BroadSoft, Inc
BROADSOFT, INC. (Form: 10-Q, Received: 08/01/2016 15:46:48)
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
________________________________________________________________________
FORM 10-Q  
________________________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34777  
________________________________________________________________________
BroadSoft, Inc.
(Exact name of registrant as specified in its charter)
________________________________________________________________________
Delaware
 
52 2130962
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
9737 Washingtonian Boulevard, Suite 350
Gaithersburg, MD
 
20878
(Address of principal executive offices)
 
(Zip Code)
(301) 977-9440
Registrant’s telephone number, including area code:
(former name, former address and former fiscal year, if changed since last report)  
________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
o
Non-accelerated filer
 
o   (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   o     No   x
The number of shares outstanding of the Registrant’s common stock, par value $0.01 per share, on July 28, 2016 , was 29,808,709.
 


Table of Contents

BroadSoft, Inc.
Table of Contents
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
 
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
 
SIGNATURES

 

2

Table of Contents

PART I. Financial Information
ITEM 1.
Financial Statements

BroadSoft, Inc.
Unaudited Condensed Consolidated Balance Sheets  
 
June 30,
2016
 
December 31,
2015
 
(In thousands, except share
and per share data)
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
138,520

 
$
175,857

Short-term investments
125,592

 
72,531

Accounts receivable, net of allowance for doubtful accounts of $65 and $85 at June 30, 2016 and December 31, 2015, respectively
105,775

 
108,113

Other current assets
14,388

 
13,155

Total current assets
384,275

 
369,656

Long-term assets:
 
 
 
Property and equipment, net
20,483

 
19,481

Long-term investments
92,866

 
102,385

Intangible assets, net
23,567

 
18,835

Goodwill
80,020

 
72,275

Deferred tax assets
8,572

 
1,661

Other long-term assets
6,771

 
8,081

Total long-term assets
232,279

 
222,718

Total assets
$
616,554

 
$
592,374

Liabilities and stockholders’ equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
31,177

 
$
28,667

Deferred revenue, current
100,712

 
106,483

Total current liabilities
131,889

 
135,150

Convertible senior notes
194,562

 
188,331

Deferred revenue
6,593

 
4,571

Other long-term liabilities
6,070

 
7,289

Total liabilities
339,114

 
335,341

Commitments and contingencies (Note 10)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized at June 30, 2016 and December 31, 2015; no shares issued and outstanding at June 30, 2016 and December 31, 2015

 

Common stock, par value $0.01 per share; 100,000,000 shares authorized at June 30, 2016 and December 31, 2015; 29,736,368 and 29,080,197 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively.
297

 
291

Additional paid-in capital
359,063

 
333,153

Accumulated other comprehensive loss
(16,200
)
 
(13,810
)
Accumulated deficit
(65,720
)
 
(62,601
)
Total stockholders’ equity
277,440

 
257,033

Total liabilities and stockholders’ equity
$
616,554

 
$
592,374

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

BroadSoft, Inc.
Unaudited Condensed Consolidated Statements of Operations
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Revenue:
 
 
 
 
 
 
 
License software
$
33,597

 
$
30,091

 
$
64,506

 
$
53,027

Subscription and maintenance support
36,800

 
27,026

 
69,839

 
52,435

Professional services and other
11,324

 
7,367

 
20,512

 
14,693

Total revenue
81,721

 
64,484

 
154,857

 
120,155

Cost of revenue:
 
 
 
 
 
 
 
License software
2,169

 
2,869

 
3,898

 
5,540

Subscription and maintenance support
11,456

 
10,227

 
22,166

 
19,171

Professional services and other
8,921

 
7,125

 
17,280

 
11,520

Total cost of revenue
22,546

 
20,221

 
43,344

 
36,231

Gross profit
59,175

 
44,263

 
111,513

 
83,924

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
25,951

 
21,567

 
49,274

 
39,114

Research and development
20,068

 
16,266

 
38,189

 
30,550

General and administrative
12,603

 
11,306

 
23,916

 
20,411

Total operating expenses
58,622

 
49,139

 
111,379

 
90,075

Income (loss) from operations
553

 
(4,876
)
 
134

 
(6,151
)
Other expense:
 
 
 
 
 
 
 
Interest expense
3,926

 
2,027

 
7,779

 
4,016

Interest income
(664
)
 
(282
)
 
(1,267
)
 
(496
)
Other, net
185

 
(484
)
 
(326
)
 
1,223

Total other expense, net
3,447

 
1,261

 
6,186

 
4,743

Loss before income taxes
(2,894
)
 
(6,137
)
 
(6,052
)
 
(10,894
)
Provision for (benefit from) income taxes
1

 
(849
)
 
(1,648
)
 
(2,701
)
Net loss
$
(2,895
)
 
$
(5,288
)
 
$
(4,404
)
 
$
(8,193
)
Net loss per common share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.10
)
 
$
(0.18
)
 
$
(0.15
)
 
$
(0.28
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
29,449

 
29,230

 
29,295

 
29,111

Stock-based compensation expense included above:
 
 
 
 
 
 
 
Cost of revenue
$
2,171

 
$
2,347

 
$
3,893

 
$
3,386

Sales and marketing
4,792

 
4,818

 
8,348

 
7,236

Research and development
4,020

 
4,067

 
7,165

 
6,505

General and administrative
2,629

 
2,562

 
4,880

 
4,103


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

BroadSoft, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net loss
$
(2,895
)
 
$
(5,288
)
 
$
(4,404
)
 
$
(8,193
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(3,480
)
 
2,380

 
(3,534
)
 
(1,993
)
Unrealized gain (loss) on investments
326

 
(131
)
 
1,144

 
43

Total other comprehensive income (loss), net of tax
(3,154
)
 
2,249

 
(2,390
)
 
(1,950
)
Comprehensive loss
$
(6,049
)
 
$
(3,039
)
 
$
(6,794
)
 
$
(10,143
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

BroadSoft, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except per share data)
 
 
Total
Stockholders’
Equity
 
Common Stock Par
Value $0.01 Per Share
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Shares
 
Amount
 
Balance December 31, 2015
$
257,033

 
29,080

 
$
291

 
$
333,153

 
$
(13,810
)
 
$
(62,601
)
Issuance of common stock for exercise of stock options and vesting of RSUs and PSUs, net of effect of withholding tax
1,728

 
656

 
6

 
1,722

 

 

Stock-based compensation expense
24,170

 

 

 
24,170

 

 

Tax windfall benefits on exercises of stock options
1,303

 

 

 
18

 

 
1,285

Foreign currency translation adjustment
(3,534
)
 

 

 

 
(3,534
)
 

Unrealized gain on investments
1,144

 

 

 

 
1,144

 

Net loss
(4,404
)
 

 

 

 

 
(4,404
)
Balance June 30, 2016
$
277,440

 
29,736

 
$
297

 
$
359,063

 
$
(16,200
)
 
$
(65,720
)
Balance December 31, 2014
$
212,961

 
28,943

 
$
290

 
$
258,169

 
$
(7,712
)
 
$
(37,786
)
Issuance of common stock for exercise of stock options and vesting of RSUs, net of effect of early exercises and withholding tax
(2,244
)
 
447

 
4

 
(2,248
)
 

 

Stock-based compensation expense
21,521

 

 

 
21,521

 

 

Tax windfall benefits on exercises of stock options
66

 

 

 
66

 

 

Foreign currency translation adjustment
(1,993
)
 

 

 

 
(1,993
)
 

Unrealized gain on investments
43

 

 

 

 
43

 

Net loss
(8,193
)
 

 

 

 

 
(8,193
)
Balance June 30, 2015
$
222,161

 
29,390

 
$
294

 
$
277,508

 
$
(9,662
)
 
$
(45,979
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

BroadSoft, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
 
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(4,404
)
 
$
(8,193
)
Adjustment to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
8,798

 
7,581

Amortization of software licenses
1,445

 
1,743

Stock-based compensation expense
24,286

 
21,230

Provision for doubtful accounts
(9
)
 
7

Benefit from deferred income taxes
(2,342
)
 
(5,218
)
Excess tax benefit related to stock-based compensation
(1,502
)
 
(355
)
Non-cash interest expense on convertible senior notes
6,231

 
3,116

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
3,970

 
(7,296
)
Other current and long-term assets
103

 
(10,622
)
Accounts payable, accrued expenses and other long-term liabilities
(27
)
 
5,901

Current and long-term deferred revenue
(3,860
)
 
5,771

Net cash provided by operating activities
32,689

 
13,665

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(7,833
)
 
(8,570
)
Payments for acquisitions, net of cash acquired
(21,427
)
 
(17,733
)
Purchases of marketable securities
(138,153
)
 
(87,828
)
Proceeds from sale of marketable securities
61,211

 
43,672

Proceeds from maturities of marketable securities
33,400

 
36,637

Net cash used in investing activities
(72,802
)
 
(33,822
)
Cash flows from financing activities:
 
 
 
Proceeds from the exercise of stock options
9,712

 
2,523

Taxes paid on vesting of RSUs
(7,984
)
 
(4,767
)
Excess tax benefit related to stock-based compensation
1,502

 
355

Net cash provided by (used in) financing activities
3,230

 
(1,889
)
Effect of exchange rate changes on cash and cash equivalents
(454
)
 
(849
)
Net decrease in cash and cash equivalents
(37,337
)
 
(22,895
)
Cash and cash equivalents, beginning of period
175,857

 
101,543

Cash and cash equivalents, end of period
$
138,520

 
$
78,648


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements




1. Nature of Business
BroadSoft, Inc. (“BroadSoft” or the “Company”), a Delaware corporation, was formed in 1998. The Company is the leading global provider of software and services that enable telecommunications service providers to deliver hosted, cloud-based Unified Communications, or UC, to their enterprise customers.
2. Financial Statement Presentation
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts and results of operations of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.
Interim Financial Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification for interim financial information and Article 10 of Regulation S-X issued by the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair statement of the financial position, results of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 2016 or any other period. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 29, 2016.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update 2014-09,  Revenue from Contracts with Customers: Topic  606 ("ASU 2014-09"), which supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard allows entities to apply either of two adoption methods: (a) retrospective application to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (b) retrospective application with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers: Topic 606 ("ASU 2015-14"), which defers the effective date for ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of adopting this new standard on its financial statements and the method of adoption.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases: Topic 842 ("ASU 2016-02"), which provided updated guidance on lease accounting. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that annual period, with early adoption permitted. The Company is evaluating the impact of adopting this new standard on its financial statements.

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In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation-Stock Compensation: Topic 718 ("ASU 2016-09"), which provides updated guidance on several aspects of the accounting for share-based payment transactions. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods, with early adoption permitted. The Company is evaluating the impact of adopting this new standard on its financial statements.
3. Investments and Fair Value Disclosures
Investments in Marketable Securities
Marketable securities that the Company does not intend to hold to maturity are classified as available-for-sale, are carried at fair value and are included on the Company’s balance sheet as either short-term or long-term investments depending on their maturity. Investments with original maturities greater than three months that mature less than one year from the consolidated balance sheet date are classified as short-term investments. Investments with maturities greater than one year from the consolidated balance sheet date are classified as long-term investments. Available-for-sale investments are marked-to-market at the end of each reporting period, with unrealized holding gains or losses, which represent temporary changes in the fair value of the investment, reflected in accumulated other comprehensive loss, a separate component of stockholders’ equity. The Company’s primary objective when investing excess cash is preservation of principal. The following table summarizes the Company’s investments:
    
 
June 30, 2016
 
Contracted Maturity
 
Carrying Value
 
 
 
(in thousands)
Money market funds
demand
 
$
91,759

Total cash equivalents
 
 
$
91,759

 
 
 
 
U.S. agency notes
138 - 365 days
 
$
49,807

Commercial paper
117 - 154 days
 
16,637

Corporate bonds
12 - 358 days
 
59,148

Total short-term investments
 
 
$
125,592

 
 
 
 
U.S. agency notes
457 - 654 days
 
$
49,237

Corporate bonds
379 - 664 days
 
43,629

Total long-term investments
 
 
$
92,866

 
The following table summarizes the Company's investments at June 30, 2016 (in thousands):
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
U.S. agency notes
$
98,865

 
$
179

 
$

 
$
99,044

Commercial paper
16,637

 

 

 
16,637

Corporate bonds
102,525

 
264

 
(12
)
 
102,777

Total investments
$
218,027

 
$
443

 
$
(12
)
 
$
218,458


The following table summarizes the Company's investments at December 31, 2015 (in thousands):

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Table of Contents
BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
U.S. agency notes
$
83,977

 
$

 
$
(334
)
 
$
83,643

Corporate bonds
91,537

 
2

 
(266
)
 
91,273

Total investments
$
175,514

 
$
2

 
$
(600
)
 
$
174,916



Fair Value
The following table summarizes the carrying and fair value of the Company’s financial assets (in thousands):
    
 
June 30, 2016
  
December 31, 2015
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Assets
 
  
 
  
 
  
 
Cash equivalents and certificates of deposit*
$
91,759

   
$
91,759

   
$
123,170

   
$
123,170

Short and long-term investments
218,458

 
218,458

 
174,916

 
174,916

Total assets
$
310,217

   
$
310,217

   
$
298,086

   
$
298,086

* Excludes $46.8 million and $52.7 million of operating cash balances as of June 30, 2016 and December 31, 2015 , respectively.
The carrying amounts of the Company’s other financial instruments, accounts receivable, accounts payable and accrued expenses, approximate their respective fair values due to their short-term nature. (See Note 8 Borrowings for additional information on the fair value of debt.)
The Company uses a three-tier fair value measurement hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The three tiers are defined as follows:
Level 1 . Observable inputs based on unadjusted quoted prices in active markets for identical instruments and include the Company’s investments in money market funds and certificates of deposit;
Level 2 . Inputs valued using quoted market prices for similar instruments, nonbinding market prices that are corroborated by observable market data and include the Company’s investments and marketable securities in U.S. agency notes, commercial paper and corporate bonds; and
Level 3 . Unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions.

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



Assets Measured at Fair Value on a Recurring Basis
The Company evaluates its financial assets subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period. This determination requires significant judgments to be made. There were no transfers between classification levels during the periods. The following tables summarize the values (in thousands):
 
June 30,
2016
 
Level 1
 
Level 2
 
Level 3
Money market funds
$
91,759

 
$
91,759

 
$

 
$

Total cash equivalents and certificates of deposit*
91,759

 
91,759

 

 

U.S. agency notes
99,044

 

 
99,044

 

Commercial paper
16,637

 

 
16,637

 

Corporate bonds
102,777

 

 
102,777

 

Total investments
218,458

 

 
218,458

 

Total cash equivalents, certificates of deposit and investments
$
310,217

 
$
91,759

 
$
218,458

 
$

 
 
 
 
 
 
 
 
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
Money market funds
$
123,170

 
$
123,170

 
$

 
$

Total cash equivalents and certificates of deposit*
123,170

 
123,170

 

 

U.S. agency notes
83,643

 

 
83,643

 

Corporate bonds
91,273

 

 
91,273

 

Total investments
174,916

 

 
174,916

 

Total cash equivalents, certificates of deposit and investments
$
298,086

 
$
123,170

 
$
174,916

 
$

* Excludes $46.8 million and $52.7 million of operating cash balances as of June 30, 2016 and December 31, 2015 , respectively.
Assets Measured at Fair Value on a Nonrecurring Basis
The Company measures certain assets, including property and equipment, goodwill and intangible assets, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired. During the six months ended June 30, 2016 and 2015 , there were no assets or liabilities measured at fair value on a nonrecurring basis subsequent to their initial recognition.
4.    Acquisitions
Transera Communications, Inc.
On February 4, 2016, the Company completed its acquisition of all of the stock of Transera Communications, Inc. ("Transera"), which was renamed BroadSoft Contact Center, Inc. Transera provides cloud-based contact center software and the acquisition enables the Company to offer its customers a comprehensive cloud contact center portfolio that is complementary to, and integrates with, its BroadWorks and BroadCloud platform. The total consideration paid for Transera was $19.8 million , which was funded with cash on hand. The Company incurred $0.5 million of transaction costs for financial advisory and legal services related to the acquisition, which costs are included in general and administrative expenses as incurred, in the Company’s condensed consolidated statements of operations.
The condensed consolidated financial statements include the results of Transera from the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based on fair values as of the acquisition date.

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



The following table summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date of February 4, 2016 (in thousands):
    
Cash and cash equivalents
$
365

Accounts receivable
1,623

Prepaid and other assets
285

Property and equipment
155

Deferred tax assets
3,348

Trade name
160

Customer relationships
4,100

Developed technology
3,050

Goodwill
7,973

Deferred revenue
(111
)
Accounts payable and accrued expenses
(1,148
)
          Total consideration
$
19,800

The trade name represents the fair value of the Transera trade name that the Company intends to use for a fixed period of time. Customer relationships represent the fair value of the underlying relationships and agreements with Transera customers. Developed technology represents the fair value of Transera's intellectual property. The trade name, customer relationships and developed technology are being amortized on a straight-line basis over a period of three years, seven years and five years, respectively, which in general reflects the estimated cash flows to be generated from such assets. The weighted-average amortization period for depreciable intangible assets acquired is approximately six years.
The excess of purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired of $8.0 million was recorded as goodwill. The goodwill balance is attributable to the assembled workforce and the synergies expected as a result of the acquisition. In accordance with U.S. GAAP, goodwill associated with this acquisition will not be amortized but will be tested for impairment on an annual basis. Goodwill associated with this acquisition is not deductible for tax purposes.
Pro Forma Financial Information for Acquisition of Transera (unaudited)
Transera contributed revenue of $3.6 million and a net loss of $1.6 million for the period from the date of acquisition to June 30, 2016 .
The unaudited pro forma statement of operations data below gives effect to the acquisition of Transera as if it had occurred on January 1, 2015. The following data includes adjustments for amortization of intangible assets and acquisition costs. This pro forma data is presented for information purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place on January 1, 2015.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Revenue
$
82,925

 
$
66,757

 
$
156,061

 
$
124,791

Net loss
(2,469
)
 
(6,132
)
 
(4,088
)
 
(9,335
)
Net loss per share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.08
)
 
$
(0.21
)
 
$
(0.14
)
 
$
(0.32
)


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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



5. Goodwill
The following table provides a summary of the changes in the carrying amounts of goodwill (in thousands):
    
Balance as of December 31, 2015
$
72,275

Increase in goodwill related to acquisitions
8,873

Other
(1,128
)
Balance as of June 30, 2016
$
80,020

The increase in goodwill related to acquisitions consists of $8.0 million of goodwill related to the acquisition of Transera in February 2016 and $0.9 million of goodwill related to the acquisition of an enterprise messaging-based team communication and collaboration software application company in May 2016. Any change in the goodwill amounts resulting from foreign currency translations are presented as “Other” in the above table.
6. Deferred Revenue
Deferred revenue represents amounts billed to or collected from customers for which the related revenue has not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue is expected to be recognized as revenue within 12 months from the balance sheet date. Deferred revenue consisted of the following (in thousands):    
 
June 30,
2016
 
December 31,
2015
License software
$
26,798

 
$
33,200

Subscription and maintenance support
60,381

 
61,399

Professional services and other
20,126

 
16,455

Total
$
107,305

 
$
111,054

 
 
 
 
Current portion
$
100,712

 
$
106,483

Non-current portion
6,593

 
4,571

Total
$
107,305

 
$
111,054

7. Software Licenses
The Company has entered into an agreement with a third-party that provides the Company the right to distribute its software on an unlimited basis through December 2020.
For the period from June 2012 to May 2016, the Company had a fixed cost associated with these distribution rights of $10.2 million , which was amortized to cost of revenue over the four -year period beginning in June 2012, based on the straight line method.
For the period from June 2016 to December 2020, the Company has a fixed cost associated with these distribution rights of $17.3 million , and to the extent billed license software revenue over the extended term exceeds $850 million , the Company would be required to pay additional fees. The $17.3 million is being amortized to cost of revenue over the extended term beginning June 2016, based on the straight line method.
Amortization expense related to this agreement was $0.7 million and $0.6 million for the three months ended June 30, 2016 and 2015 , respectively and $1.4 million and $1.3 million for the six months ended June 30, 2016 and 2015 , respectively.
8. Borrowings
2022 Convertible Senior Notes
In September 2015, the Company issued $201.3 million aggregate principal amount of 1.00% convertible senior notes due in 2022 (the “2022 Notes”). The 2022 Notes are general unsecured obligations of the Company, with interest payable semi-annually in cash at a rate of 1.00%  per annum, and will mature on September 1, 2022, unless earlier converted, redeemed or repurchased.

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



The 2022 Notes may be converted by the holders at their option on any day prior to the close of business on the business day immediately preceding June 1, 2022 only under the following circumstances: (a) during any calendar quarter commencing after the calendar quarter ended on December 31, 2015 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (b) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price, as defined in the indenture governing the 2022 Notes (the "2022 Indenture"), per $1,000 principal amount of 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; (c) if the Company calls any or all of the 2022 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant redemption date; or (d) upon the occurrence of specified corporate events. The 2022 Notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, June 1, 2022 through the second scheduled trading day immediately preceding the maturity date.
The initial conversion rate for the 2022 Notes is 25.8249 shares of the Company’s common stock per $1,000 principal amount of 2022 Notes, equivalent to a conversion price of approximately $38.72 per share of common stock. The conversion rate will be subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if the Company issues a notice of redemption on or after September 1, 2019 as described below, the Company will increase the conversion rate for a holder who elects to convert its 2022 Notes in connection with such a corporate event or during the related redemption period in certain circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. It is the Company's current intent to settle conversions through combination settlement with a specified dollar amount per $1,000 principal amount of 2022 Notes of $1,000 . While the 2022 Notes were not convertible as of June 30, 2016 , if the 2022 Notes were convertible, shares would have been distributed upon conversion because the conversion price was below the stock price as of such date.
Holders of the 2022 Notes may require the Company to repurchase some or all of the 2022 Notes for cash upon a fundamental change, as defined in the 2022 Indenture, at a repurchase price equal to 100% of the principal amount of the 2022 Notes being repurchased, plus any accrued and unpaid interest up to, but excluding, the relevant repurchase date.
The Company may not redeem the 2022 Notes prior to September 1, 2019. Beginning September 1, 2019, the Company may redeem for cash all or a portion of the 2022 Notes, at the Company's option, if the last reported sale price of the common stock is equal to or greater than 140% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five trading days immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2022 Notes.
The Company has separately accounted for the liability and equity components of the convertible debt instrument by allocating the gross proceeds from the issuance of the 2022 Notes between the liability component and the embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuance for similar notes that do not include the embedded conversion option. This interest rate, estimated at 7.4% , was used to compute the initial fair value of the liability component of $131.3 million . The excess of the gross proceeds received from the issuance of the 2022 Notes over the initial amount allocated to the liability component of $70.0 million was allocated to the embedded conversion option, or equity component. This excess is reported as a debt discount and will be subsequently amortized as interest expense, using the interest method, through September 2022, the maturity date of the 2022 Notes. Offering costs, consisting of the initial purchasers’ discount and offering expenses payable by the Company, were $6.4 million . These offering costs were allocated to the liability component and the equity component based on the relative valuations of such components. As a result, $4.2 million of the offering costs were classified as debt issuance costs and recorded on the balance sheet as a deduction from the carrying amount of the debt liability. The remaining $2.2 million of offering costs were allocated to the equity component.
The fair value of the 2022 Notes as of June 30, 2016 and December 31, 2015 was $242.7 million and $221.1 million , respectively. The carrying amount of the equity component of the 2022 Notes was $62.9 million at June 30, 2016 . The unamortized offering costs classified as debt issuance costs and recorded as a direct deduction to the carrying amount of the debt liability at June 30, 2016 were $3.7 million , which are being amortized as interest expense through the September 2022 maturity date of the 2022 Notes.
2018 Convertible Senior Notes
In June 2011, the Company issued $120.0 million aggregate principal amount of 1.50% convertible senior notes due in 2018 (the “2018 Notes”). The 2018 Notes are senior unsecured obligations of the Company, with interest payable semi-annually in cash at a rate of 1.50%  per annum, and will mature on July 1, 2018 , unless earlier repurchased, redeemed or converted.

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



Concurrently with the closing of the 2022 Notes offering, the Company repurchased $50.9 million principal amount of the 2018 Notes in privately negotiated transactions for an aggregate purchase price of $53.4 million . The Company recorded an extinguishment loss of $4.2 million on the repurchase, including $0.5 million associated with unamortized issuance costs. This loss was recorded in other expense within the consolidated statement of operations. The remaining purchase price was allocated between the liability component and the equity component based upon the fair value of the debt immediately prior to the repurchase at $42.4 million and $6.8 million , respectively.
The 2018 Notes may be converted by the holders at their option on any day prior to the close of business on the scheduled trading day immediately preceding April 1, 2018 only under the following circumstances: (a) during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price per 2018 Note for each day of that measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such day; (b) during any calendar quarter (and only during such quarter) after the calendar quarter ended June 30, 2012, if the last reported sale price of the common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; (c) upon the occurrence of specified corporate events; or (d) if the Company calls the 2018 Notes for redemption. The 2018 Notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, April 1, 2018 through the second scheduled trading day immediately preceding the maturity date.
The initial conversion rate for the 2018 Notes is 23.8126 shares of the Company’s common stock per $1,000 principal amount of 2018 Notes, equivalent to a conversion price of approximately $41.99 per share of common stock. The conversion price will be subject to adjustment in some events, but will not be adjusted for accrued interest. In addition, if a make-whole fundamental change, as defined in the indenture governing the 2018 Notes (the “2018 Indenture”), occurs prior to the maturity date, the Company will in some cases increase the conversion rate for a holder that elects to convert its 2018 Notes in connection with such make-whole fundamental change. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2018 Notes to be converted and deliver shares of the common stock in respect of the remainder, if any, of the conversion obligation in excess of the aggregate principal amount of the 2018 Notes being converted. While the 2018 Notes were not convertible as of June 30, 2016 , if the 2018 Notes were convertible, no shares would have been distributed upon conversion because the conversion price was above the stock price as of such date.
Holders of the 2018 Notes may require the Company to repurchase some or all of the 2018 Notes for cash, subject to certain exceptions, upon a fundamental change, as defined in the 2018 Indenture, at a repurchase price equal to 100% of the principal amount of the 2018 Notes being repurchased, plus any accrued and unpaid interest up to but excluding the relevant repurchase date.
Beginning July 1, 2015, the Company may redeem for cash all or part of the 2018 Notes (except for the 2018 Notes that the Company is required to repurchase as described above) if the last reported sale price of the common stock exceeds 140% of the applicable conversion price for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day immediately prior to the date of the redemption notice. The redemption price will equal the sum of 100% of the principal amount of the 2018 Notes to be redeemed, plus accrued and unpaid interest, plus a “make-whole premium” payment. The Company must make the make-whole premium payments on all 2018 Notes called for redemption prior to the maturity date, including 2018 Notes converted after the date the Company delivered the notice of redemption.
The Company has separately accounted for the liability and equity components of the convertible debt instrument by allocating the gross proceeds from the issuance of the 2018 Notes between the liability component and the embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuance for similar notes that do not include the embedded conversion option. This interest rate, estimated at 8% , was used to compute the initial fair value of the liability component of $79.4 million . The excess of the gross proceeds received from the issuance of the 2018 Notes over the initial amount allocated to the liability component, of $40.6 million , was allocated to the embedded conversion option, or equity component. This excess is reported as a debt discount and subsequently amortized as interest expense, using the interest method, through July 2018, the maturity date of the 2018 Notes. Offering costs, consisting of the initial purchasers’ discount and offering expenses payable by the Company, were $4.3 million . These offering costs were allocated to the liability component and the equity component based on the relative valuations of such components. As a result, $2.9 million of the offering costs were classified as debt issuance costs and recorded on the balance sheet in other assets. The remaining $1.4 million of offering costs were allocated to the equity component.
The fair value of the 2018 Notes as of June 30, 2016 and December 31, 2015 was $78.7 million and $75.3 million , respectively. The carrying amount of the equity component of the 2018 Notes was $8.0 million at June 30, 2016 . The unamortized offering costs classified as debt issuance costs and recorded as a direct deduction to the carrying amount of the debt liability at June 30, 2016 were $0.5 million , which is being amortized as interest expense through the July 2018 maturity date of the 2018 Notes.

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



The following table shows the amounts recorded within the Company’s financial statements with respect to the combined 2022 Notes and the 2018 Notes (collectively, the "Notes") (in thousands):
    
 
June 30,
2016
 
December 31, 2015
Convertible debt principal
$
270,355

 
$
270,355

Unamortized debt discount
(71,626
)
 
(77,440
)
Unamortized debt issuance costs
(4,167
)
 
(4,584
)
Net carrying amount of convertible debt
$
194,562

 
$
188,331


The following table presents the interest expense recognized related to the Notes (in thousands):     
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Contractual interest expense
$
783

 
$
450

 
$
1,548

 
$
900

Amortization of debt issuance costs
208

 
101

 
417

 
203

Accretion of debt discount
2,936

 
1,475

 
5,814

 
2,913

Net interest expense
$
3,927

 
$
2,026

 
$
7,779

 
$
4,016

Fair value for the Company’s borrowings is estimated using quoted market prices of the Notes at June 30, 2016 , quoted market prices for similar instruments and by observable market data. The Company believes its creditworthiness and the financial market in which it operates have not materially changed since entering into the arrangements. If measured at fair value in the financial statements, long-term debt would be classified as Level 2 in the fair value hierarchy.
The aggregate maturities of borrowings as of June 30, 2016 were as follows (in thousands):
    
2016 - 2017
 
$

2018
 
69,105

2019
 

2020 and thereafter
 
201,250

 
 
$
270,355

9. Stock-based Compensation
Equity Incentive Plans
In 1999, the Company adopted the 1999 Stock Incentive Plan (the “1999 Plan”). The 1999 Plan provided for the grant of incentive stock options, nonqualified stock options, restricted stock awards and stock appreciation rights. The 1999 Plan terminated in June 2009 whereby no new options or awards are permitted to be granted. In April 2009, the Company adopted the 2009 Equity Incentive Plan. This plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units (“RSUs”) and stock appreciation rights. In June 2010, in connection with the Company’s initial public offering (“IPO”), the 2009 Equity Incentive Plan was amended and restated to provide for, among other things, annual increases in the share reserve (as amended and restated, the “2009 Plan”).
The term of stock-based grants is up to ten years , except that certain stock-based grants made after 2005 have a term of five years . For grants made under the 2009 Plan prior to January 1, 2015, the requisite vesting period is typically four years and for grants made subsequent to January 1, 2015, the requisite vesting period is typically three years . On each of January 1, 2015 and 2016 , 1,250,000 shares were added to the 2009 Plan. At June 30, 2016 , the Company had 768,916 shares of common stock available for issuance under the 2009 Plan.
Stock-based compensation expense recognized by the Company was as follows (in thousands):

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Stock options
$
2,099

 
$
1,758

 
$
4,147

 
$
3,351

Restricted stock units
11,263

 
11,050

 
19,565

 
15,989

Performance stock units
250

 
986

 
574

 
1,890

Total recognized stock-based compensation expense
$
13,612

 
$
13,794

 
$
24,286

 
$
21,230

Stock Options
The following table presents summary information related to stock options:
 
Number of Options Outstanding
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value
 
 
 
 
 
 
 
(in thousands)
Balance, December 31, 2015
1,998,875

 
$
29.48

 
 
 
 
     Granted
382,950

 
33.50

 
 
 
 
     Exercised
(299,489
)
 
32.43

 
 
 
 
Forfeited
(89,660
)
 
30.60

 
 
 
 
Expired
(9,123
)
 
32.77

 
 
 
 
Balance, June 30, 2016
1,983,553

 
$
29.74

 
7.51
 
$22,407
 
 
 
 
 
 
 
 
Vested at June 30, 2016
916,394

 
$
27.44

 
5.87
 
$12,453
During the six months ended June 30, 2016 and 2015 , the Company granted stock options with a weighted-average grant date fair value of $15.45 and $15.24 , respectively. For the six months ended June 30, 2016 and 2015 , the intrinsic value of stock options exercised was $2.6 million and $3.5 million , respectively, and cash received from stock options exercised was $9.7 million and $2.5 million , respectively.
At June 30, 2016 , unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested stock options was $14.4 million , which is scheduled to be recognized over a weighted average period of 2.07 years. To the extent the actual forfeiture rate is different than what the Company has anticipated at June 30, 2016 , stock-based compensation expense will be different from expectations.
Restricted Stock Units
The following table presents a summary of activity for RSUs (excluding RSUs that are subject to performance-based vesting conditions (“PSUs”)):
     
 
Number of RSUs
 
Weighted Average Grant Date Fair Value
Balance, December 31, 2015
1,512,022

 
$
33.19

     Granted
1,395,994

 
37.76

     Vested
(489,694
)
 
33.49

     Forfeited
(75,971
)
 
33.71

Balance, June 30, 2016
2,342,351

 
$
35.83


The RSUs generally vest over three or four years from the vesting commencement date and on vesting the holder receives one share of common stock for each RSU.

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



At June 30, 2016 , unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested RSUs was $70.0 million , which is scheduled to be recognized over a weighted average period of 2.12 years. To the extent the actual forfeiture rate is different than what the Company has anticipated at June 30, 2016 , stock-based compensation expense will be different from expectations.
Performance Stock Units
The following table presents a summary of activity for PSUs:
     
 
Number of PSUs
 
Weighted Average Grant Date Fair Value
Balance, December 31, 2015
550,088

 
$
26.87

     Granted

 

     Vested
(70,065
)
 
32.96

     Forfeited
(1,641
)
 
23.72

Balance, June 30, 2016
478,382

 
$
25.99


The PSUs generally vest over three or four years from the vesting commencement date, subject to the satisfaction of certain performance conditions, and on vesting the holder receives one share of common stock for each PSU.
At June 30, 2016 , unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested PSUs was $0.3 million , which is scheduled to be recognized over a weighted average period of 0.58 years. To the extent the actual forfeiture rate is different than what the Company has anticipated at June 30, 2016 , stock-based compensation expense will be different from expectations.
Tax Benefits
In accordance with the FASB’s guidance on stock-based compensation, the Company elected the alternative transition method (short cut method) provided for calculating the tax effects of stock-based compensation. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows related to the tax effect of employee stock-based compensation awards that are outstanding upon adoption. As of June 30, 2016 , the balance of the Company’s APIC pool related to tax windfall benefits from stock option exercises was $10.8 million .
The Company applies a with-and-without approach in determining its intra-period allocation of tax expense or benefit attributable to stock-based compensation deductions. Tax deductions in excess of previously recorded benefits (windfalls) included in net operating loss carryforwards but not reflected in deferred tax assets were $37.2 million and $50.4 million at June 30, 2016 and December 31, 2015 , respectively.
10. Commitments and Contingencies
In the normal course of business, the Company enters into contracts and agreements that may contain representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made in the future, but have not yet been made. The Company has not paid any material claims related to indemnification obligations to date.
In accordance with its bylaws and certain agreements, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date under these indemnification obligations.
In addition, the Company is involved in litigation incidental to the conduct of its business. The Company is not a party to any lawsuit or proceeding that, in the opinion of management, is reasonably possible to have a material adverse effect on its financial position, results of operations or cash flows.
11. Taxes

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The Company’s provision for income taxes is determined using an estimate of its annual effective tax rate for each of its legal entities in accordance with the accounting guidance for income taxes. Where the Company has entities with losses and does not expect to realize the tax benefits in the foreseeable future, those entities are excluded from the effective tax rate calculation. Non-recurring and discrete items that impact tax expense are recorded in the period incurred.
The effective tax rate was 27.2% and 24.8% for the six months ended June 30, 2016 and 2015 , respectively. For the six months ended June 30, 2016 , the effective tax rate differs from the computed U.S. statutory rate primarily due to nondeductible expenses related to stock-based compensation, other compensation items and losses from certain foreign jurisdictions with no associated tax benefit due to a full valuation allowance, partially offset by research and development and business credits.
As of June 30, 2016 , the Company has not recorded a deferred tax liability for undistributed earnings of $3.0 million of certain foreign subsidiaries, since such earnings are considered to be reinvested indefinitely. If the earnings were distributed, the Company would be subject to federal income and foreign withholding taxes. Determination of an unrecognized deferred income tax liability with respect to such earnings is not practicable.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets in each relevant jurisdiction. The Company provides a valuation allowance against deferred tax assets if, based upon the weight of available evidence, we do not believe it is “more-likely-than-not” that some or all of the deferred tax assets will be realized. Realization of deferred tax assets in any jurisdictions depends on various factors, including the expectation of future profitability in that jurisdiction.
Realization of the U.S. deferred tax asset is dependent on generating sufficient taxable income prior to expiration of these U.S. loss carryforwards.  During the prior years and currently, the Company experienced losses in its U.S. jurisdiction, driven largely by significant stock option expense recorded in those years. Although realization is not assured, management believes it is more-likely-than-not that the results of U.S. operations will generate sufficient taxable income to support the realization of the existing deferred tax asset and any excess stock option deduction carryforwards prior to the expiration of those losses. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
12. Income per share data
Basic income per common share is computed based on the weighted average number of outstanding shares of common stock. Diluted income per common share adjusts the basic weighted average common shares outstanding for the potential dilution that could occur if stock options, RSUs and convertible securities were exercised or converted into common stock.
The following table presents a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation. In the table below, net loss represents the numerator and weighted average common shares outstanding represent the denominator:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Net loss
$
(2,895
)
 
$
(5,288
)
 
$
(4,404
)
 
$
(8,193
)
Weighted average basic common shares outstanding
29,449

 
29,230

 
29,295

 
29,111

Net loss per share, basic and diluted
$
(0.10
)
 
$
(0.18
)
 
$
(0.15
)
 
$
(0.28
)
Due to the settlement features of the Notes, the Company only includes the impact of the premium feature in the diluted earnings per common share calculation when the average stock price exceeds the conversion price of the Notes. For the three months ended June 30, 2016 , the weighted average number of shares outstanding used in the computation of diluted loss per share does not include the effect of the premium feature of the 2022 Notes convertible into 319,948 shares, as the effect would have been anti-dilutive given the Company's losses for the period. The average stock price did not exceed the conversion price for the 2022 Notes for the six months ended June 30, 2016 or exceed the conversion price for the 2018 Notes for the three and six months ended June 30, 2016 and 2015 .
The weighted average number of shares outstanding used in the computation of diluted loss per share does not include the effect of stock-based awards convertible into 859,513 shares and 699,704 shares for the three months ended June 30, 2016 and 2015 and into 749,453 and 630,073 shares for the six months ended June 30, 2016 and 2015 , respectively, as the effect would have been anti-dilutive given the Company’s losses for these periods.
The weighted average number of shares outstanding used in the computation of diluted loss per share also does not include the effect of certain additional stock-based awards exercisable into 674,804 and 1,027,182 shares for the three months ended

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BroadSoft, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements



June 30, 2016 and 2015 , respectively, and into 1,351,304 and 1,209,788 shares for the six months ended June 30, 2016 and 2015 , respectively, as their effect would have been anti-dilutive because their exercise prices exceeded the average market price of the Company's common stock during these periods.
13. Segment and Geographic Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its chief executive officer (the “CEO”). The CEO reviews financial information presented on a consolidated basis, along with information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. Discrete information on a geographic basis, except for revenue, is not provided below the consolidated level to the CEO. The Company has concluded that it operates in one segment and has provided the required enterprise-wide disclosures.
The Company engages in business across three geographic regions: North America; Europe, Middle East and Africa ("EMEA"); and Asia Pacific, Caribbean and Latin America ("Emerging Markets"). Revenue by geographic area is based on the location of the service provider. The following tables present revenue and long-lived assets, net, by geographic area (in thousands):      
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
 
 
 
 
 
North America
$
45,668

 
$
43,140

 
$
85,849

 
$
74,291

EMEA
24,634

 
15,965

 
44,469

 
31,569

Emerging Market
11,419

 
5,379

 
24,539

 
14,295

Total Revenues
$
81,721

 
$
64,484

 
$
154,857

 
$
120,155

North America includes $42.7 million and $41.3 million of United States revenue for each of the three months ended June 30, 2016 and 2015 and $80.9 million and $71.0 million for each of the six months ended June 30, 2016 and 2015 .
 
 
June 30,
2016
 
December 31, 2015
Long-Lived Assets, net
 
 
 
North America
$
21,122

 
$
21,135

EMEA
3,125

 
5,008

Emerging Markets
2,956

 
1,171

Total Long-Lived Assets, net
$
27,203

 
$
27,314

North America includes $20.7 million and $20.9 million of United States long-lived assets as of June 30, 2016 and December 31, 2015 .


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ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission, or SEC, on February 29, 2016 .
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or other similar expressions. Forward-looking statements in this Quarterly Report on Form 10-Q may include statements about:
our dependence on the success of BroadWorks;
our ability to continue to develop, and to successfully deploy, our BroadCloud offering, expand this offering geographically and increase the associated recurring service revenue;
any potential loss of or reductions in orders from certain significant customers;
our dependence on our service provider customers to sell services using our applications;
claims that we infringe the intellectual property rights of others;
our ability to protect our intellectual property;
competitive factors, including, but not limited to, industry consolidation, entry of new competitors into our market, and new product and marketing initiatives by our competitors;
our ability to predict our revenue, operating results and gross margin accurately;
the length and unpredictability of our sales cycles;
our ability to expand our product offerings;
our international operations, including foreign currency exchange risk;
our significant reliance on distribution partners in international markets;
our ability to manage our growth, including our increased headcount;
the attraction and retention of qualified employees and key personnel;
the interoperability of our products with service provider networks;
our ability to realize the benefits of our recent acquisitions and the successful integration of the personnel, technologies, and customers from such acquisitions;
the quality of our products and services, including any undetected errors or bugs in our software; and
our ability to maintain proper and effective internal controls.
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 those factors we discuss in the “Risk Factors” sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in our other filings with the SEC. You should read these factors and the other cautionary statements made in this Quarterly Report on Form 10-Q as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report on Form 10-Q. These risks are not exhaustive. Although we believe the expectations reflected in the forward-looking statements are based on reasonable assumptions, we can give no assurance we will attain these expectations or that any deviations will not be material. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.
Overview
We are the leading global provider of software and services that enable telecommunications service providers to deliver hosted, cloud-based Unified Communications, or UC, to their enterprise customers.
Traditionally, many enterprises have utilized premise-based private branch exchanges, or PBX’s, to connect their offices and people to public telephony networks. Hosted UC enables the delivery of PBX features without the need for premise-based equipment. Hosted UC can be delivered through service providers using their own internet protocol, or IP-based networks and their mobile networks, as well as over the public internet (also known as "over the top" or OTT). In addition to voice telephony, UC offers additional features such as full integration with mobile devices, high definition, or HD, voice and video calling and conferencing, instant messaging and presence, or IM&P, and web collaboration.

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We believe we are well positioned to enable service providers to capitalize on increasing demand by enterprises for such UC services by enabling them to efficiently and cost-effectively offer a broad suite of services to their end-users. Our service provider customers in more than 80 countries are delivering services and have deployed over 13 million UC subscriber lines worldwide using our software. We count among our customers 26 of the top 30 telecommunications service providers globally, as measured by revenue for the year ended December 31, 2014.
UC-One
UC-One, our UC solution, is a communications and collaboration offering that enables telecommunications service providers to offer businesses and other enterprises UC features and functionalities on a hosted basis without the need for traditional premise-based PBX equipment. Our technology is designed to meet service providers’ stringent requirements for service availability, network integration and scale and to address the needs of various business segments, such as micro, small, medium and large enterprises; market segments such as hospitality, government, education, contact centers and healthcare; and industries requiring call center functionality.
Our UC-One services include HD voice and video calling, audio conferencing, IM&P, desktop sharing and collaboration and call center capabilities. Because these capabilities can be accessed through desk phones, smartphones, tablets, laptops and PCs, UC-One provides full support for today’s distributed workforce and mobile employees. Our solution can also be deployed across multiple access networks and technologies, including fixed line/fiber and traditional mobile 3G networks, as well as voice over LTE, or VoLTE, networks and voice over wifi, or VoWiFi.
The benefits of UC-One to enterprises and end users include:
Solution Breadth and Flexibility . UC-One is scalable and can be used by businesses of varying sizes, from very small businesses of two employees to the largest global enterprises with hundreds of thousands of employees in multiple locations. Capacity can be purchased as and when needed by enterprises in response to business and operational needs.
Multi-Location and Ease of Use . Because UC-One is cloud and IP-based, an enterprise can provide uniform communications functionality across its entire organization, enabling a consistent and simplified user experience. It also provides a single console to manage all the communication and collaboration needs for businesses with geographically dispersed offices and mobile workers, greatly streamlining business operations and reducing operational costs.
Enhanced Mobility . Our solution provides the flexibility to work from the office, at home or on the move, with the full range of UC-One services available irrespective of location or end user device.
Business Continuity . Because UC-One is cloud-based, in the event an enterprise has a business interruption issue, the enterprise’s core communications and collaboration services would remain unaffected.
Openness . We have an active ecosystem of development partners who use our open APIs to create complementary offerings designed for specific market segments or industry verticals.
Lower Total Cost of Ownership . We believe that enterprises will experience a lower total cost of ownership compared to legacy premise-based solutions. Because it is cloud-based, there are significantly lower capital investment requirements, fewer highly trained personnel required and reduced costs given the inherent flexibility of per-user based costs.
We offer service providers two deployment options, software and software-as-a-service, or SaaS, to enable them to offer UC services to their enterprise customers:
Software. BroadWorks is our application server software offering, with the software generally deployed on industry-standard servers located in the service provider’s data centers. With BroadWorks implemented as an application server in its infrastructure, the service provider is responsible for the development and implementation of the overall solution and integration with the service provider’s network, operations, support and billing systems. This deployment model gives the service provider the maximum flexibility to define its UC-One offering. In this model, revenue is derived from perpetual software license and annual maintenance and support fees, as well as associated professional services. Since our inception, the majority of our revenue has been derived from such software licensing.
SaaS. The second deployment option is our BroadCloud SaaS offering. BroadCloud provides a managed services offering for service providers. In this model, we have implemented UC-One and other BroadWorks capabilities within our own data centers and provide operations capabilities covering sales and order management, service delivery, device provisioning, customer service and billing. We believe that through BroadCloud, service providers can accelerate their deployments of UC-One

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services and reduce their capital expenditures and the internal costs of implementing UC services. Generally, service providers utilizing our BroadCloud offering pay us on a monthly recurring basis based on the total number of subscriber lines the service provider has deployed.
Other Products
We also offer to our service provider customers SIP Trunking and Voice over IP, or VoIP, consumer solutions based on our BroadWorks software.
SIP Trunking. Our BroadWorks’ SIP Trunking solution enables service providers to provide IP interconnectivity and additional services to enterprises that already have premise-based PBXs. With SIP Trunking, service providers are able to bundle voice and data over a single converged IP pipe, creating a more economical offering than can be achieved with separate voice and data connections. We believe our solution enables service providers to differentiate their SIP Trunking service offerings and increase revenue by offering enhanced services such as UC, video, mobility, global four-digit dialing and business continuity.
BroadSoft Consumer Applications. Our consumer IP applications allow service providers to offer consumers voice and multimedia telephony services with voice calling, video calling, enhanced messaging and content sharing over broadband and VoLTE networks.
Company
We were incorporated in Delaware in 1998 and we began selling BroadWorks in 2001. We sell our products to service providers both directly and indirectly through distribution partners, such as telecommunications equipment vendors, value-added resellers, or VARs, and other distributors.
Industry
Traditionally, many enterprises have used premise-based PBX’s to connect their offices and people to the public telephone network. These PBX offerings were primarily voice communications based. We believe several trends are driving enterprises of all sizes to embrace the change from premise-based to cloud-based delivery of PBX functionality:
The increasing demand by enterprises to move business applications to the cloud for operational savings, flexibility and expanded services;
The desire by enterprises to drive greater team collaboration and workplace productivity through communications and collaboration tools;
The demand by enterprises to offer broader communications services such as HD voice and video calling and conferencing across their organizations;
The increasingly distributed nature of enterprises’ operations and workforces and the desire to provide fully integrated UC to them;
The proliferation of mobile devices used by employees and other workers; and
The rapid expansion of high quality IP bandwidth, particularly the expansion of wireless bandwidth such as Wi-Fi and VoLTE.
We believe that service providers are well-positioned to address these market demands. A number of our service provider customers have made significant investments in their IP-based and mobile networks and are already offering standard communications services such as broadband access and fixed and mobile calling plans. Many have a long track record of reliably delivering these business critical services. We believe that as UC solutions are increasingly being offered over fixed-line and mobile networks, service providers can achieve significant competitive advantages in delivering such services over their networks. Further, we believe service providers have a significant incentive to offer UC services to their enterprise customers as competitive and regulatory pressures have commoditized their historical revenue streams.
In addition, we believe that larger service providers are becoming more focused on implementing transformations of their fixed and mobile networks from traditional circuit switched networks to their IP-based broadband networks. As these service providers embark on such projects, they are incorporating application servers like BroadWorks to enable them to offer enhanced business services that were previously offered over their circuit switched networks. We believe this emerging trend is evident in both fixed-line transformations and increasingly in service providers’ investment in their mobile VoLTE networks. We

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believe this trend is a positive development for us, as service providers both replace services to their business users on their traditional networks and provide new business services.
Our Strategy
Our goal is to strengthen our position as the leading provider of software and services that enable service providers to deliver cloud-based UC to their enterprise customers. To achieve this goal, our strategy is to deliver an increasingly feature rich set of services to address the needs of a broader spectrum of business customer types. Key elements of our strategy include:
Extend our technology leadership and product depth and breadth . We intend to continue to provide industry leading UC solutions through product innovation and substantial investment in research and development for new features, applications and services.
Accelerate the adoption of UC solutions by providing communications centric UC and collaboration capabilities. Project Tempo is our vision of extending UC to help drive how enterprises and people communicate, interact and collaborate by integrating their communication and collaborative tools with contextual intelligence. We also intend to accelerate UC adoption and our service provider customers’ time to market by promoting and expanding our UC offerings. Our BroadCloud solution enables our service providers to offer UC features and functions through a service offering that we host and manage. We also intend to expand the geographic availability of our BroadCloud offerings beyond the United States, United Kingdom, Germany, Japan and France.
Broaden demand by enterprises and assist our service provider customers by developing more market segment directed UC offerings . We enable service providers to develop UC offerings targeted towards specific business segments, including small, medium and large enterprises and market segments such as hospitality, government, education, contact center and healthcare.
Drive revenue growth by :
Assisting our current service provider customers to sell more of their currently deployed BroadWorks and BroadCloud offerings . We support our service provider customers by regularly offering enhanced and new features to their current applications, as well as providing tools and training to help them market their services to subscribers.
Expanding our BroadCloud offering . We believe that service providers will increasingly find that using our BroadCloud offering to deliver UC solutions to their customers will accelerate their time to market and product introduction cycles.
Continuing to acquire new customers . Our customers are located around the world and include many of the top telecommunications services providers globally. We believe we are well positioned to continue to acquire new customers, particularly with the addition of our BroadCloud offering and our focus on developing UC solutions based on enterprise size and vertical market segments.
Pursuing selected acquisitions and collaborations that complement our strategy . We intend to continue to pursue acquisitions and collaborations that we believe are strategic to strengthen our industry leadership position, expand our geographic presence or allow us to offer new or complementary products or services.
Executive Summary
Our management team monitors and analyzes a number of key industry trends and performance indicators to manage our business and evaluate our financial and operating performance.
We believe the trend towards adoption of cloud-based unified communications by enterprises will continue and even accelerate over the next several years. We also believe that service providers using our products and services are strongly positioned to take advantage of this demand. Our objective is to provide our service provider customers with the service and software offerings they need to effectively address this market opportunity and their end-user customer needs.
We expect continued strong revenue growth from our UC solutions during the remainder of 2016, which growth we believe is largely driven by increased market acceptance of hosted UC offerings and our continued market leadership. We believe converged and mobile operators desire to deliver UC solutions to their enterprise customer base to grow revenue, reduce subscriber turnover, or churn, and raise average revenue per user. Our UC-One solutions, which are either delivered through our SaaS UC offerings or through our BroadWorks server software that resides within the service provider’s network, enable service providers to rapidly and efficiently deliver a UC experience regardless of end-user device and whether or not the end-user has fixed-line or wireless access.

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During the first half of 2016, our SaaS offerings have been, and for the remainder of this year will continue to be a particularly important area of investment and marketing focus for us. Many of our service provider customers are interested in accessing the capabilities of our BroadWorks features and functions through a service offering hosted and managed by us. We believe that service providers choose our SaaS offerings to accelerate their time to market and reduce their capital and implementation costs and that delivering innovative solutions to our customers will drive our revenue growth. Between June 30, 2015 and June 30, 2016, we increased our SaaS subscribers from approximately 200,000 to greater than 290,000, which represents an increase of nearly 50% over this twelve month period. While our SaaS business continues to grow, we do not expect the same pace of growth during the remainder of 2016. We expect this growth rate to decline, in part due to the effects of foreign currency exchange rate fluctuations related to the recent United Kingdom vote to exit the European Union on our pound-denominated cloud revenue in the United Kingdom. During the remainder of 2016, we expect to continue to invest in our SaaS offerings and expand the geographic availability of these offerings.
Project Tempo is our vision of extending UC to help drive how enterprises and people communicate, interact and collaborate by integrating their communication and collaborative tools with contextual intelligence. Our goal with Project Tempo is to enable service providers to adopt UC as the centerpiece in what we have entitled "The Future of Work." We expect that during the remainder of 2016, we will continue our strategic investments in initiatives such as Project Tempo and in research and development of existing and new products, such as client and portal software, mobility and cloud-based services, and products acquired in connection with our acquisitions.
During the second quarter of 2016, we acquired a provider of enterprise messaging-based team communication and collaboration software applications. We expect to integrate the application into our SaaS offerings to allow our customers to integrate popular enterprise cloud applications with contextual intelligence and real-time unified communications services provided by BroadSoft UC-One. This acquisition enables us to continue to expand Project Tempo’s goal of increased collaboration and working across all devices at any time.
We believe that many of the largest carriers in the world are embarking on projects to ultimately transform most, if not all, of their legacy fixed and mobile circuit switched networks to IP-based networks, driven in part by the movement to migrate their wireless networks to VoLTE. We think that we are well-positioned to meet such carrier demand for these transformation projects, especially with regard to our UC and UC for VoLTE offerings. We expect significant positive revenue impact from these projects to continue during the remainder of 2016 and believe transformation projects by certain of our largest service provider customers could drive significant growth for us over the next several years.
Key Financial Highlights
Some of our key GAAP financial highlights for the quarter ended June 30, 2016 include:
Total revenue increased by $17.2 million or 27% , to $81.7 million , compared to $64.5 million for the quarter ended June 30, 2015 ;
Gross profit was $59.2 million , or 72% of revenue, compared to $44.3 million , or 69% of revenue, for the quarter ended June 30, 2015 ;
Income from operations was $0.6 million , compared to loss from operations of $4.9 million for the quarter ended June 30, 2015 ;
Net loss was $2.9 million , compared to $5.3 million for the quarter ended June 30, 2015 ;
Net loss per diluted share was $0.10 , compared to $0.18 for the quarter ended June 30, 2015 ;
Billings (revenue plus net change in deferred revenue) increased by 22% to $86.3 million , compared to $70.8 million for the quarter ended June 30, 2015 ;
Deferred revenue increased by $4.6 million , compared to an increase of $6.4 million for the quarter ended June 30, 2015 ; and
Cash provided by operating activities was $13.6 million, compared to $9.6 million for the quarter ended June 30, 2015 .
Some of our key non-GAAP financial highlights for the quarter ended June 30, 2016 include:
Non-GAAP gross profit increased to $63.0 million , or 77% of revenue, compared to $48.1 million , or 75% of revenue, for the quarter ended June 30, 2015 ;
Non-GAAP income from operations increased to $15.9 million , or 19% of revenue, compared to $10.5 million , or 16% of revenue, for the quarter ended June 30, 2015 ;
Non-GAAP net income increased to $15.0 million , or 18% of revenue, compared to $9.7 million , or 15% of revenue, for the quarter ended June 30, 2015 ; and
Non-GAAP net income per diluted share increased to $0.49 per common share, compared to $0.32 per common share for the quarter ended June 30, 2015 .

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For a discussion of these non-GAAP financial measures and a reconciliation of GAAP and non-GAAP financial results, please refer to “Non-GAAP Financial Measures” included elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Components of Operating Results
Revenue
We derive our revenue primarily from the sale of license software, subscription and maintenance support and professional services. We recognize revenue when all revenue recognition criteria have been met in accordance with revenue recognition guidance. This guidance provides that revenue should be recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is probable.
Our total revenue consists of the following:
License software . We derive license software revenue primarily from the sale of perpetual software licenses. We generally price our software based on the packages of features and applications provided and on the number of subscriber licenses sold. These factors impact the average selling price of our licenses and the comparability of average selling prices. Our license software revenue may vary significantly from quarter to quarter or from year to year as a result of long sales and deployment cycles, variations in customer ordering practices and the application of management’s judgment in applying complex revenue recognition rules. Our deferred license software revenue balance consists of software orders that do not meet all the criteria for revenue recognition. We are unable to predict with certainty the proportion of orders that will meet all the criteria for revenue recognition relative to those orders that will not meet all such criteria and, as a result, it is difficult to forecast whether recognized license software revenue and deferred license software revenue will continue to increase or decrease in a given period. As of June 30, 2016 , our deferred license software revenue balance was $26.8 million , the current portion of which was $25.9 million .
Subscription and maintenance support . Subscription and maintenance support revenue includes recurring revenue from annual maintenance support contracts for our software licenses and from subscriptions related to our delivery of SaaS services.
Rates for maintenance support, including subsequent renewal rates, are typically established based upon a specific percentage of net license fees as set forth in the arrangement with the customer. Maintenance support revenue is recognized ratably over the maintenance support period, assuming all other revenue recognition criteria have been met. Our annual maintenance support contracts provide for software updates, upgrades and technical support. Our typical warranty on licensed software is 90 days and, during this period, our customers are entitled to receive maintenance and support without the purchase of a maintenance contract. After the expiration of the warranty period, our customers must purchase maintenance support services to continue receiving such support.
With respect to our SaaS subscriptions, we are paid a recurring fee typically calculated based on the number of seats and type of services purchased or a usage fee based on the actual number of transactions. The recurring fee is typically billed monthly or annually in advance based on the terms of the arrangement and the usage fee is billed one month in arrears.
Our deferred subscription and maintenance support revenue balance consists of maintenance support and subscription orders that do not meet all the criteria for revenue recognition. As of June 30, 2016 , our deferred subscription and maintenance support revenue balance was $60.4 million , the current portion of which was $55.5 million .
Professional services and other . Professional services and other revenue primarily includes revenue from professional service engagements consisting of implementation, training, consulting and design and customization services. Our professional services and other deferred revenue balance consists of orders that do not meet all the criteria for revenue recognition. As of June 30, 2016 , our deferred professional services and other revenue balance was $20.1 million , the current portion of which was $19.3 million .
Cost of Revenue
Our total cost of revenue consists of the following:
Cost of license software revenue . A majority of the cost of license software revenue consists of amortization of acquired intangibles, personnel-related expenses and royalties paid to third parties whose technology or products are sold as part of BroadWorks. A significant amount of the royalty fees are for the underlying embedded data base technology within BroadWorks for which we currently incur a fixed expense per quarter.

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Personnel-related expenses include salaries, benefits, bonuses, reimbursement of expenses and stock-based compensation. Such costs are expensed in the period in which they are incurred.
Cost of subscription and maintenance support revenue . Cost of subscription and maintenance support revenue consists primarily of personnel-related expenses and other direct costs associated with support and maintenance obligations to our customers who have licensed our software and SaaS offerings, including maintenance and support expenses due to our use of third party software, amortization of acquired intangibles and operating and depreciation expenses associated with the delivery of SaaS offerings.
Cost of professional services and other revenue . Cost of professional services and other revenue consists primarily of personnel-related expenses and other direct costs associated with the delivery of our professional services, which are expensed in the period in which they are incurred.
Gross Profit
Gross profit is the calculation of total revenue minus cost of revenue. Our gross profit as a percentage of revenue, or gross margin, has been and will continue to be affected by a variety of factors, including:
Mix of license software, subscription and maintenance support and professional services and other revenue . We generate higher gross margins on license software revenue compared to subscription and maintenance support or professional services and other revenue.
Growth or decline of license software revenue . A significant portion of cost of license software revenue is fixed and is expensed in the period in which it is incurred. This cost consists primarily of royalty fees to our embedded database provider and amortization of acquired technology. If license software revenue increases, these fixed fees will decline as a percentage of revenue. If license software revenue declines, these fixed fees will increase as a percentage of revenue.
Impact of deferred revenue . If any revenue recognition criteria have not been met, the applicable revenue derived from the arrangement is deferred, including license software, subscription and maintenance support, and professional services and other revenue, until all elements of revenue recognition criteria have been met. However, the cost of revenue, including the costs of license software, subscription and maintenance support and professional services and other, is typically expensed in the period in which it is incurred. Therefore, if relatively more revenue is deferred in a particular period, gross margin would decline in that period. Because the ability to recognize revenue on orders depends largely on the terms of the sale arrangement and we are not able to predict with certainty the proportion of orders that will not meet all the criteria for revenue recognition, we cannot forecast whether any historical trends in gross margin will continue.
Intangible amortization related to mergers and acquisitions. Over the last several years, our business combinations resulted in a number of intangibles assets. These intangible assets are amortized over their useful lives, resulting in additional expense impacting gross profit over the applicable period. We may undertake additional strategic transactions in the future that would result in additional intangible amortization expense.
Billings (Revenue Plus Net Change in Deferred Revenue)
We believe billings, which we calculate as revenue plus the net change in our deferred revenue balance for a particular period, is a key measure of our sales activity for that period.
Billings are as follows (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Beginning of period deferred revenue balance
$
102,725

 
$
101,367

 
$
111,054

 
$
101,456

End of period deferred revenue balance
107,305

 
107,726

 
107,305

 
107,726

Increase (decrease) in deferred revenue
4,580

 
6,359

 
(3,749
)
 
6,270

Revenue
81,721

 
64,484

 
154,857

 
120,155

Billings
$
86,301

 
$
70,843

 
$
151,108

 
$
126,425

Operating Expenses

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We grew our total headcount to 1,461 employees at June 30, 2016 from 1,247 employees at December 31, 2015 , and we expect to continue hiring additional employees to support our anticipated growth.
Operating expenses consist of sales and marketing, research and development and general and administrative expenses. Salaries and other personnel costs are the most significant component of each of these expense categories. We expect our operating expenses to increase in 2016 primarily due to increases in headcount and personnel-costs, including stock-based compensation expense.
Sales and marketing expenses . Sales and marketing expenses consist primarily of salaries and personnel costs for our sales and marketing employees, including stock-based compensation, commissions, benefits and bonuses. Additional expenses include marketing programs, consulting, travel and other related overhead.
Research and development expenses . Research and development expenses consist primarily of salaries and personnel costs for development employees, including stock-based compensation, benefits and bonuses. Additional expenses include costs related to development, quality assurance and testing of new software and enhancement of existing software, consulting, travel and other related overhead. We engage third-party international and domestic consulting firms for various research and development efforts, such as software development, documentation, quality assurance and software support. We intend to continue to invest in our research and development efforts, including by hiring additional development personnel and by using third-party consulting firms for various research and development efforts. We believe continuing to invest in research and development efforts is essential to maintaining our competitive position.
General and administrative expenses . General and administrative expenses consist primarily of salary and personnel costs for administration, finance and accounting, legal, information systems and human resources employees, including stock-based compensation, benefits and bonuses. Additional expenses include consulting and professional fees, travel, insurance and other administrative expenses.
Stock-Based Compensation
We include stock-based compensation as part of cost of revenue and operating expenses in connection with the grant of stock-based awards to our directors, employees and consultants. We apply the fair value method in accordance with authoritative guidance for determining the cost of stock-based compensation. The total cost of the grant is measured based on the estimated fair value of the award at the date of grant. The fair value of service-only awards is recognized as stock-based compensation expense on a straight-line basis over the requisite service period, which is the vesting period, of the award. The fair value of awards with a performance condition is recognized as stock-based compensation on a graded basis over the requisite vesting period of the award. For the three months ended June 30, 2016 and 2015 , we recorded stock-based compensation expense of $13.6 million and $13.8 million , respectively, and for the six months ended June 30, 2016 and 2015 , we recorded stock-based compensation expense of $24.3 million and $21.2 million , respectively.
Based on stock-based awards outstanding as of June 30, 2016 , we expect to recognize future expense related to the non-vested portions of such stock-based awards in the amount of $84.7 million over a weighted average period of approximately 2.11 years.
Other Expense, Net
Other expense, net, consists primarily of interest income, interest expense, loss on repurchase of convertible senior notes and foreign exchange gains and losses. Interest income represents interest received on our cash and cash equivalents. Interest expense consists primarily of the interest related to our 2018 convertible senior notes, or the 2018 Notes, and our 2022 convertible senior notes, or the 2022 Notes. Loss on repurchase of convertible senior notes relates to the fair value in excess of the carrying value of the portion of the 2018 Notes repurchased. Foreign exchange gains and losses relate to the revaluation of foreign currency denominated trade receivables.
Income Tax Expense
Income tax expense consists of U.S. federal, state and foreign income taxes. We are required to pay income taxes in certain states and foreign jurisdictions. Historically, we have not been required to pay significant U.S. federal income taxes due to our accumulated net operating losses.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update 2014-09,  Revenue from Contracts with Customers: Topic  606 ("ASU 2014-09"), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is to

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recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard allows entities to apply either of two methods: (a) retrospective application to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (b) retrospective application with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers: Topic 606 ("ASU 2015-14"), which defers the effective date for ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are evaluating the impact of adopting this new standard on our financial statements and our method of adoption.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases: Topic 842 ("ASU 2016-02"), which provides updated guidance on lease accounting. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that annual period, with early adoption permitted. We are evaluating the impact of adopting this new standard on our financial statements.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation-Stock Compensation: Topic 718 ("ASU 2016-09"), which provides updated guidance on several aspects of the accounting for share-based payment transactions. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods, with early adoption permitted. We are evaluating the impact of adopting this new standard on our financial statements.
Results of Operations
Comparison of the Three Months Ended June 30, 2016 and 2015
Revenue
 
Three Months Ended June 30,
 
Period-to-Period Change
 
2016
 
2015
 
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Revenue by Type:
 
 
 
 
 
 
 
 
 
 
 
   License software
$
33,597

 
41
%
 
$
30,091

 
47
%
 
$
3,506

 
12
%
   Subscription and maintenance support
36,800

 
45

 
27,026

 
42

 
9,774

 
36

   Professional services and other
11,324

 
14

 
7,367

 
11

 
3,957

 
54

Total revenue
$
81,721

 
100
%
 
$
64,484

 
100
%
 
$
17,237

 
27
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue by Geography:
 
 
 
 
 
 
 
 
 
 
 
North America
$
45,668

 
56
%
 
$
43,140

 
67
%
 
$
2,528

 
6
%
EMEA
24,634

 
30

 
15,965

 
25

 
8,669

 
54

Emerging Markets
11,419

 
14

 
5,379

 
8

 
6,040

 
112

Total revenue
$
81,721

 
100
%
 
$
64,484

 
100
%
 
$
17,237

 
27
%
Total revenue for the three months ended June 30, 2016 increased by 27% , or $17.2 million , to $81.7 million as compared to the same period in 2015 . This growth was driven by a 12% increase in license software revenue, a 36 % increase in subscription and maintenance support revenue and a 54% increase in professional services and other revenue. Deferred revenue increased by $4.6 million for the three months ended June 30, 2016 , compared to an increase of $6.4 million for the same period in 2015 .
North America revenue for the three months ended June 30, 2016 increased by 6% , or $2.5 million , to $45.7 million as compared to the same period in 2015 . The increase in North America revenue for the three months ended June 30, 2016 was

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due to an increase in subscription and maintenance support revenue, partially offset by decreases in license software revenue and professional services and other revenue.
Europe, Middle East and Africa, or EMEA, revenue for the three months ended June 30, 2016 increased 54% , or $8.7 million , to $24.6 million as compared to the same period in 2015 . The increase in EMEA revenue for the three months ended June 30, 2016 was due to an increase in license software revenue, subscription and maintenance support revenue and professional services and other revenue.
Asia Pacific, Caribbean and Latin America, or Emerging Markets, revenue for the three months ended June 30, 2016 increased by 112% , or $6.0 million , to $11.4 million compared to the same period in 2015 . The increase in Emerging Markets revenue for the three months ended June 30, 2016 was due to an increase in license software revenue, subscription and maintenance support revenue and professional services and other revenue.
License Software
License software revenue for the three months ended June 30, 2016 increased by 12% , or $3.5 million , to $33.6 million , compared to the same period in 2015 . The increase in license software revenue for the three months ended June 30, 2016 reflects an increase in license software revenue in EMEA and Emerging Markets, partially offset by a decrease in North America. Deferred license software revenue decreased by $1.1 million for the three months ended June 30, 2016 , compared to an increase of $1.8 million for the same period in 2015 .
Subscription and Maintenance Support
Subscription and maintenance support revenue for the three months ended June 30, 2016 increased by 36% , or $9.8 million , to $36.8 million , compared to the same period in 2015 . The increase in subscription and maintenance support revenue for the three months ended June 30, 2016 was the result of growth in our subscription revenue associated with our SaaS platforms, which included contributions from recent acquisitions, and growth in our installed base of customers who purchased maintenance support. Our SaaS subscription revenue for the three months ended June 30, 2016 increased by $4.3 million to $12.8 million, compared to the same period in 2015 . Deferred subscription and maintenance support revenue increased by $2.9 million for the three months ended June 30, 2016 , compared to an increase of $2.7 million for the same period in 2015 .
Professional Services and Other
Professional services and other revenue for the three months ended June 30, 2016 increased by 54% , or $4.0 million , to $11.3 million , compared to the same period in 2015 . The increase in professional services and other revenue for the three months ended June 30, 2016 was primarily due to increased professional services activity, including contributions from recent acquisitions. Deferred professional services and other revenue increased by $2.7 million for the three months ended June 30, 2016 , compared to an increase of $1.8 million for the same period in 2015 .
Cost of Revenue and Gross Profit
 
Three Months Ended June 30,
 
Period-to-Period Change
 
2016
 
2015
 
 
Amount
 
Percent of Related Revenue
 
Amount
 
Percent of Related Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Cost of Revenue:
 
 
 
 
 
 
 
 
 
 
 
License software
$
2,169

 
6
%
 
$
2,869

 
10
%
 
$
(700
)
 
(24
)%
Subscription and maintenance support
11,456

 
31

 
10,227

 
38

 
1,229

 
12

Professional services and other
8,921

 
79

 
7,125

 
97

 
1,796

 
25

Total cost of revenue
$
22,546

 
28
%
 
$
20,221

 
31
%
 
$
2,325

 
11
 %
Gross Profit:
 
 
 
 
 
 
 
 
 
 
 
License software
$
31,428

 
94
%
 
$
27,222

 
90
%
 
$
4,206

 
15
 %
Subscription and maintenance support
25,344

 
69

 
16,799

 
62

 
8,545

 
51

Professional services and other
2,403

 
21

 
242

 
3

 
2,161

 
893

Total gross profit
$
59,175

 
72
%
 
$
44,263

 
69
%
 
$
14,912

 
34
 %

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For the three months ended June 30, 2016 , our gross margin increased to 72% of revenue as compared to 69% for the same period in 2015 , and our gross profit increased by 34% , or $14.9 million , to $59.2 million . The total gross profit increase was primarily due to growth in revenue relative to cost of revenue.
For the three months ended June 30, 2016 , license software gross margin increased to 94% as compared to 90% for the same period in 2015 and license software gross profit increased by 15% to $31.4 million . License software cost of revenue decreased by 24% , or $0.7 million , to $2.2 million for the three months ended June 30, 2016 , compared to the same period in 2015 . The decrease in license software cost of revenue was primarily related to a $0.4 million decrease in personnel-related costs and a decrease of $0.2 million in equipment and software expenses. The increase in license software gross profit was driven by revenue growth and decrease in license software cost of revenue.
For the three months ended June 30, 2016 , subscription and maintenance support gross margin increased to 69% as compared to 62% for the same period in 2015 and subscription and maintenance support gross profit increased by 51% to $25.3 million . Subscription and maintenance support cost of revenue increased by 12% , or $1.2 million , to $11.5 million for the three months ended June 30, 2016 , compared to the same period in 2015 . The increase in subscription and maintenance support cost of revenue was related to our continued investment in our product offerings, primarily our BroadCloud offering, along with the impact of recent acquisitions. The increase was primarily due to a $0.9 million increase in operational costs associated with hosting our SaaS offerings, along with a $0.2 million increase in personnel-related costs. The increase in subscription and maintenance support gross profit was driven by higher revenue growth relative to growth in subscription and maintenance services cost of revenue.
For the three months ended June 30, 2016 , professional services and other gross margin increased to 21% as compared to 3% for the same period in 2015 and professional services and other gross profit increased by 893% to $2.4 million . Professional services and other cost of revenue increased by 25% , or $1.8 million , to $8.9 million for the three months ended June 30, 2016 , compared to the same period in 2015 . The increase in professional services and other cost of revenue was primarily due to a $2.4 million increase in personnel-related costs, which includes the impact of recent acquisitions. The increase was partially offset by a $0.4 million decrease in hardware expenses and a $0.4 million decrease in consulting expenses. The increase in professional services and other gross profit was driven by higher revenue growth relative to growth in professional services and other cost of revenue.
Operating Expenses
 
Three Months Ended June 30,
 
Period-to-Period Change
 
2016
 
2015
 
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Sales and marketing
$
25,951

 
32
%
 
$
21,567

 
33
%
 
$
4,384

 
20
%
Research and development
20,068

 
25

 
16,266

 
25

 
3,802

 
23

General and administrative
12,603

 
15

 
11,306

 
18