SOURCE: BroadSoft, Inc.

BroadSoft, Inc.

August 05, 2013 16:05 ET

BroadSoft Reports Second Quarter 2013 Financial Results

GAITHERSBURG, MD--(Marketwired - Aug 5, 2013) - BroadSoft, Inc. (NASDAQ: BSFT), the leading global provider of Internet protocol-based, or IP-based, communications services to the telecommunications industry, today announced financial results for the quarter ended June 30, 2013.

Financial Highlights for the Second Quarter of 2013

  • Total revenue increased 9% year-over-year to $44.0 million
  • GAAP gross profit was 78% of total revenue; non-GAAP gross profit was 82% of total revenue
  • GAAP loss from operations totaled $2.3 million; non-GAAP income from operations totaled $9.7 million, or 22% of revenue
  • GAAP basic and diluted EPS was $(0.11) per common share; non-GAAP diluted EPS was $0.32 per common share

Results for the three months ended June 30, 2013

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

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

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

Results for the six months ended June 30, 2013

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

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

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

Management Commentary

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

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

Guidance

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

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

Conference Call

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

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

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

Non-GAAP financial measures:

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

Non-GAAP gross profit, license gross profit, subscription and maintenance support gross profit, and professional services and other gross profit. BroadSoft defines non-GAAP gross profit as gross profit plus stock-based compensation expense and amortization expense for acquired intangible assets. BroadSoft considers non-GAAP gross profit to be a useful metric for management and our investors because it excludes the effect of certain non-cash expenses so management and its investors can compare BroadSoft's sales margins over multiple periods. Where BroadSoft provides further breakdown of non-GAAP gross profit between license, subscription and maintenance support and professional services and other, the Company adds back the stock-based compensation expense and amortization expense, as applicable, to the related gross profit.

Non-GAAP license cost of revenue, subscription and maintenance support cost of revenue, and professional services and other cost of revenue. BroadSoft defines non-GAAP cost of revenue as cost of revenue less stock-based compensation expense and amortization expense for acquired intangible assets. BroadSoft considers non-GAAP cost of revenue to be a useful metric for management and our investors because it excludes the effect of certain non-cash expenses so management and its investors can compare BroadSoft's cost of revenue over multiple periods. Where BroadSoft provides further breakdown of non-GAAP cost of revenue between license, subscription and maintenance support and professional services and other, the Company subtracts the stock-based compensation expense and amortization expense, as applicable, to the related cost of revenue.

Non-GAAP income from operations. BroadSoft defines non-GAAP income from operations as income from operations plus stock-based compensation expense and amortization expense for acquired intangible assets. BroadSoft considers non-GAAP income from operations to be a useful metric for management and investors because it excludes the effect of certain non-cash expenses so management and investors can compare BroadSoft's core business operating results over multiple periods. Where BroadSoft provides further breakdown of non-GAAP operating expenses for sales and marketing, research and development and general and administrative, the Company deducts stock-based compensation expense included in the applicable expense item.

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

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

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

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by their use of terms and phrases such as "anticipate," "expect," "will," "believe," "continue" and other similar terms and phrases, and such forward-looking statements include, but are not limited to, the statements regarding the Company's future financial performance set forth under the heading "Guidance." The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including, but not limited to: the Company's dependence on the success of BroadWorks® and on its service provider customers to sell services using its applications; the Company's dependence in large part on service providers' continued deployment of, and investment in, their IP-based networks; claims that the Company infringes the intellectual property rights of others; the Company's ability to integrate and achieve the expected benefits from its recent acquisitions; and the Company's ability to expand its product offerings, as well as those factors contained in the "Risk Factors" sections of the Company's Form 10-K for the year ended December 31, 2012 filed with the SEC on February 27, 2013, and in the Company's other filings with the SEC. All information in this release is as of August 5, 2013. Except as required by law, the Company undertakes no obligation to update publicly any forward-looking statement made herein for any reason to conform the statement to actual results or changes in the Company's expectations.

About BroadSoft

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

Financial Statements

The financial statements set forth below are not the complete set of the Company's financial statements for the quarter and are presented below without footnotes. Readers are encouraged to obtain and carefully review BroadSoft's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, including all financial statements contained therein and the footnotes thereto, when it is filed with the SEC. Once filed with the SEC, the Form 10-Q may be retrieved from the SEC's website at www.sec.gov or from BroadSoft's website at www.broadsoft.com.

BSFT-F

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

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