UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2013

OR

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 333-170936

ASPECT SOFTWARE GROUP HOLDINGS LTD.

(Exact name of registrant as specified in its charter)

Cayman Islands	98-0587778
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

300 Apollo Drive

Chelmsford, Massachusetts 01824

(Address of principal executive offices) (Zip code)

Telephone Number: Telephone: (978) 250-7900

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  ý    No  ¨

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  ý    No  ¨

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 “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

The following number of shares of each of the registrant’s classes of common shares were outstanding as of July 31, 2013:

Title	Outstanding
Class L voting ordinary shares	179,539,840
Class L non-voting ordinary shares	33,536,001
Class A-1 non-voting ordinary shares	10,548,786
Class A-2 non-voting ordinary shares	6,497,954

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TABLE OF CONTENTS

		Page
Part I	Financial Information:
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2013 and 2012	4
	Condensed Consolidated Statement of Shareholders’ Deficit for the Six Months Ended June 30, 2013	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
Part II	Other Information:
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 6.	Exhibits	25
	Signatures	26

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Aspect Software Group Holdings Ltd.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except par value and share amounts)	June 30, 2013			December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	84,414		$	82,365
Accounts receivable, net	45,323			54,042
Deferred tax assets	1,066			2,798
Other current assets	20,499			20,901
Total current assets	151,302			160,106
Property, plant, and equipment, net	14,917			12,559
Intangible assets, net	20,137			37,635
Goodwill	639,592			640,399
Other assets	20,954			24,707
Total assets	$	846,902		$	875,406
Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable	$	6,440		$	8,573
Current portion of long-term debt (1)	23,475			—
Accrued liabilities	44,450			57,732
Deferred revenues	92,108			82,174
Total current liabilities	166,473			148,479
Deferred tax liabilities	24,806			28,239
Long-term deferred revenue	6,094			7,145
Long-term debt (2)	678,000			711,463
Other long-term liabilities	34,328			36,956
Total liabilities	909,701			932,282
Commitments and contingencies (Note 9)
Shareholders’ deficit:
Ordinary shares, $0.00001 par value: 1,000,000,000 shares authorized, 235,065,951 shares issued	4			4
Additional paid-in capital	14,565			14,205
Treasury shares, at cost, 4,943,370 shares	(4,918		)	(4,918		)
Note receivable for purchase of ordinary shares	(425		)	(425		)
Accumulated other comprehensive loss	(4,065		)	(4,142		)
Accumulated deficit	(67,960		)	(61,600		)
Total shareholders’ deficit	(62,799		)	(56,876		)
Total liabilities and shareholders’ deficit	$	846,902		$	875,406

(1) $3.5 million held by a minority shareholder as of June 30, 2013 —see Note 10.

(2) $40.0 million and $50.0 million held by a related party as of June 30, 2013 and December 31, 2012, respectively. $3.5 million held by a minority shareholder as of December 31, 2012 - see Note 10.

See accompanying notes.

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Aspect Software Group Holdings Ltd.

Condensed Consolidated Statements of Operations (unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2013			2012			2013			2012
Net revenues:
Product revenue	$	13,914		$	13,361		$	32,108		$	33,744
Maintenance revenue	65,562			71,000			131,910			143,163
Services revenue	20,874			22,551			40,953			44,709
Total net revenues	100,350			106,912			204,971			221,616
Cost of revenues:
Cost of product revenue	4,548			7,170			9,531			12,795
Cost of maintenance revenue	16,821			18,719			34,988			37,984
Cost of services revenue	17,295			18,737			34,023			37,218
Amortization expense for acquired intangible assets	1,337			1,337			2,674			2,874
Total cost of revenues	40,001			45,963			81,216			90,871
Gross profit	60,349			60,949			123,755			130,745
Operating expenses:
Research and development	11,632			10,025			23,852			19,661
Selling, general and administrative	31,089			31,488			60,605			62,673
Amortization expense for acquired intangible assets	7,508			7,663			14,691			15,445
Restructuring charges (credits)	—			1,105			(46		)	2,335
Total operating expenses	50,229			50,281			99,102			100,114
Income from operations	10,120			10,668			24,653			30,631
Interest and other expense, net	(15,598		)	(16,826		)	(32,108		)	(34,571		)
Loss before income taxes	(5,478		)	(6,158		)	(7,455		)	(3,940		)
(Benefit from) provision for income taxes	(79		)	4,305			(1,095		)	4,762
Net loss	$	(5,399	)	$	(10,463	)	$	(6,360	)	$	(8,702	)

Aspect Software Group Holdings Ltd.

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2013			2012			2013			2012
Net loss	$	(5,399	)	$	(10,463	)	$	(6,360	)	$	(8,702	)
Change in cumulative translation adjustment	445			(935		)	77			323
Comprehensive loss	$	(4,954	)	$	(11,398	)	$	(6,283	)	$	(8,379	)

See accompanying notes.

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Aspect Software Group Holdings Ltd.

Condensed Consolidated Statements of Shareholders’ Deficit (unaudited)

(In Thousands, Except Share Amounts)

	Ordinary Shares			Additional Paid-In Capital		Treasury Stock					Notes Receivable			Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total
	Shares	Par Value				Shares		Cost
Balance at December 31, 2012	235,065,951	$	4	$	14,205	(4,943,370	)	$	(4,918	)	$	(425	)	$	(4,142	)	$	(61,600	)	$	(56,876	)
Net loss	—	—		—		—		—			—			—			(6,360		)	(6,360		)
Foreign currency translation adjustments, net of tax	—	—		—		—		—			—			77			—			77
Stock-based compensation expense	—	—		360		—		—			—			—			—			360
Balance at June 30, 2013	235,065,951	$	4	$	14,565	(4,943,370	)	$	(4,918	)	$	(425	)	$	(4,065	)	$	(67,960	)	$	(62,799	)

See accompanying notes.

5

Aspect Software Group Holdings Ltd.

Condensed Consolidated Statements of Cash Flows (unaudited)

	Six Months Ended
	June 30,
(in thousands)	2013			2012
Cash flows from operating activities:
Net loss	$	(6,360	)	$	(8,702	)
Reconciliation of net loss to net cash and cash equivalents provided by operating activities:
Depreciation	3,458			3,616
Amortization expense for acquired intangible assets	17,365			18,319
Non-cash interest expense	2,389			1,991
Non-cash compensation expense	360			573
Increase to accounts receivable allowances	372			594
Deferred income taxes	(1,696		)	17,233
Changes in operating assets and liabilities:
Accounts receivable	7,506			13,478
Other current assets and other assets	3,518			1,184
Accounts payable	(2,100		)	(7,411		)
Accrued liabilities and other liabilities	(14,578		)	(28,245		)
Deferred revenues	10,277			22,975
Net cash and cash equivalents provided by operating activities	20,511			35,605
Cash flows from investing activities:
Purchases of property and equipment	(5,915		)	(2,710		)
Purchase of investment	(1,930		)	—
Net cash and cash equivalents used in investing activities	(7,845		)	(2,710		)
Cash flows from financing activities:
Repayment of borrowings	(10,000		)	(28,250		)
Net cash and cash equivalents used in financing activities	(10,000		)	(28,250		)
Effect of exchange rate changes on cash	(617		)	206
Net increase in cash and cash equivalents	2,049			4,851
Cash and cash equivalents:
Beginning of period	82,365			141,339
End of period	$	84,414		$	146,190
Supplemental disclosure of cash flow information
Cash paid for interest	$	32,697		$	31,396
Cash paid for income taxes	$	1,427		$	2,716

See accompanying notes.

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Aspect Software Group Holdings Ltd.

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1—DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND RECENT ACCOUNTING STANDARDS

Description of Business

Aspect Software Group Holdings Ltd., a Cayman Islands company, (together with its subsidiaries, “Aspect Software” or the “Company”), provides multi-channel customer contact and Microsoft platform solutions to bring people and information together to improve the customer experience. The Company’s technologies streamline and enhance customer-facing business processes by optimizing workflows and automating smarter business processes across the contact center and related functions. The Company offers the business and technology expertise to bring Microsoft SharePoint, CRM and Lync platforms together with unified multi-channel communications and effective people management to enrich customer interactions.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the financial information reflects all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the financial position, results of operations, and cash flows of the Company for the periods presented. The results of operations for the three and six months ended June 30, 2013, are not necessarily indicative of the results to be expected for the full year or any future periods. For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K (File No. 333-170936). The accompanying condensed consolidated financial statements include amounts of Aspect Software Group Holdings Ltd. and its wholly owned subsidiaries. All intercompany amounts have been eliminated in consolidation.

Recent Accounting Standards

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 2—REVENUE RECOGNITION

The Company derives its revenue primarily from two sources: (i) product revenues, which typically include perpetual software licenses and hardware, and (ii) service revenues, which include software license updates and product support, installation, consulting, and education. Revenues from products and services have been derived from sales to end users through the Company's direct sales force, distributors, and resellers.

The Company recognizes revenue from the sale of software licenses and hardware (the “Product”) when persuasive evidence of an arrangement exists, the Product has been delivered, the fee is fixed or determinable, and collection of the resulting receivable is probable. Revenue recognition for software licenses with multiple-element arrangements requires recognition of revenue using the residual method. Under the residual method, the portion of the total arrangement fee attributable to undelivered elements is deferred based upon its vendor-specific objective evidence (“VSOE”) of fair value, or the stated amount if higher, and subsequently recognized as the service is delivered. The difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements, which is generally Product.

Certain of the Company's multiple-element arrangements include software and hardware components that function together to deliver the product's essential functionality. When these software and non-software elements are sold together, the Company believes the arrangements meet the scope exception in Accounting Standards Codification 985-605, Software Revenue Recognition, (“ASC 985-605) because of (i) the infrequency of the tangible product's sale without a software element, (ii) the degree of integration between the tangible product and the software element, which is considered significant and (iii) the non-software element of the tangible product's substantive contributions to the tangible product's essential functionality. For these multiple-element arrangements, the Company allocates the total arrangement fee to all deliverables based on a selling price hierarchy. The selling price for a deliverable is based on VSOE, if available, third party evidence (“TPE), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. The Company generally expects that it will not be able to establish TPE due to the nature of the products sold and the markets in which it competes, and therefore relies

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upon VSOE or ESP in allocating the arrangement's arrangement fee. Once the arrangement fee has been allocated to each deliverable, revenue is recognized as each item is delivered.

VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. The Company has established VSOE for support and maintenance services, certain professional services, and education services.

ESP reflects the Company's best estimate of what the selling prices of elements would be if they were sold regularly on a standalone basis. ESP is based upon all reasonably available information including both market data and conditions and entity-specific factors. These factors include market trends and competitive conditions, product maturity, differences related to geography, distribution channel, deal size, and cumulative customer purchases. The Company has established ESP for software licenses and hardware and reviews them annually or more frequently when a significant change in the Company's business or selling practices occurs.

Delivery generally occurs when the Product is delivered to a common carrier at the Company's loading dock unless title and risk of loss transfers upon delivery to the customer. In sales transactions through a distributor or reseller, the Company generally recognizes revenues upon shipment to the distributor, reseller or identified end user, as applicable.

At the time of the Product sale, the Company assesses whether the fee associated with the revenue transaction is fixed or determinable and whether collection is probable. The assessment of whether the fee is fixed or determinable is based in part on the payment terms associated with the transaction. If any portion of a fee is due beyond the Company's normal payment terms, the Company evaluates the specific facts and circumstances to determine if the fee is fixed or determinable. If it is determined that the fee is not fixed or determinable, the Company recognizes revenue as the fees become due. If the Company determines that collection of a fee is not probable, then the Company will defer the entire fee and recognize revenue upon receipt of cash.

Product revenue for software licenses sold on a perpetual basis, along with hardware, is recognized at the inception of the arrangement, presuming all other relevant revenue recognition criteria are met. Product revenue for software sold on a non-perpetual basis (Rental or Subscription) is recognized ratably over the license term.

In connection with the sale of its software licenses, the Company sells support and maintenance services, which are recognized ratably over the term of the arrangement, typically one year. Under support and maintenance services, customers receive unspecified software product upgrades, maintenance and patch releases during the term, as well as internet and telephone access to technical support personnel.

Many of the Company's software arrangements also include professional services for consulting and implementation sold under separate agreements. Professional services revenue from these arrangements is generally accounted for separately from the software license because the services qualify as a separate element under ASC 985-605. The more significant factors considered in determining whether professional services revenue should be accounted for separately include (i) the nature of the services and whether they are essential to the functionality of the licensed product, (ii) the degree of risk, (iii) the availability of services from other vendors, (iv) the timing of payments and (v) the impact of milestones or acceptance criteria on the realizability of the software license fee. Professional services revenue under these arrangements, as well as when sold on a standalone basis, is generally recognized as the services are performed.

The Company recognizes revenue associated with education as these services are performed.

Deferred revenues primarily represent payments received from customers for software licenses and updates, hardware, product support, installation services, and educational services prior to satisfying the revenue recognition criteria related to those payments.

The Company records its estimate for customer returns or other customer allowances as a reduction in revenues. In determining the Company’s revenue reserve estimate, and in accordance with internal policy, the Company relies on historical data and known returned goods in transit. These factors, and unanticipated changes in the economic and industry environment, could cause the Company’s return estimates to differ from actual results.

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NOTE 3—EQUITY

Stock-based compensation expense is reflected within the Company’s condensed consolidated statements of operations as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Cost of services	$	5	$	6	$	79	$	14
Research and development	8		6		83		11
Selling, general and administrative	46		424		198		548
Total	$	59	$	436	$	360	$	573

NOTE 4—FAIR VALUE

Financial Assets and Liabilities Recorded at Fair Value

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of June 30, 2013 (in thousands):

	Total Fair Value		Quoted Prices in Active Markets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents	$	84,414	$	84,414	$	—	$	—
Interest rate cap	—		—		—		—

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of December 31, 2012 (in thousands):

	Total Fair Value		Quoted Prices in Active Markets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents	$	82,365	$	82,365	$	—	$	—
Interest rate cap	—		—		—		—
Liabilities
Accrued restructuring—facilities	$	59	$	—	$	59	$	—

During 2012 and in prior years, the Company recorded accruals associated with exiting all or portions of certain leased facilities which are measured on a non-recurring basis. The Company estimates the fair value of such liabilities, which are discounted to net present value at an assumed risk-free interest rate, based on observable inputs, including the remaining payments required under the existing lease agreements, utilities costs based on recent invoice amounts, and potential sublease receipts based on market conditions and quoted market prices for similar sublease arrangements.

Financial Assets and Liabilities Not Recorded at Fair Value

The estimated fair values of the amounts borrowed under the Company's debt obligations were based on a Level 2 input using quotes from third-party banks for the Company's debt which is subject to infrequent transactions (i.e. a less active market). As of June 30, 2013 and December 31, 2012, the Company's first lien credit facility had a fair value of approximately $402.3 million and $415.1 million, respectively. As of June 30, 2013 and December 31, 2012, the Company's senior second lien notes had a fair value of approximately $295.0 million and $267.0 million, respectively. The fair value of the Company's unsecured note payable to a minority shareholder approximates book value as of June 30, 2013 and December 31, 2012.

On February 4, 2013 the Company purchased 1,712,392 ordinary shares of eg solutions plc. ("eg"), a back office optimization software company in the United Kingdom at a cost of approximately £1.25 million, or $1.9 million. The Company concurrently

9

entered into a reseller agreement which grants Aspect the right to market and distribute eg's products and services in all territories with exclusivity rights in all territories other than Europe, Middle East and Africa. The Company must achieve minimum annual revenue targets to maintain the exclusivity rights and was issued a conditional warrant to purchase up to 400,000 shares at a price of 0.79 pence per share based upon annual revenue levels within the first two years of the agreement. The Company has recorded the acquired shares at cost and will account for this investment under the equity method. Under this method, we will record our proportionate share of eg’s net income or loss based on the most recently available financial statements.

NOTE 5—DERIVATIVES

The Company’s first lien credit facility requires that the Company enter into one or more hedge instrument agreements for a minimum period of three years on fifty percent of the principal within 180 days of the debt refinancing. The Company purchased a one year LIBOR interest rate cap at 5% in the second quarter of 2012 as well as a two year LIBOR interest rate cap at 5% in the third quarter of 2010.

The interest rate caps do not qualify for hedge accounting, and as a result, the Company recognizes changes in fair value of the caps as an asset or liability with an offsetting amount recorded as interest income or expense in the condensed consolidated statements of operations. The Company utilizes observable inputs to determine the fair value of its interest rate caps and has recorded a loss of approximately $18 thousand and $19 thousand for the three and six months ended June 30, 2012, respectively. The Company did not record a gain or loss for the three and six months ended June 30, 2013.

Derivatives held by the Company as of June 30, 2013 are as follows (in thousands):

Instrument	Notional Amount		Effective Date	Expiration Date	Fixed Rate		Fair Value
Interest rate cap	$	250,000	November 7, 2012	November 7, 2013	5.0	%	$	—

NOTE 6—GOODWILL

Changes in the carrying amount of goodwill are as follows (in thousands):

Balance as of December 31, 2012	$	640,399
Foreign currency translation	43
Adjustments (1)	(850		)
Balance as of June 30, 2013	$	639,592

(1) The reduction to goodwill relates to certain adjustments in connection with finalizing estimates for purchase price allocation for acquisitions.

NOTE 7—INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes. The Company’s benefit from income taxes was $0.1 million on a loss before income taxes of $5.5 million, resulting in an effective tax rate of 1.4% for the second quarter of 2013. The Company's benefit from income taxes was $1.1 million on a loss before income taxes of $7.5 million, resulting in an effective tax rate of 14.7% for the first six months of 2013. For the second quarter of 2013, the effective tax rate differs from the statutory rate primarily due to foreign operations in lower tax jurisdictions, partially offset by an increase in the valuation allowance placed against our US deferred tax assets. For the first six months of 2013, the effective tax rate differs from the statutory rate primarily due to foreign operations in lower tax jurisdictions, the release of tax reserves and the benefit recorded for the 2012 research and development credit. These benefits were partially offset by an increase in the valuation allowance placed against our U.S. deferred tax assets.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2013 and December 31, 2012, the Company had accrued approximately $8.4 million and $8.5 million, respectively for potential interest and penalties related to uncertain tax positions.

The Company evaluates the recoverability of deferred tax assets by weighing all available evidence to arrive at a conclusion as to whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. Significant judgment is required to evaluate the weight of the positive and negative evidence. When assessing the recoverability of the deferred tax assets, the Company considers:

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• The nature and frequency of cumulative financial reporting losses in recent years

• Future reversals of existing taxable temporary differences

• Future taxable income exclusive of reversing temporary differences

• Tax planning strategies that the Company would consider implementing, if needed

Based on the Company's analysis, it has concluded that it is more likely than not that some of the deferred tax assets will expire unutilized. Therefore, the Company has provided a valuation allowance against a portion of the deferred tax assets. The Company believes it is more likely than not that the remaining deferred tax assets will be realized based on future reversals of taxable temporary differences and income tax in carryback periods. The Company believes that the valuation allowance against the deferred tax assets will increase by $7.4 million during 2013 as a result of losses generated in the current year. The amount of the deferred tax assets considered realizable, however, could be adjusted if prudent and feasible tax planning strategies are developed or if objective negative evidence in the form of cumulative losses is no longer present.

The tax years 2009 and forward remain open to federal examination and the Company has filed refund claims for tax years 2006 through 2008 whereby the statute of limitations remains open for these years to the extent of the requested refund. Tax years 2007 and forward remain open to state and international examination in most jurisdictions.

NOTE 8—RESTRUCTURING

Components of the restructuring accrual were as follows (in thousands):

	Severance and Outplacement			Consolidation of Facilities Costs			Total
Balance as of December 31, 2012	$	58		$	59		$	117
Provisions	(46		)	—			(46		)
Payments and adjustments	(12		)	(59		)	(71		)
Balance as of June 30, 2013	$	—		$	—		$	—

NOTE 9—CONTINGENCIES

Litigation

The Company, from time to time, is party to litigation arising in the ordinary course of its business. Management does not believe that the outcome of these claims will have a material adverse effect on the consolidated financial condition of the Company based on the nature and status of proceedings at this time.

At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. Legal costs are expensed as incurred.

NOTE 10—RELATED PARTY TRANSACTIONS

The Company incurred advisory fees from its majority shareholder totaling $0.5 million for the three months ended June 30, 2013 and 2012, and $1.0 million for the six months ended June 30, 2013 and 2012. The fees related to management and advisory services rendered in connection with a consulting agreement entered into by both parties. The advisory fees are included in general and administrative expenses in the accompanying condensed consolidated statements of operations, with a related accrued expense amount of $0.5 million and $1.5 million as of June 30, 2013 and December 31, 2012, respectively.

The Company invoiced a minority shareholder $0.1 million and $0.2 million during the three and six months ended June 30, 2012 for product and services provided to the minority shareholder. The Company did not invoice the minority shareholder during the six months ended June 30, 2013. Additionally, the Company had $3.5 million of debt outstanding which was held by the minority shareholder at June 30, 2013 and December 31, 2012.

As of June 30, 2013 and December 31, 2012, approximately $40.0 million and $50.0 million, respectively, of the second lien credit facility was held by a corporation owned by certain Class L shareholders and to which the Company paid semi-annual interest of $2.1 million and $2.7 million during the six months endedJune 30, 2013 and 2012, respectively. The Company had accrued interest expense of approximately $0.5 million and $0.7 million related to certain Class L shareholders' second lien credit facility holdings as of June 30, 2013 and December 31, 2012, respectively.

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NOTE 11—SUBSEQUENT EVENTS

On July 2, 2013, Aspect Software, Inc. (as borrower), the Company's domestic operating subsidiary, entered into an Amendment to the Credit Agreement dated as of May 7, 2010, as amended on November 14, 2012 (as amended, the “Credit Facility”) with a syndicate of bank lenders and J.P. Morgan Chase Bank, N.A as administrative agent and issuing bank. The facility is guaranteed by certain direct and indirect parents and all domestic subsidiaries.

The amended Credit Facility maintains the $403.0 million senior secured term loan and a $30.0 million senior secured revolving facility, both maturing on May 7, 2016. The amended Credit Facility also provides an $85.0 million incremental delayed draw senior secured term loan facility (“Delayed Draw Facility”). The Delayed Draw Facility will bear interest at a rate consistent with the Company's senior secured term loan and senior secured revolving facility. Upon funding of the Delayed Draw Facility, certain terms relating to principal payments, capital expenditures, and covenants will be reset. The amendment resulted in fees that totaled approximately $3.9 million and the Delayed Draw Facility was funded at a 1% original issue discount. The Company utilized the Delayed Draw Facility to fund a subsequent acquisition discussed in more detail below.

On July 4, 2013, Aspect Software Inc., a Delaware corporation (“Aspect”), Voice Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Aspect (“Merger Sub”), and Voxeo Corporation, a Delaware corporation (“Voxeo”), entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will merge with and into Voxeo, with Voxeo becoming a wholly owned subsidiary of Aspect (the “Merger”). The purchase price was $145 million, subject to customary adjustments for items such as working capital, cash, and certain specified payments. A portion of the purchase price was set aside to satisfy certain indemnification obligations. The Merger was consummated on July 25, 2013 with the purchase price funded by the Delayed Draw Facility, an additional issuance of $25.0 million of senior secured second lien notes and the Company's excess cash.

The Company has evaluated all subsequent events and determined that there are no other material recognized or unrecognized subsequent events requiring disclosure.

12

NOTE 12—SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIALS

The Company’s debt issued in May 2010 is fully and unconditionally and jointly and severally guaranteed by Aspect Software Group Holdings Ltd. (“Parent”) and each of its domestic subsidiaries. Aspect Software Inc. is the issuer of the Company’s debt. Each of the guarantor subsidiaries is 100% owned, directly or indirectly by Aspect Software Group Holdings Ltd. The following represents the supplemental condensed financial information of Aspect Software Group Holdings Ltd. and its guarantor and non-guarantor subsidiaries, as of June 30, 2013 and December 31, 2012, and for the three and six months ended June 30, 2013 and 2012.

Supplemental Condensed Consolidating Balance Sheet (unaudited)

June 30, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1,528		$	12,328		$	70,558	$	—		$	84,414
Accounts receivable, net	—			55,432			22,575		(32,684		)	45,323
Deferred tax assets	—			48			1,018		—			1,066
Other current assets	—			14,936			5,563		—			20,499
Total current assets	1,528			82,744			99,714		(32,684		)	151,302
Property, plant, and equipment, net	—			12,872			2,045		—			14,917
Intangible assets, net	—			14,861			5,276		—			20,137
Goodwill	—			630,800			8,792		—			639,592
Investment in subsidiaries	(62,023		)	50,085			—		11,938			—
Other assets	243			12,218			8,493		—			20,954
Total assets	$	(60,252	)	$	803,580		$	124,320	$	(20,746	)	$	846,902
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	2,547		$	10,010		$	26,567	$	(32,684	)	$	6,440
Current portion of long-term debt	—			23,475			—		—			23,475
Accrued liabilities	—			37,156			7,294		—			44,450
Deferred revenues	—			66,429			25,679		—			92,108
Total current liabilities	2,547			137,070			59,540		(32,684		)	166,473
Deferred tax liabilities	—			23,776			1,030		—			24,806
Long-term deferred revenue	—			4,664			1,430		—			6,094
Long-term debt	—			678,000			—		—			678,000
Other long-term liabilities	—			22,093			12,235		—			34,328
Total liabilities	2,547			865,603			74,235		(32,684		)	909,701
Total shareholders’ (deficit) equity	(62,799		)	(62,023		)	50,085		11,938			(62,799		)
Total liabilities and shareholders’ (deficit) equity	$	(60,252	)	$	803,580		$	124,320	$	(20,746	)	$	846,902

13

Supplemental Condensed Consolidating Balance Sheet (unaudited)

December 31, 2012

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1,527		$	11,093		$	69,745	$	—		$	82,365
Accounts receivable, net	—			55,671			23,280		(24,909		)	54,042
Deferred tax assets	—			1,780			1,018		—			2,798
Other current assets	—			14,961			5,940		—			20,901
Total current assets	1,527			83,505			99,983		(24,909		)	160,106
Property, plant, and equipment, net	—			10,475			2,084		—			12,559
Intangible assets, net	—			31,580			6,055		—			37,635
Goodwill	—			633,036			7,363		—			640,399
Investment in subsidiaries	(56,184		)	42,647			—		13,537			—
Other assets	228			18,074			6,405		—			24,707
Total assets	$	(54,429	)	$	819,317		$	121,890	$	(11,372	)	$	875,406
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	2,447		$	9,494		$	21,541	$	(24,909	)	$	8,573
Current portion of long-term debt	—			—			—		—			—
Accrued liabilities	—			43,040			14,692		—			57,732
Deferred revenues	—			57,406			24,768		—			82,174
Total current liabilities	2,447			109,940			61,001		(24,909		)	148,479
Deferred tax liabilities	—			27,181			1,058		—			28,239
Long-term deferred revenue	—			5,409			1,736		—			7,145
Long-term debt	—			711,463			—		—			711,463
Other long-term liabilities	—			21,508			15,448		—			36,956
Total liabilities	2,447			875,501			79,243		(24,909		)	932,282
Total shareholders’ (deficit) equity	(56,876		)	(56,184		)	42,647		13,537			(56,876		)
Total liabilities and shareholders’ (deficit) equity	$	(54,429	)	$	819,317		$	121,890	$	(11,372	)	$	875,406

14

Supplemental Condensed Consolidating Statement of Operations (unaudited)

For the Three Months Ended June 30, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	68,754		$	35,407		$	(3,811	)	$	100,350
Cost of revenues	—			29,596			14,216			(3,811		)	40,001
Gross profit	—			39,158			21,191			—			60,349
Operating expenses:
Research and development	—			9,655			1,977			—			11,632
Selling, general and administrative	50			21,193			9,846			—			31,089
Amortization expense for acquired intangible assets	—			7,239			269			—			7,508
Total operating expenses	50			38,087			12,092			—			50,229
(Loss) income from operations	(50		)	1,071			9,099			—			10,120
Interest and other income (expense), net	8			(13,389		)	(2,217		)	—			(15,598		)
(Loss) income before income taxes	(42		)	(12,318		)	6,882			—			(5,478		)
Provision for (benefit from) income taxes	—			662			(741		)	—			(79		)
Equity in (losses) earnings of subsidiaries	(5,357		)	7,623			—			(2,266		)	—
Net (loss) income	$	(5,399	)	$	(5,357	)	$	7,623		$	(2,266	)	$	(5,399	)

For the Three Months Ended June 30, 2012

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	75,204		$	36,945		$	(5,237	)	$	106,912
Cost of revenues	—			37,155			14,045			(5,237		)	45,963
Gross profit	—			38,049			22,900			—			60,949
Operating expenses:
Research and development	—			8,644			1,381			—			10,025
Selling, general and administrative	41			19,448			11,999			—			31,488
Amortization expense for acquired intangible assets	—			7,403			260			—			7,663
Restructuring charges	—			1,169			(64		)	—			1,105
Total operating expenses	41			36,664			13,576			—			50,281
(Loss) income from operations	(41		)	1,385			9,324			—			10,668
Interest and other income (expense), net	8			(11,808		)	(5,026		)	—			(16,826		)
(Loss) income before income taxes	(33		)	(10,423		)	4,298			—			(6,158		)
Provision for (benefit from) income taxes	—			5,153			(848		)	—			4,305
Equity in (losses) earnings of subsidiaries	(10,430		)	5,146			—			5,284			—
Net (loss) income	$	(10,463	)	$	(10,430	)	$	5,146		$	5,284		$	(10,463	)

15

Supplemental Condensed Consolidating Statement of Operations (unaudited)

For the Six Months Ended June 30, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	139,689		$	75,523		$	(10,241	)	$	204,971
Cost of revenues	—			60,251			31,206			(10,241		)	81,216
Gross profit	—			79,438			44,317			—			123,755
Operating expenses:
Research and development	—			19,861			3,991			—			23,852
Selling, general and administrative	100			41,125			19,380			—			60,605
Amortization expense for acquired intangible assets	—			14,152			539			—			14,691
Restructuring charges	—			(44		)	(2		)	—			(46		)
Total operating expenses	100			75,094			23,908			—			99,102
(Loss) income from operations	(100		)	4,344			20,409			—			24,653
Interest and other income (expense), net	16			(17,804		)	(14,320		)	—			(32,108		)
(Loss) income before income taxes	(84		)	(13,460		)	6,089			—			(7,455		)
Provision for (benefit from) income taxes	—			622			(1,717		)	—			(1,095		)
Equity in (losses) earnings of subsidiaries	(6,276		)	7,806			—			(1,530		)	—
Net (loss) income	$	(6,360	)	$	(6,276	)	$	7,806		$	(1,530	)	$	(6,360	)

For the Six Months Ended June 30, 2012

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	154,524		$	80,126		$	(13,034	)	$	221,616
Cost of revenues	—			71,305			32,600			(13,034		)	90,871
Gross profit	—			83,219			47,526			—			130,745
Operating expenses:
Research and development	—			17,095			2,566			—			19,661
Selling, general and administrative	82			39,420			23,171			—			62,673
Amortization expense for acquired intangible assets	—			14,909			536			—			15,445
Restructuring charges	—			1,531			804			—			2,335
Total operating expenses	82			72,955			27,077			—			100,114
(Loss) income from operations	(82		)	10,264			20,449			—			30,631
Interest and other income (expense), net	16			(27,014		)	(7,573		)	—			(34,571		)
(Loss) income before income taxes	(66		)	(16,750		)	12,876			—			(3,940		)
Provision for income taxes	—			5,378			(616		)	—			4,762
Equity in earnings of subsidiaries	(8,636		)	13,492			—			(4,856		)	—
Net income	$	(8,702	)	$	(8,636	)	$	13,492		$	(4,856	)	$	(8,702	)

16

Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss) (unaudited)

For the Three Months Ended June 30, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(5,399	)	$	(5,357	)	$	7,623		$	(2,266	)	$	(5,399	)
Change in cumulative translation adjustment	—			722			(268		)	(9		)	445
Comprehensive (loss) income	$	(5,399	)	$	(4,635	)	$	7,355		$	(2,275	)	$	(4,954	)

For the Three Months Ended June 30, 2012

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
Net (loss) income	$	(10,463	)	$	(10,430	)	$	5,146		$	5,284	$	(10,463	)
Change in cumulative translation adjustment	—			(395		)	(551		)	11		(935		)
Comprehensive (loss) income	$	(10,463	)	$	(10,825	)	$	4,595		$	5,295	$	(11,398	)

For the Six Months Ended June 30, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(6,360	)	$	(6,276	)	$	7,806		$	(1,530	)	$	(6,360	)
Change in cumulative translation adjustment	—			271			(146		)	(48		)	77
Comprehensive (loss) income	$	(6,360	)	$	(6,005	)	$	7,660		$	(1,578	)	$	(6,283	)

For the Six Months Ended June 30, 2012

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(8,702	)	$	(8,636	)	$	13,492	$	(4,856	)	$	(8,702	)
Change in cumulative translation adjustment	—			233			92		(2		)	323
Comprehensive (loss) income	$	(8,702	)	$	(8,403	)	$	13,584	$	(4,858	)	$	(8,379	)

17

Supplemental Condensed Consolidating Statement of Cash Flows (unaudited)

For the Six Months Ended June 30, 2013

(in thousands)	Parent		Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by operating activities	$	1	$	16,460		$	4,050		$	—	$	20,511
Investing activities:
Purchases of property and equipment	—		(5,225		)	(690		)	—		(5,915		)
Purchase of investment	—		—			(1,930		)	—		(1,930		)
Net cash used in investing activities	—		(5,225		)	(2,620		)	—		(7,845		)
Financing activities:
Repayment of borrowings	—		(10,000		)	—			—		(10,000		)
Sales of subsidiaries	—		—			—			—		—
Net cash used in financing activities	—		(10,000		)	—			—		(10,000		)
Effect of exchange rate changes on cash	—		—			(617		)	—		(617		)
Net change in cash and cash equivalents	1		1,235			813			—		2,049
Cash and cash equivalents:
Beginning of period	1,527		11,093			69,745			—		82,365
End of period	$	1,528	$	12,328		$	70,558		$	—	$	84,414

Supplemental Condensed Consolidating Statement of Cash Flows (unaudited)

For the Six Months Ended June 30, 2012

(in thousands)	Parent		Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by operating activities	$	1	$	(3,508	)	$	39,112		$	—	$	35,605
Investing activities:
Cash paid for acquisitions, net of cash acquired	—		—			—			—		—
Purchases of property and equipment	—		(2,077		)	(633		)	—		(2,710		)
Net cash used in investing activities	—		(2,077		)	(633		)	—		(2,710		)
Financing activities:
Repayment of borrowings	—		(28,250		)	—			—		(28,250		)
Sales of subsidiaries	—		1,344			(1,344		)	—		—
Net cash used in financing activities	—		(26,906		)	(1,344		)	—		(28,250		)
Effect of exchange rate changes on cash	—		—			206			—		206
Net change in cash and cash equivalents	1		(32,491		)	37,341			—		4,851
Cash and cash equivalents:
Beginning of period	1,526		57,758			82,055			—		141,339
End of period	$	1,527	$	25,267		$	119,396		$	—	$	146,190

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q, or this “Quarterly Report”, and in conjunction with our Annual Report on Form 10-K (File No. 333-170936).

This Quarterly Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report, including, but not limited to, statements regarding the extent and timing of future revenues and expenses and customer demand, statements regarding the deployment of our products, statements regarding our reliance on third parties and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “will” and “would,” and words of similar import and the negatives thereof, are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the “Risk Factors,” “Quantitative and Qualitative Disclosures of Market Risks,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, and the risks discussed in our other SEC filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.

We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. We claim the protection of the Private Securities Litigation Reform Act of 1995 for all forward-looking statements in this report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and undertake no obligation, to update these forward-looking statements.

Overview

We are a global provider of customer contact and workforce optimization solutions. We help our customers build, enhance and sustain stronger relationships with their customers by uniting enterprise technologies with next-generation customer contact solutions. Through seamless, two-way communications across phone, chat, email, IM, SMS and social channels, we equip companies with the tools and technologies needed to serve today's demanding customers. Aspect solutions enable organizations to integrate customer contact and workforce optimization solutions into existing enterprise technology investments for companies looking to remove communication and workflow barriers or create more productive business processes. We believe that this flexible, forward-focused design approach drives enhanced business efficiencies, fosters loyalty and grows customer value. Our customer contact and workforce optimization software can enhance business processes throughout the organization by incorporating interaction management, collaboration and other enterprise technologies. Our interaction management applications for customer contact are built on feature-rich, high-availability, next-generation platforms that fully leverage real-time communications and intelligent workflows, enabling organizations to maintain best practices while engaging consumers through the channels and devices they expect, including social media and mobile services.

19

Financial Summary

The following table sets forth the unaudited results of our operations expressed in dollars and as a percentage of net revenue for the three and six months ended June 30, 2013 and 2012:

(Dollars in millions)	Three Months Ended June 30,										Six Months Ended June 30,
	2013			2012			2013		2012		2013			2012			2013		2012
Net revenues	$	100.3		$	106.9		100	%	100	%	$	205.0		$	221.6		100	%	100	%
Total cost of revenues	40.0			45.9			40	%	43	%	81.2			90.9			40	%	41	%
Gross profit	60.3			61.0			60	%	57	%	123.8			130.7			60	%	59	%
Operating expenses	50.2			50.3			50	%	47	%	99.2			100.1			48	%	45	%
Income from operations	10.1			10.7			10	%	10	%	24.6			30.6			12	%	14	%
Interest and other expense, net	(15.6		)	(16.9		)	(16	)%	(16	)%	(32.1		)	(34.5		)	(16	)%	(16	)%
(Loss) income before income taxes	(5.5		)	(6.2		)	(5	)%	(6	)%	(7.5		)	(3.9		)	(4	)%	(2	)%
(Benefit from) provision for income taxes	(0.1		)	4.3			—	%	4	%	(1.1		)	4.8			(1	)%	2	%
Net loss	$	(5.4	)	$	(10.5	)	(5	)%	(10	)%	$	(6.4	)	$	(8.7	)	(3	)%	(4	)%

Adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization, as adjusted (“Adjusted EBITDA”) is used in our debt agreements to determine compliance with financial covenants and our ability to engage in certain activities, such as making certain payments. In addition to covenant compliance, our management also uses Adjusted EBITDA to assess our operating performance and to calculate performance-based cash bonuses which are tied to Adjusted EBITDA targets. Adjusted EBITDA contains other charges and gains, for which we believe adjustment is permitted under our senior secured credit agreement. Adjusted EBITDA is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of Adjusted EBITDA instead of income from operations has limitations as an analytical tool, including the failure to reflect changes in cash requirements, including cash requirements necessary to service principal or interest payments on our debt, or changes in our working capital needs. Management compensates for these limitations by relying primarily on our GAAP results and by using Adjusted EBITDA on a supplemental basis. Other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

The following is a reconciliation of income from operations to Adjusted EBITDA:

(In millions)	Three Months Ended June 30,							Six Months Ended June 30,
	2013		2012		Change ($)			2013		2012		Change ($)
Income from operations	$	10.1	$	10.7	$	(0.6	)	$	24.6	$	30.6	$	(6.0	)
Depreciation and amortization	10.6		10.9		(0.3		)	20.8		21.9		(1.1		)
Stock based compensation	0.1		0.4		(0.3		)	0.4		0.6		(0.2		)
Sponsor management fees	0.5		0.5		—			1.0		1.0		—
Other (1)	3.3		2.3		1.0			5.5		5.1		0.4
Adjusted EBITDA	$	24.6	$	24.8	$	(0.2	)	$	52.3	$	59.2	$	(6.9	)

(1) These costs represent amounts that are allowed to be added back for calculation of compliance with our debt agreement covenants including acquisition related adjustments to revenue, strategic investment costs, legal entity rationalization, IRS audit, debt issuance, Sarbanes-Oxley compliance, foreign withholding taxes, and non-recurring charges.

20

Net Revenue

The following table presents the breakdown of net revenues between product, maintenance and services revenue:

(In millions)	Three Months Ended June 30,							Six Months Ended June 30,
	2013		2012		Change ($)			2013		2012		Change ($)
Product revenue	$	13.9	$	13.4	$	0.5		$	32.1	$	33.7	$	(1.6	)
Maintenance revenue	65.5		71.0		(5.5		)	131.9		143.2		(11.3		)
Services revenue	20.9		22.5		(1.6		)	41.0		44.7		(3.7		)
Total revenue	$	100.3	$	106.9	$	(6.6	)	$	205.0	$	221.6	$	(16.6	)

The decline in product revenue for the six months ended June 30, 2013 when compared to the prior year is primarily related to a decline in demand for our legacy Signature product sales. We expect our Signature product sales to continue to decline. We have focused our strategy on converting our customers to Unified IP, targeting new logos and better leveraging Workforce Optimization up-sell opportunities to mitigate the impact of this trend, however, we continue to experience lengthening decision and approval cycles as economic uncertainty has resulted in customers remaining cautious with capital investments.

We have experienced reductions in our maintenance revenue when compared to the prior year as our customers consolidated due to license decommissioning resulting from agent downsizing and we also experienced competitive displacements. In some cases our customers began migrating to the competitive platform in previous years and completed the migration during 2013. In addition, lower volume of product bookings in 2013 resulted in lower first year maintenance revenue.

The decline in services revenue in the current year is primarily the result of reduced product volume as a majority of our customers also purchase installation services with their product order.

Cost of Revenue

The following table presents the breakdown of cost of revenues between product, maintenance and services revenue and amortization expense for acquired intangible assets:

(In millions)	Three Months Ended June 30,							Six Months Ended June 30,
	2013		2012		Change ($)			2013		2012		Change ($)
Cost of product revenue	$	4.6	$	7.2	$	(2.6	)	$	9.5	$	12.8	$	(3.3	)
Cost of maintenance revenue	16.8		18.7		(1.9		)	35.0		38.0		(3.0		)
Cost of services revenue	17.3		18.7		(1.4		)	34.0		37.2		(3.2		)
Amortization expense for acquired intangible assets	1.3		1.3		—			2.7		2.9		(0.2		)
Total cost of goods sold	$	40.0	$	45.9	$	(5.9	)	$	81.2	$	90.9	$	(9.7	)

The following table presents gross profit as a percentage of related revenue:

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012		Change (pts)	2013		2012		Change (pts)
Product gross margin	66.9	%	46.3	%	20.6	70.4	%	62.0	%	8.4
Maintenance gross margin	74.4	%	73.7	%	0.7	73.5	%	73.5	%	—
Services gross margin	17.2	%	16.9	%	0.3	17.1	%	16.8	%	0.3

Product margin improved for both the three and six months ended June 30, 2013 when compared to the prior year primarily resulting from approximately $2.3 million of additional excess and obsolete inventory reserves recorded during the three months ended June 30, 2012. The increase in inventory reserves related to excess Signature inventory on hand based upon the significant decrease in anticipated future sales of our Signature product. In addition, product gross margin improved in the current year periods when compared to the prior year resulting from a slight shift in the composition of our product revenue mix. Our Unified IP and Workforce Optimization products have considerably less hardware costs than our legacy Signature products, which results in more favorable gross margins for these product offerings.

During the three and six months ended June 30, 2013, amortization expense for acquired intangible assets decreased as compared to the prior year as the result of certain assets becoming fully amortized.

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Operating Expenses

(In millions)	Three Months Ended June 30,							Six Months Ended June 30,
	2013		2012		Change ($)			2013		2012		Change ($)
Research and development	$	11.6	$	10.0	$	1.6		$	23.9	$	19.7	$	4.2
Selling, general and administrative	31.1		31.5		(0.4		)	60.6		62.7		(2.1		)
Amortization expense for acquired intangible assets	7.5		7.7		(0.2		)	14.7		15.4		(0.7		)
Restructuring charges	—		1.1		(1.1		)	—		2.3		(2.3		)
Total	$	50.2	$	50.3	$	(0.1	)	$	99.2	$	100.1	$	(0.9	)

The increase in research and development expenses for the three and six months ended June 30, 2013, is primarily related to an increase in headcount of approximately 10% when compared to the prior year periods. During 2013, we increased our research and development spend as we sought to expand our product development portfolio with next generation customer contact solutions. Customer contact solutions are evolving with consumers to provide multichannel interactions utilizing unified communications and collaboration platforms to improve agent productivity and customer satisfaction.

The decrease in selling, general and administrative expenses for the six months ended June 30, 2013 is primarily related to lower commission incentive plan expenses, which are driven by our actual revenue results relative to established targets.

Restructuring charges during 2012 consisted of a realignment of our support organization during the first quarter of 2012 as well as a workforce reduction in the second quarter in response to lower revenue levels.In addition, we incurred restructuring charges relating to reducing our office space in the United Kingdom during the first quarter of 2012.

Interest and Other Expense, Net

The components of interest and other expense, net, were as follows:

(In millions)	Three Months Ended June 30,									Six Months Ended June 30,
	2013			2012			Change ($)			2013			2012			Change ($)
Interest expense, net	$	16.3		$	16.3		$	—		$	32.7		$	33.0		$	(0.3	)
Exchange rate loss (gain)	(0.5		)	0.7			(1.2		)	(0.3		)	1.7			(2.0		)
Other (income) expense, net	(0.2		)	(0.1		)	(0.1		)	(0.3		)	(0.2		)	(0.1		)
Total interest and other expense, net	$	15.6		$	16.9		$	(1.3	)	$	32.1		$	34.5		$	(2.4	)

Interest expense for the six months ended June 30, 2013 decreased as compared to the prior year period due

to lower debt levels resulting from $50.0 million of principal payments during the fourth quarter of 2012, which was partially offset by an increase in the interest rate for our term loan as a result of the amendment closing in November 2012.

For the three and six months ended June 30, 2013 as compared to the prior year periods, we experienced an exchange rate gain primarily due to the strengthening of the United States dollar against foreign currencies.

Income Taxes

The following table presents (benefit from) provision for income taxes and the effective tax rate:

(Dollars in millions)	Three Months Ended June 30,									Six Months Ended June 30,
	2013			2012			Change			2013			2012			Change
(Benefit from) provision for income taxes	$	(0.1	)	$	4.3		$	(4.4	)	$	(1.1	)	$	4.8		$	(5.9	)
Effective tax rate	1.4		%	(69.9		)%	71.3 pts			14.7		%	(120.9		)%	135.6		pts

The change in income tax (benefit) provision for the three months and six months ended June 30, 2013 as compared to the same periods in 2012 is primarily due to the recording of a valuation allowance of $11.2 million that the Company placed on its U.S. deferred tax assets in the second quarter of 2012.

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LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased by $2.0 million to $84.4 million at June 30, 2013 from $82.4 million at December 31, 2012. Our existing cash balance generated by operations and borrowings available under our credit facilities are our primary sources of short-term liquidity. Based on our current level of operations, we believe these sources will be adequate to meet our liquidity needs for at least the next 12 months.

A condensed statement of cash flows for the six months ended June 30, 2013 and 2012 follows:

(In millions)	Six Months Ended June 30,
	2013			2012
Net cash (used for) provided by:
Net loss	$	(6.4	)	$	(8.7	)
Adjustments to net loss for non-cash items	22.2			42.3
Changes in operating assets and liabilities	4.6			2.0
Operating activities	20.4			35.6
Investing activities	(7.8		)	(2.7		)
Financing activities	(10.0		)	(28.2		)
Effect of exchange rate changes	(0.6		)	0.2
Net change in cash and cash equivalents	2.0			4.9
Cash and cash equivalents at beginning of period	82.4			141.3
Cash and cash equivalents at end of period	$	84.4		$	146.2

Net Cash Provided by Operating Activities

The decrease in net cash provided by operating activities was primarily due to lower cash flows from our annual maintenance renewals primarily resulting from agent downsizing, license decommissioning and competitive displacements.

Net Cash Used In Investing Activities

Net cash used in investing activities for the six months ended June 30, 2013 primarily consisted of $5.9 million of capital expenditures compared to $2.7 million in the prior year. This additional investment in 2013 is primarily related to the establishment of our corporate headquarters in Phoenix, Arizona as well as an initiative to revitalize our existing office space. In addition, investing activities for the six months ended June 30, 2013 included our $1.9 million investment in eg solutions plc. ("eg"), a back office optimization software company in the United Kingdom. We concurrently entered into a reseller agreement which grants us the right to market and distribute eg's products and services in all territories with exclusivity rights in all territories other than Europe, Middle East and Africa. We must achieve minimum annual revenue targets to maintain the exclusivity rights and we were issued a conditional warrant to purchase up to 400,000 shares at a price of 79 pence per share based upon annual revenue levels within the first two years of the agreement.

Net Cash Used In Financing Activities

Net cash used in financing activities during the six months ended June 30, 2013 represented scheduled principal payments under our debt facilities.

Debt Covenants

We were in compliance with all of our financial debt covenants as of June 30, 2013.

Off-Balance Sheet Arrangements

In our Annual Report on Form 10-K (333-170936), we included a discussion of our off-balance sheet arrangements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Off-Balance Sheet Arrangements.” There have been no significant changes to our off-balance sheet arrangements since December 31, 2012.

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Critical Accounting Policies

Our financial statements are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Management evaluates its estimates on an on-going basis. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from the estimates used. Our actual results have generally not differed materially from our estimates. However, we monitor such differences and, in the event that actual results are significantly different from those estimated, we disclose any related impact on our results of operations, financial position and cash flows.

During the first six months of 2013, there were no significant changes to our critical accounting policies and estimates. For a complete discussion of all other critical accounting policies, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K (File No. 333-170936).

Item 3. Quantitative and Qualitative Disclosure of Market Risks

During the first six months of 2013, there were no significant changes to our quantitative and qualitative disclosures about market risk. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures of Market Risks” in our Annual Report on Form 10-K (File No. 333-170936), for a more complete discussion of the market risks we encounter.

Item 4. Controls and Procedures

Disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of June 30, 2013 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 9 to the Condensed Consolidated Financial Statements included in our Quarterly Report, which is incorporated by reference herein.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves certain risks and uncertainties, some of which are beyond our control. In addition to the information provided in this report, please refer to the Risk Factors section included in our Annual Report on Form 10-K (File No. 333-170936), for a more complete discussion regarding certain factors that could materially affect our business, financial condition or future results.

Item 6. Exhibits

The following exhibits are filed or furnished as part of this quarterly report on Form 10-Q:

Exhibit No.	Description
31.1*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Principal Financial Officer and Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS***	XBRL Instance Document
101.SCH***	XBRL Taxonomy Extension Schema Document
101.CAL***	XBRL Calculation Linkbase Document
101.DEF***	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB***	XBRL Label Linkbase Document
101.PRE***	XBRL Taxonomy Presentation Linkbase Document

* Filed herewith

** Furnished herewith

*** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 12, 2013	ASPECT SOFTWARE GROUP HOLDINGS LTD.
	By:	/s/ Robert J. Krakauer
		Robert J. Krakauer, Executive Vice President and Chief Financial Officer

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