations at the event leveraged these technologies, including WebRTC and the integration of our communication services with other business applications, such as Google's Chrome for Business. Our customers recognized the benefits that enterprises will experience when using these new capabilities which led to strategic discussions on how we can best help them accelerate the adoption of these services."

"We believe our longer-term outlook remains positive although we have some short-term concerns about the service provider spending environment in the fourth quarter," said Jim Tholen, chief financial officer, BroadSoft. "We continue to believe that we are very well-positioned to take advantage of the secular trend of enterprise communications moving to the cloud. I'm pleased by the strong cash flow we were able to generate in the quarter and by the closing of the Hipcom acquisition, which is central to our plans for the expansion of Cloud PBX services into Europe."

Guidance

For the fourth quarter of 2013, BroadSoft anticipates revenue of $47 to $53 million. The Company also expects to achieve earnings on a non-GAAP basis of $0.34 to $0.49 per diluted common share.

For the full year 2013, BroadSoft expects revenue of $173.5 to $179.5 million. The Company anticipates full year 2013 earnings on a non-GAAP basis of $1.13 to $1.28 per diluted common share.

Conference Call

BroadSoft will discuss its third 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 excluding the net effect of any non-cash tax expense or benefit. 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 November 4, 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 September 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.

BroadSoft, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
September 30,
2013
December 31,
2012
(in thousands, except per share data)
Assets:
Current assets:
Cash and cash equivalents $ 79,056 $ 90,545
Short-term investments 78,604 73,075
Accounts receivable, net of allowance for doubtful accounts of $150 and $139 at September 30, 2013 and December 31, 2012, respectively 44,936 48,980
Deferred tax assets 5,110 3,732
Other current assets 10,829 10,796
Total current assets 218,535 227,128
Long-term assets:
Property and equipment, net 9,097 7,361
Long-term investments 30,834 30,102
Restricted cash 582 584
Intangible assets, net 16,826 11,247
Goodwill 59,450 37,529
Other long-term assets 19,459 12,955
Total long-term assets 136,248 99,778
Total assets $ 354,783 $ 326,906
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued expenses $ 15,518 $ 15,686
Notes payable and bank loans, current portion - 555
Deferred revenue, current portion 52,214 49,368
Total current liabilities 67,732 65,609
Convertible senior notes 90,234 86,451
Notes payable and bank loans - 414
Deferred revenue 5,472 11,781
Other long-term liabilities 2,584 1,416
Total liabilities 166,022 165,671
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized at September 30, 2013 and December 31, 2012; no shares issued and outstanding at September 30, 2013 and December 31, 2012 - -
Common stock, par value $0.01 per share; 100,000,000 shares authorized at September 30, 2013 and December 31, 2012; 28,228,879 and 27,913,471 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 282 279
Additional paid-in capital 244,201 208,073
Accumulated other comprehensive loss (2,227 ) (3,008 )
Accumulated deficit (53,495 ) (44,109 )
Total stockholders' equity 188,761 161,235
Total liabilities and stockholders' equity $ 354,783 $ 326,906
BroadSoft, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
(In thousands, except per share data)
Revenue:
License software $ 21,518 $ 21,554 $ 67,059 $ 65,320
Subscription and maintenance support 17,694 15,375 49,185 41,542
Professional services and other 3,688 3,245 10,290 12,171
Total revenue 42,900 40,174 126,534 119,033
Cost of revenue:
License software 2,257 2,030 6,836 6,904
Subscription and maintenance support 5,622 3,667 15,015 10,512
Professional services and other 2,656 2,028 8,221 6,702
Total cost of revenue 10,535 7,725 30,072 24,118
Gross profit 32,365 32,449 96,462 94,915
Operating expenses:
Sales and marketing 15,117 11,396 44,382 34,076
Research and development 11,858 8,876 37,161 26,483
General and administrative 8,379 5,701 23,976 17,395
Total operating expenses 35,354 25,973 105,519 77,954
(Loss) Income from operations (2,989 ) 6,476 (9,057 ) 16,961
Other expense (income):
Interest income (112 ) (110 ) (343 ) (347 )
Interest expense 1,926 1,737 5,532 5,156
Total other expense, net 1,814 1,627 5,189 4,809
(Loss) Income before income taxes (4,803 ) 4,849 (14,246 ) 12,152
(Benefit from) provision for income taxes (749 ) 1,709 (4,860 ) 4,955
Net (loss) income $ (4,054 ) $ 3,140 $ (9,386 ) $ 7,197
Net (loss) income per common share:
Basic $ (0.14 ) $ 0.11 $ (0.33 ) $ 0.26
Diluted $ (0.14 ) $ 0.11 $ (0.33 ) $ 0.25
Weighted average common shares outstanding:
Basic 28,160 27,673 28,063 27,487
Diluted 28,160 28,385 28,063 28,293
Stock-based compensation expense included above:
Cost of revenue $ 1,290 $ 385 $ 3,556 $ 1,276
Sales and marketing 3,847 1,317 10,404 3,845
Research and development 3,371 1,040 9,858 2,940
General and administrative 2,457 584 6,904 2,237
BroadSoft, Inc.
Summary of Consolidated Cash Flow Activity
(Unaudited)
Nine Months Ended
September 30,
2013 2012
(In thousands)
Net cash provided by operating activities 22,319 17,928
Net cash used in investing activities (38,148 ) (19,778 )
Net cash provided by (used in) financing activities 4,440 (142 )
BroadSoft, Inc.
Billings
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
Beginning of period deferred revenue balance $ 60,966 $ 48,794 $ 61,149 $ 57,136
End of period deferred revenue balance 57,686 54,041 57,686 54,041
(Decrease) increase in deferred revenue (3,280 ) 5,247 (3,463 ) (3,095 )
Revenue 42,900 40,174 126,534 119,033
Revenue plus net change in deferred revenue $ 39,620 $ 45,421 $ 123,071 $ 115,938
BroadSoft, Inc.
Software Billings
(Unaudited)
Three Months Ended
September 30,
2013 2012
Beginning of period deferred license software revenue balance $ 17,258 $ 12,933
End of period deferred license software revenue balance 14,515 18,447
(Decrease) increase in deferred license software revenue (2,743 ) 5,514
License software revenue 21,518 21,554
License software revenue plus net change in deferred revenue $ 18,775 $ 27,068
BroadSoft, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
(In thousands)
Non-GAAP gross profit:
GAAP gross profit $ 32,365 $ 32,449 $ 96,462 $ 94,915
(percent of total revenue) 75 % 81 % 76 % 80 %
Plus:
Stock-based compensation expense 1,290 385 3,556 1,276
Amortization of acquired intangible assets 1,049 730 2,645 1,846
Non-GAAP gross profit $ 34,704 $ 33,564 $ 102,663 $ 98,037
(percent of total revenue) 81 % 84 % 81 % 82 %
GAAP license gross profit $ 19,261 $ 19,524 $ 60,223 $ 58,416
(percent of related revenue) 90 % 91 % 90 % 89 %
Plus:
Stock-based compensation expense 279 113 833 428
Amortization of acquired intangible assets 207 214 628 694
Non-GAAP license gross profit $ 19,747 $ 19,851 $ 61,684 $ 59,538
(percent of related revenue) 92 % 92 % 92 % 91 %
GAAP subscription and maintenance support gross profit $ 12,072 $ 11,708 $ 34,170 $ 31,030
(percent of related revenue) 68 % 76 % 69 % 75 %
Plus:
Stock-based compensation expense 717 170 1,914 523
Amortization of acquired intangible assets 842 515 2,017 1,152
Non-GAAP subscription and maintenance support gross profit $ 13,631 $ 12,393 $ 38,101 $ 32,705
(percent of related revenue) 77 % 81 % 77 % 79 %
GAAP professional services and other gross profit $ 1,032 $ 1,217 $ 2,069 $ 5,469
(percent of related revenue) 28 % 38 % 20 % 45 %
Plus:
Stock-based compensation expense 294 102 809 324
Non-GAAP professional services and other gross profit $ 1,326 $ 1,319 $ 2,878 $ 5,793
(percent of related revenue) 36 % 41 % 28 % 48 %
BroadSoft, Inc.
Reconciliation of Non-GAAP Financial Measures (continued)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
(In thousands)
Non-GAAP income from operations:
GAAP (loss) income from operations $ (2,989 ) $ 6,476 $ (9,057 ) $ 16,961
(percent of total revenue) (7 )% 16 % (7 )% 14 %
Plus:
Stock-based compensation expense 10,965 3,326 30,722 10,298
Amortization of acquired intangible assets 1,049 730 2,645 1,846
Non-GAAP income from operations $ 9,025 $ 10,532 $ 24,310 $ 29,105
(percent of total revenue) 21 % 26 % 19 % 24 %
GAAP operating expense $ 35,354 $ 25,973 $ 105,519 $ 77,954
Less:
Stock-based compensation expense 9,675 2,941 27,166 9,022
Non-GAAP operating expense $ 25,679 $ 23,032 $ 78,353 $ 68,932
(as percent of total revenue) 60 % 57 % 62 % 58 %
GAAP sales and marketing expense $ 15,117 $ 11,396 $ 44,382 $ 34,076
Less:
Stock-based compensation expense 3,847 1,317 10,404 3,845
Non-GAAP sales and marketing expense $ 11,270 $ 10,079 $ 33,978 $ 30,231
(as percent of total revenue) 26 % 25 % 27 % 25 %
GAAP research and development expense $ 11,858 $ 8,876 $ 37,161 $ 26,483
Less:
Stock-based compensation expense 3,371 1,040 9,858 2,940
Non-GAAP research and development expense $ 8,487 $ 7,836 $ 27,303 $ 23,543
(as percent of total revenue) 20 % 20 % 22 % 20 %
GAAP general and administrative expense $ 8,379 $ 5,701 $ 23,976 $ 17,395
Less:
Stock-based compensation expense 2,457 584 6,904 2,237
Non-GAAP general and administrative expense $ 5,922 $ 5,117 $ 17,072 $ 15,158
(as percent of total revenue) 14 % 13 % 13 % 13 %
BroadSoft, Inc.
Reconciliation of Non-GAAP Financial Measures (continued)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
(In thousands, except per share data)
Non-GAAP net income and income per share:
GAAP net (loss) income $ (4,054 ) $ 3,140 $ (9,386 ) $ 7,197
(as percent of total revenue) (9 )% 8 % (7 )% 6 %
Adjusted for:
Stock-based compensation expense 10,965 3,326 30,722 10,298
Amortization of acquired intangible assets 1,049 730 2,645 1,846
Non-cash interest expense on our convertible notes (FN8) 1,382 1,287 4,088 3,801
Non-cash tax (benefit) provision (921 ) 1,505 (5,324 ) 4,393
Non-GAAP net income $ 8,421 $ 9,988 $ 22,745 $ 27,535
(as percent of total revenue) 20 % 25 % 18 % 23 %
GAAP net (loss) income per basic common share $ (0.14 ) $ 0.11 $ (0.33 ) $ 0.26
Adjusted for:
Stock-based compensation expense 0.39 0.12 1.09 0.37
Amortization of acquired intangible assets 0.04 0.03 0.09 0.07
Non-cash interest expense on our convertible notes 0.05 0.05 0.15 0.13
Non-cash tax (benefit) provision (0.03 ) 0.05 (0.19 ) 0.16
Non-GAAP net income per basic common share $ 0.31 $ 0.36 $ 0.81 $ 0.99
GAAP net (loss) income per diluted common share $ (0.14 ) $ 0.11 $ (0.33 ) $ 0.25
Adjusted for:
Stock-based compensation expense 0.37 0.12 1.06 0.36
Amortization of acquired intangible assets 0.04 0.03 0.09 0.07
Non-cash interest expense on our convertible notes 0.05 0.05 0.14 0.13
Non-cash tax (benefit) provision (0.03 ) 0.05 (0.18 ) 0.16
Non-GAAP net income per diluted common share * $ 0.29 $ 0.36 $ 0.78 $ 0.97

* For the quarter and the nine-month period ended September 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 29,242 thousand for the third quarter of 2013 and 28,905 thousand for the first nine months of 2013.

BSFT-F

Source: BroadSoft, Inc.

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