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BroadSoft Bucks Trend, Invests Boldly

Not only has BroadSoft attracted carrier investment while others have suffered, it has opened its wallet to capitalize further

August 7, 2012

2 Min Read
BroadSoft Bucks Trend, Invests Boldly

BroadSoft Inc. is one of the few telecom sector companies enjoying the summer season. It has reported very healthy financials, seen its share price rocket and has snapped up a company set to make it even more attractive to its communications service provider (CSP) customers.

First, the financials. BroadSoft reported second-quarter revenues of US$40.5 million and earnings after one-time costs (aka non-GAAP earnings) of $0.33 per share, much better than the $37.3 million and $0.21 per share expected by financial analysts. (See BroadSoft Posts $2.4M Q2 Profit.)

While it's improving sales across the board, the company has performed particularly well in the unified communications (UC) sector, where its BroadWorks platform is used by CSPs to offer managed or hosted UC services to all sizes of business users. (See Swisscom Offers Unified Comms.)

The company has also improved its financial guidance for the year, now setting its sights on 2012 revenues of $162 million to $167 million and non-GAAP earnings of $1.30 to $1.40 per share: Analysts had been expecting $161 million and $1.25, respectively.

All that positive news gave BroadSoft's share price a massive 32.3 percent boost in early trading Tuesday to $36.90.

In addition, there are two developments worth noting.

Capex magnet
First, BroadSoft has thrived during a period of capex uncertainty and has done particularly well in Europe, where operators are currently reluctant to splash their cash. BroadSoft's second-quarter revenues in Europe, Middle East and Africa (EMEA) doubled compared with a year ago to $9.76 million.

Why is BroadSoft bucking the trend? Jefferies & Company Inc. analyst George Notter says in a research note issued Tuesday that "carriers are spending capital where that investment comes alongside new revenue for the service provider. We believe this is precisely the case for Broadsoft's BroadWorks business."

Strategic acquisition
Second, BroadSoft has acquired hosted IP services system specialist Adaption Technologies Ventures Ltd. for $22 million in cash. Adaption's Service Provider Information Technology (SPIT) software will help BroadSoft add its BroadWorks UC capabilities to its BroadCloud Software-as-a-Service (SaaS) platform. This move, reckons BroadSoft, will enable service providers to "more quickly sell, provision, activate and bill for their hosted Unified Communications services." (See BroadSoft Acquires Adaption Technologies.)

This doesn't look like a gamble for BroadSoft, even though it has paid $22 million for a company with a current annual revenue run rate of around $3 million (a multiple of seven times sales -- that's high). Adaption and BroadSoft have already been deployed together at a couple of service providers, so BroadSoft already knows how Adaption's software can help its customers in what is clearly a high-growth niche.

— Ray Le Maistre, International Managing Editor, Light Reading

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