2014 BroadSoft Analyst Day. June 5, 2014

Transcription

1 2014 BroadSoft Analyst Day June 5, 2014

2 2014 BroadSoft Analyst Day Agenda 10:00 11:00 11:00 11:05 11:05 12:00 12:00 12:30 12:30 1:00 1:00 1:30 1:30 2:00 2:00 2:30 Registration Welcome and Introduction Company, Vision, Products Non-financial Q&A Lunch Break Financials Financial Q&A Product Demonstrations John Kiang Michael Tessler, Chief Executive Officer Scott Hoffpauir, Chief Technology Officer Michael Tessler/Scott Hoffpauir Jim Tholen, Chief Financial Officer Jim Tholen Dag Peak, Luca Piccolo 2

3 Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These forward-looking statements may be identified by their use of terms and phrases such as believe, will, estimate, continue, anticipate, intend, should, plan, expect, predict, could, potentially or the negative of these terms or other similar expressions and include statements concerning future financial and operating performance. 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, including finocom AG, Hosted IP Communications (Europe) Limited and Adaption Technologies; 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, 2013 filed with the SEC on February 28, 2014, and in the Company's other filings with the SEC. All information in this release is as of June 5, 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. 3

4 BroadSoft Overview

5 The BroadSoft Mission Powering the transformation to hosted Unified Communications Enabling end-users to be productive anywhere, anytime on any device Supporting the entire range of enterprise segments Delivering solutions via software or cloud 5

6 600 Strategic Channel Partners in 76 countries Including 19 of the Top 25 1 Global Service Providers 6 1 As measured by 2012 revenue

7 The BroadSoft Solution Hosted PBX Features SIP Trunking Instant Messaging and Presence Audio, Video and Web Conferencing Desktop and File Sharing Call Centers Front Office Auto Attendants Automatic Call Distribution Corporate Directory Access Text Messaging 7

8 Meeting the Needs of All Enterprise Segments Large Ent Mid Market seats Delivering a broad range of Unified Communications services Seamlessly integrated across devices Small Business <100 seats Micro Business <10 seats 8

9 Small Business: Seats 9

10 Small and Medium Business Converged 10

11 Mid-market and Large Enterprise: & Seats BroadSoft, Inc. Proprietary and BroadSoft Confidential,, Inc. do 2014 not copy, duplicate or distribute.

12 Because Enterprises Are Moving Their Communications to the Cloud... Looking for productivity tools Offers elasticity and agility Lower investment with shift from capex to opex Easier to roll out then on-site PBX systems Enables native mobility integration 12

13 ...the Legacy PBX Business Is Shrinking PBX Line Shipments 1 61 Million 59 Million Avaya 56 Million Cisco Unify (Siemens) Other Enterprise Hosted UC Supplants the $47B 2 PBX Product and Services Market 1 MZA Consultants data 2 Total 2013 market size data from Eastern Management Group 13

14 ...But We Are Still Early in This Journey 3% current business lines are hosted 1 Assuming 35% penetration at end of year 5 = $17B 1 total addressable market (Software & maintenance only) time BroadSoft estimates 14

15 Why Service Providers Will Win Significant Share Established brands with proven, superior Quality of Service Own the network Mobile access growing factor Range of diversified offers to meet market segment requirements From SOHO to Large Enterprise Ability to bundle services Customer base established business relationships Low acquisition costs Lower customer churn Support efficient & cost effective 15

16 Cloud Is Disruptive to Legacy Players Legacy players still dependent on hardware and system sales Channels depend on professional services Installation and MACs (moves, adds and changes) Limited geographic reach Costly brand marketing and aggressive competition Hard to cloud-enable a legacy business Lack of multi-tenancy Lack of distribution support Limited support for mobility Solution not designed for cloud delivery and support 16

17 Service Providers Very Engaged in Chasing the $27B Market for UC Demand from enterprises Additional revenue opportunity from new services ARPU growth driver Enables them to upsell their current customers Deals are now group wide Senior leadership focus IDC - Worldwide Unified Communications and Collaboration Forecast $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ CEBP Collaborative applications Mobile PBX/UC Customer service applications Contact center services Business VoIP/UC services IP telephony lines 17

18 Where We Are Focused 18

19 BroadSoft Unique Differentiators

20 BroadSoft Unified Communications The only Unified Communications platform built for Service Providers 20

21 Unified Communications for Business Hosted PBX Features SIP Trunking Instant Messaging and Presence Audio, Video and Web Conferencing Desktop and File Sharing Call Centers Front Office Auto Attendants Automatic Call Distribution Corporate Directory Access Text Messaging 21

22 UC-One Experience Large Ent Mid Market seats Delivering a broad range of Unified Communications services Seamlessly integrated across devices Small Business <100 seats Micro Business <10 seats 22

23 Experience Customer Example 23

24 UC-One Mobility Mobility and Ubiquitous Access are the Future Overlay UC-One on mobile supporting Bring-Your-Own Device (BYOD) trend Single subscription supporting multiple devices Seamless mobility across smartphone, tablet, desk phone and WebRTC enabled web browsers Work from anywhere, anytime 24

25 Mobile Network Integration IMS EPC VoLTE Handset SCF IN 3G 3G Handset HLR MSC 3G and VoLTE Support Interworks with IN through BroadWorks SCF IMS/GSMA Compliant VoLTE TAS and SCC-AS Full business services Traditional Business Calling Advanced UC Uses native dialer on phone UC-One client for advanced collaboration features Messaging, Presence, Service Management 25

26 Mobile Operators Focused on Business Market 2G / 3G Dokumentationsphase Präsentation 4G / LTE der Start with fixed-mobile convergance offer Add Unified Communications Same offer used with VoLTE 26

27 UC-One Openness The only truly open Unified Communications platform that allows service providers to customize their offers Access Devices Network Components Business Systems Vertical Applications Documented APIs Connectors Interoperability Testing WebRTC 27

28 Selected BroadSoft Partners Carrier Network Systems Communications Devices Applications Enterprise Equipment 28

29 Integration Enables Offer Differentiation Horizontal, business process integration WebRTC demonstration Vertical application integration Hospitality with SDD s JazzFusion 29

30 UC-One Go-To-Market Collaborating with customers to drive adoption of UC-One offers Customer Fulfillment Sales Enablement Demand Generation Market Offers Plan Launch Knowledge portal Consulting Launch support Co-op marketing Grow Co-op marketing Health check Consulting Extend Consulting 30

31 Telecom Italia Support Segment TI Top Account LE Users Mid Market Users SMB Users Micro Business Up to 10 Users Targeted at Telecom Italia s largest customers Hosted service sold with TI access Full UC product Sold direct and via channels TI SMB SMB service 50 seats or below Sold to ~1M small and micro businesses 31

32 Flexible Service Delivery Options Application Software Hosted by the service provider Licensed selling model Broad range of services Flexible to meet business needs White Label Services Hosted by BroadSoft Monthly Recurring Charges Fast time-to-market for UC Automated business process 32

33 BroadCloud Includes an Operationalized Business Process Designed to streamline the introduction and operation of brandable cloud services for service providers End-to-end business process solution Enables repeatable success Standardization for scale Automation for consistency and speed Customization for flexibility Simplification for use and support Operationalized Business Process 33

34 Integrated Operating and Billing Modules 1 Sales & Order Management 2 Service Deliver 3 Support 4 Billing Service Definition Customer Discovery Quoting Provisioning Customer Setup Tier 1 Support Customer Service Tier 2+ Technical Support Invoicing Credit & Accounts Receivable Qualify & Order 34

35 UC-One Vision Voice Mobility / BYOD Business- VoLTE Unified Communications Rich Team Collaboration Video Conferencing Persistent Project Rooms Huddle/Team Rooms Thin (WebRTC) Clients Call Recording B2C-B2B Strategic Verticals Integrated Business Applications Contact Centers CRMs , Contacts, Calendars File Sync and Sharing Printing / Faxing Project Management Federated Web Services Web Conferencing Web Hosting, ecommerce 35

36 BroadSoft Financials

37 Today s Agenda A View to 2014 Revenue and Billings Software SaaS Hosted UC & Sell-Through Business Model 2014 and Long Term 37

38 2014 Revenue Guidance Build-up ($ millions) Actual Guidance Y-Y Guidance Y-Y Product E Low % Growth 2014E High % Growth Software 94.4 $100 6% $104 10% SaaS % % Maintenance % 64 13% PS & Other % 19 29% TOTAL $206 15% $212 19% 38

39 Over the Long-Run, Billings Growth Approximates Revenue Growth Total Revenue & Billings Revenue & Billings by Product 39

40 Balanced BroadSoft 2013 Billings Dynamics Geographic Mix 1 Customer Diversity 1 Applications Mix 2 Customer Tiers Based on total billings 2 Based on software billings

41 Software Billings View CAGR = 24% CAGR = 33% CAGR = (13)% 41

42 Hosted Billings by Geography 42

43 Software Pricing 43

44 Today s Agenda A View to 2014 Revenue and Billings Software SaaS Hosted UC & Sell-Through Business Model 2014 and Long Term 44

45 BroadCloud Hosted UC growth CAGR = 130% Legacy direct-to-enterprise businesses were companies acquired primarily for technology and team; their solutions are being redirected to existing BSFT sell-through carrier model; expect current direct-to-enterprise revenue streams to be flat to down 45

46 Wholesale Cloud PBX Subscribers 46

47 Why Cloud Matters #1 Tier 2 Service Provider 47

48 Why Cloud Matters #2 Tier 1 Incumbent Service Provider 48

49 Why BroadCloud? Better for Service Providers Reduced IT implementation complexity Faster time-to-market and time-to-revenue (6 months vs 18 months+) Locked-in attractive margins regardless of size of customer base No internal resources required for upgrades and patches Optionality for transition to software model Better for BroadSoft Recurring revenue model Share-of-wallet higher given additional services provided (implementation, provisioning, customer support, etc). Potential faster time-to-revenue Limited incremental opex; leverage much of same sales/marketing, R&D and G&A as software business 49

50 Today s Agenda A View to 2014 Revenue and Billings Software SaaS Hosted UC & Sell-Through Business Model 2014 and Long Term 50

51 BroadSoft Hosted (Software + SaaS 1 ) Billings Growth CAGR = 28% 1 Hosted SaaS billings includes UC & Cloud PBX 51

52 Estimated BroadSoft-Powered Hosted Subscribers in Service at Year End 1 CAGR = 37% 1 BroadSoft internal estimate based on available customer data 52

53 Total Hosted UC Subscriber Bases 1 1 BroadSoft estimates as of March

54 Today s Agenda A View to 2014 Revenue and Billings Software SaaS Hosted UC & Sell-Through Business Model 2014 and Long Term 54

55 Gross Margin 1 Detail Long-term View US & EMEA Cloud PBX expansion investment 1 Non-GAAP figures 55

56 BroadCloud Gross Margin 1 Expectations 1 Non-GAAP figures 56

57 Operating Expense 1 Detail 2011 Op Margin = 26% 2012 Op Margin = 26% 2013 Op Margin = 21% 1 Cost of Sales, Operating Expense and Operating Margin are non-gaap figures 57 57

58 BroadSoft Best-in-Class in Operating Margin and R&D investment Based on publicly-disclosed information Based on 2013 full year results; operating margin and R&D percentages are based on non-gaap or non-ifrs figures Cisco CY 13 figures are for the four-quarter period ended January 2014 Ericsson operating margin figure is ex-jv contribution 58

59 Long Term Profit Model Long Term Non-GAAP* Non-GAAP** Model Gross Margin 83% 82% 80-83% Operating Expenses Operating Margin 57% 60% ~52-53% 26% 21% 28-30% * 2012 figures exclude stock compensation of $15.0M and amortization expense of $2.7M. ** 2013 figures exclude stock compensation of $41.7M and amortization expense of $3.9M. Note: Figures may not sum due to rounding 59.

60 Themes Hosted UC is our growth engine Sell-through data suggest business and service provider channel robust prior to any real market inflection point Our channel ownership provides us enormous leverage Cloud gives us profound opportunity Good for us and the service provider Very leverageable for us from an economic model perspective We already have as many end points as most of the OTT folks do Plan is to leverage Hosted UC growth while continuing strategic investments Gross margin in the 80 s Operating margin improvement as revenue growth > opex growth 60

61 Final Thoughts Unmatched scale and breadth of service provider customers Over 600 channel customers, including 19 of the 25 largest Customers in 76 countries The largest installed based of hosted end-customers Over 9 million hosted UC subscribers 1 Nearly 100,000 BroadCloud subscribers Creating a lucrative ecosystem for our customers Over $3 billion in annual run-rate service provider revenue (enterprise endcustomers) enabled by BSFT 2 1 BroadSoft estimates as of March 2014, based on available information 2 BroadSoft estimate based on subscriber counts and assumed average service provider ARPU 61

62 GAAP / Non-GAAP Reconciliation Years Ended December 31, (in thousands) GAAP license gross profit $ 71,212 $ 81,107 $ 85,167 (percent of related revenue) 92% 90% 90% Plus: Stock-based compensation expense ,098 Amortization of acquired intangible assets Non-GAAP license gross profit $ 72,247 $ 82,598 $ 87,121 (percent of related revenue) 93% 92% 92% GAAP subscription gross profit $ $ 514 $ 5,600 $ 10,817 (percent of related revenue) 31% 81% 86% Plus: Stock-based compensation expense ,584 Amortization of acquired intangible assets 590 1,721 3,023 Non-GAAP subscription gross profit $ $ (133) $ 3,518 $ 6,210 (percent of related revenue) (8%) 51% 50% GAAP maintenance support gross profit $ $ 33,377 $ 42,939 $ 48,544 (percent of related revenue) 82% 84% 85% Plus: Stock-based compensation expense ,079 Amortization of acquired intangible assets Non-GAAP maintenance support gross profit $ $ 33,100 $ 42,460 $ 47,465 (percent of related revenue) 81% 83% 84% GAAP professional services and other gross profit $ 9,835 $ 7,831 $ 3,957 (percent of related revenue) 54% 46% 27% Plus: Stock-based compensation expense ,100 Non-GAAP professional services and other gross profit $ 10,086 $ 8,270 $ 5,057 (percent of related revenue) 55% 49% 34% 62

63 GAAP / Non-GAAP Reconciliation Non-GAAP income from operations: Years Ended December 31, (in thousands) GAAP income from operations $ 27,436 $ 25,404 $ (7,337) (percent of total revenue) 20% 15% (4%) Plus: Stock-based compensation expense 7,201 15,022 41,684 Amortization of acquired intangible assets 1,295 2,660 3,879 Non-GAAP income from operations $ 35,932 $ 43,086 $ 38,226 (percent of total revenue) 26% 26% 21% GAAP operating expense $ 85,654 $ 106,952 $ 144,450 (percent of total revenue) 62% 65% 81% Less: Stock-based compensation expense 6,285 13,191 36,823 Non-GAAP operating expense $ 79,369 $ 93,761 $ 107,627 (percent of total revenue) 57% 60% GAAP sales and marketing expense $ $ 38,376 $ 47,911 $ 62,174 (percent of total revenue) 28% 29% 35% Less: Stock-based compensation expense 1,984 5,609 14,336 Non-GAAP sales and marketing expense $ 36,392 $ 42,302 $ 47,838 (percent of total revenue) 26% 26% 27% GAAP research and development expense $ 27,744 $ 36,178 $ 49,696 (percent of total revenue) 20% 22% 28% Less: Stock-based compensation expense 1,901 4,498 13,225 Non-GAAP research and development expense $ 25,843 $ 31,680 $ 36,471 (percent of total revenue) 19% 19% 20% GAAP general and administrative expense $ 19,534 $ 22,863 $ 32,580 (percent of total revenue) 19% 14% 18% Less: Stock-based compensation expense 2,400 3,084 9,262 Non-GAAP general and administrative expense $ 17,134 $ 19,779 $ 23,318 (percent of total revenue) 12% 12% 13% 63

64 GAAP / Non-GAAP Reconciliation Billings Year ended December 31, (in thousands) Beginning of period deferred revenue balance $ 14,687 $ 21,179 $ 40,047 $ 59,264 $ 57,136 $ 61,149 End of period deferred revenue balance 21,179 40,047 59,264 57,136 61,149 77,662 Increase (decrease) in deferred revenue 6,492 18,868 19,217 (2,128) 4,013 16,513 Revenue 61,830 68,887 95, , , ,494 Revenue plus net change in deferred revenue $ 68,322 $ 87,755 $ 114,840 $ 135,936 $ 168,855 $ 195,007 64

65 GAAP / Non-GAAP Reconciliation (cont d) License Software Billings Year ended December 31, (in thousands) Beginning of period deferred license software revenue balance $ 19,563 $ 25,628 $ 20,608 $ 18,375 End of period deferred license software revenue balance 25,628 20,608 18,375 20,149 Increase (decrease) in deferred license software revenue 6,065 (5,021) (2,233) 1,774 License software revenue 53,302 77,289 89,750 94,408 License software revenue plus net change in deferred license software revenue $ 59,367 $ 72,268 $ 87,517 $ 96,182 Year ended December 31, Subscriptions & Maintenance Support Billings (in thousands) Beginning of period deferred subscription & maintenance support revenue balance $ 14,802 $ 23,324 $ 29,288 $ 35,853 End of period deferred subscription & maintenance support revenue balance 23,324 29,288 35,853 46,975 Increase (decrease) in deferred subscription & maintenance support revenue 8,523 5,964 6,565 11,122 Subscription & maintenance support revenue 33,743 42,462 58,249 69,357 Subscription & maintenance support revenue plus net change in deferred subscription & maintenance support revenue $ 42,266 $ 48,426 $ 64,814 $ 80,479 Year ended December 31, Professional Services and Other Billings (in thousands) Beginning of period deferred professional services and other revenue balance $ 5,682 $ 10,311 $ 7,240 $ 6,921 End of period deferred professional services and other revenue balance 10,311 7,240 6,921 10,538 Increase (decrease) in deferred professional services and other revenue 4,629 (3,071) (319) 3,617 Professional services and other revenue 8,578 18,313 16,843 14,728 Professional services and other revenue plus net change in deferred professional services and other revenue $ 13,207 $ 15,242 $ 16,524 $ 18,345

66 GAAP / Non-GAAP Reconciliation (cont d) NOTE: With respect to non-gaap operating expenses and cost of sales for the full year 2014 appearing on slides 55, 56 and 57, a reconciliation of estimated non- GAAP operating expenses and cost of sales to GAAP operating expenses and cost of sales, respectively, 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 that are excluded from these non-gaap measures. In particular, the measures and effects of stock-based compensation expense specific to equity compensation awards are directly impacted by, among other things, unpredictable fluctuations in our stock price. We expect compensation expense to have a significant, and potentially unpredictable, impact on our future GAAP financial results. 66