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 March 31, 2014

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.)

2325 E. Camelback Road, Suite 700

Phoenix, Arizona, 85016

(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 April 30, 2014:

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

TABLE OF CONTENTS

		Page
Part I	Financial Information:
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and 2013	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2014 and 2013	4
	Condensed Consolidated Statement of Shareholders’ Deficit for the Three Months Ended March 31, 2014	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
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

2

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)	March 31, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	25,600		$	28,222
Accounts receivable, net	59,305			60,385
Deferred tax assets	9,208			9,197
Other current assets	23,077			21,020
Total current assets	117,190			118,824
Property, plant, and equipment, net	18,740			18,467
Intangible assets, net	69,567			72,832
Goodwill	748,634			748,673
Other assets	20,780			22,341
Total assets	$	974,911		$	981,137
Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable	$	8,970		$	9,666
Current portion of long-term debt (1)	23,292			37,851
Accrued liabilities	61,821			61,967
Deferred revenues	94,145			76,670
Total current liabilities	188,228			186,154
Deferred tax liabilities	30,481			29,339
Long-term deferred revenue	5,560			4,455
Long-term debt (2)	768,657			770,079
Other long-term liabilities	35,152			36,603
Total liabilities	1,028,078			1,026,630
Commitments and contingencies (Note 8)
Shareholders’ deficit:
Ordinary shares, $0.00001 par value: 1,000,000,000 shares authorized, 235,070,951 and 235,065,951 shares issued, respectively	4			4
Additional paid-in capital	14,776			14,708
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	(4,760		)	(4,448		)
Accumulated deficit	(62,822		)	(55,684		)
Total Aspect Software Group Holdings Ltd. shareholders’ deficit	(58,145		)	(50,763		)
Noncontrolling interest	4,978			5,270
Total shareholders' deficit	(53,167		)	(45,493		)
Total liabilities and shareholders’ deficit	$	974,911		$	981,137

(1) $3.5 million held by a minority shareholder as of March 31, 2014 and December 31, 2013 — see Note 9.

(2) $50.0 million held by a related party as of March 31, 2014 and December 31, 2013.

See accompanying notes.

3

Aspect Software Group Holdings Ltd.

Condensed Consolidated Statements of Operations (unaudited)

	Three Months Ended
	March 31,
(in thousands)	2014			2013
Net revenues:
Product revenue	$	16,854		$	18,194
Maintenance revenue	61,208			66,348
Services revenue	19,085			20,079
Hosting and managed services revenue	10,539			—
Total net revenues	107,686			104,621
Cost of revenues:
Cost of product revenue	5,329			4,983
Cost of maintenance revenue	17,505			18,167
Cost of services revenue	17,392			16,728
Cost of hosting and managed services revenue	5,755			—
Amortization expense for acquired intangible assets	1,224			1,337
Total cost of revenues	47,205			41,215
Gross profit	60,481			63,406
Operating expenses:
Research and development	14,287			12,220
Selling, general and administrative	31,072			29,516
Amortization expense for acquired intangible assets	2,082			7,183
Restructuring credits	—			(46		)
Total operating expenses	47,441			48,873
Income from operations	13,040			14,533
Interest and other expense, net	(18,857		)	(16,510		)
Loss before income taxes	(5,817		)	(1,977		)
Provision for (benefit from) income taxes	1,613			(1,016		)
Net loss	$	(7,430	)	$	(961	)
Less: Net loss attributable to noncontrolling interest	(292		)	—
Net loss attributable to Aspect Software Group Holdings Ltd.	$	(7,138	)	$	(961	)

Aspect Software Group Holdings Ltd.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

	Three Months Ended
	March 31,
(in thousands)	2014			2013
Net loss	$	(7,430	)	$	(961	)
Change in cumulative translation adjustment	(312		)	(368		)
Comprehensive loss	$	(7,742	)	$	(1,329	)
Comprehensive loss attributable to noncontrolling interest	(292		)	—
Comprehensive loss attributable to Aspect Software Group Holdings Ltd.	(7,450		)	(1,329		)

See accompanying notes.

4

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 Aspect Software Group Holdings Ltd. Shareholder's Deficit			Non-controlling Interest			Total Shareholder's Deficit
	Shares	Par Value				Shares		Cost
Balance at December 31, 2013	235,065,951	$	4	$	14,708	(4,943,370	)	$	(4,918	)	$	(425	)	$	(4,448	)	$	(55,684	)	$	(50,763	)	$	5,270		$	(45,493	)
Net loss	—	—		—		—		—			—			—			(7,138		)	(7,138		)	(292		)	(7,430		)
Other comprehensive loss	—	—		—		—		—			—			(312		)	—			(312		)	—			(312		)
Issuance of ordinary shares	5,000	—		4		—		—			—			—			—			4						4
Stock-based compensation expense	—	—		64		—		—			—			—			—			64			—			64
Balance at March 31, 2014	235,070,951	$	4	$	14,776	(4,943,370	)	$	(4,918	)	$	(425	)	$	(4,760	)	$	(62,822	)	$	(58,145	)	$	4,978		$	(53,167	)

See accompanying notes.

5

Aspect Software Group Holdings Ltd.

Condensed Consolidated Statements of Cash Flows (unaudited)

	Three Months Ended
	March 31,
(in thousands)	2014			2013
Cash flows from operating activities:
Net loss	$	(7,430	)	$	(961	)
Reconciliation of net loss to net cash and cash equivalents provided by operating activities:
Depreciation	2,191			1,741
Amortization expense for acquired intangible assets	3,306			8,520
Non-cash interest expense	1,587			1,213
Non-cash compensation expense	64			301
Increase to accounts receivable allowances	605			16
Deferred income taxes	1,142			(1,699		)
Changes in operating assets and liabilities:
Accounts receivable	631			(1,645		)
Other current assets and other assets	(1,998		)	88
Accounts payable	(710		)	(41		)
Accrued liabilities and other liabilities	(1,539		)	(3,456		)
Deferred revenues	18,330			17,167
Net cash and cash equivalents provided by operating activities	16,179			21,244
Cash flows from investing activities:
Purchases of property and equipment	(2,430		)	(1,360		)
Purchase of investment	—			(1,886		)
Net cash and cash equivalents used in investing activities	(2,430		)	(3,246		)
Cash flows from financing activities:
Repayment of borrowings	(16,100		)	—
Proceeds received from issuance of ordinary shares	4			—
Net cash and cash equivalents used in financing activities	(16,096		)	—
Effect of exchange rate changes on cash	(275		)	(1,590		)
Net (decrease) increase in cash and cash equivalents	(2,622		)	16,408
Cash and cash equivalents:
Beginning of period	28,222			82,365
End of period	$	25,600		$	98,773
Supplemental disclosure of cash flow information
Cash paid for interest	$	9,510		$	9,753
Cash paid for income taxes	$	1,845		$	766

See accompanying notes.

6

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 customer engagement solutions such as; unified interaction management, workforce optimization, and back-office solutions to improve the customer experience. The Company’s technologies streamline and enhance customer-facing business processes by optimizing workflows across multiple communication channels and automating smarter business processes across the contact center and related functions. The Company offers the business and technology expertise to help its customers build, enhance and sustain relationships with their customers by bringing enterprise technologies like customer relationship management ("CRM") and content management 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 months ended March 31, 2014, 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, 2013, 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 and majority owned subsidiaries. All intercompany amounts have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

Recent Accounting Standards

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance is effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The Company adopted the new guidance as of January 1, 2014. There has been no impact to the Company’s financial position or results of operations.

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 from (i) product revenues, which typically include perpetual software licenses and hardware, (ii) service revenues, which include software license updates and product support, installation, consulting and education and (iii) hosting and managed services revenues, which include subscription fees for access to and use of our on-demand applications. 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 generally 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.

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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 upon VSOE or ESP in allocating the arrangement's 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, hardware and subscriptions 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 Term) 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.

Hosting and managed services revenue reflects subscription and other recurring revenues which includes fees for access rights to software solutions offered under a subscription-based delivery model where the users do not take possession of the software. Under this model, the software applications are hosted by us or by a third party and the customer accesses and uses the software on an as-needed basis over the internet or via a dedicated line. The underlying arrangements typically (i) include a single fee for the service that is billed monthly, quarterly or annually, (ii) cover a period from 12 to 36 months and (iii) do not provide the customer with an option to take delivery of the software at any time during or after the subscription term. Hosting revenues are

8

recognized ratably over the subscription term beginning on the commencement dates of each contract, which is the date the Company's hosting and managed services are made available to the customer. Professional services revenue for consulting or training services, when sold with hosted offerings, are accounted for separately if they have standalone value to the customer. The Company believes its professional services have standalone value because those services are sold separately by us and similar services are sold by other vendors. In addition, the Company’s hosted offerings have standalone value as such offerings are often sold separately.

Deferred revenues primarily represent payments received from customers for software licenses and updates, hardware, product support, installation services, educational services and hosting prior to satisfying the revenue recognition criteria related to those payments.The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable hosting and managed services agreements. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent.

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.

NOTE 3—BUSINESS COMBINATIONS

BRIGHT PATTERN

On October 4, 2013, the Company acquired a 54% interest in Bright Pattern, a leading provider of next generation cloud-based contact center and customer experience management solutions. The Company concurrently entered into a reseller agreement which grants Aspect the right to market and distribute Bright Pattern's products and services. The investment in Bright Pattern led to Aspect’s release of Zipwire.

The total purchase price paid by the Company was $6.7 million. The acquisition of Bright Pattern was accounted for as a purchase of a business under ASC 805 Business Combinations. Accordingly, the results of Bright Pattern have been included in the consolidated financial statements since the date of acquisition with the non-controlling interest deducted to arrive at net income. Pro forma results of operations have not been presented because the effects of the acquisition were not material to the Company's financial results.

The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values. The excess purchase price over those values was recorded as goodwill. The factors contributing to the recognition of goodwill were based upon the Company's determination that several strategic and synergistic benefits are expected to be realized from the combination. None of the goodwill is expected to be deductible for tax purposes. The fair values assigned to tangible and intangible assets acquired and liabilities assumed were based on management's estimates and assumptions, and other information compiled by management. Purchased intangibles with finite lives will be amortized over the respective estimated useful life using a method that is based on estimated future cash flows, as the Company believes this will approximate the pattern in which the economic benefits of the asset will be utilized (approximately 5-7 years).

The estimated fair values of assets acquired and liabilities assumed are considered preliminary and are based on information that was available as of the acquisition date.  Certain items, specifically the fair value of intangible assets, deferred taxes, and taxes payable may be subject to change as additional information is received and certain tax returns are filed.  Thus, the provisional measurements of fair value are subject to change.  The Company expects to finalize the valuation as soon as practicable, but no later than one year from the date of acquisition.   The total purchase price for Bright Pattern has been preliminary allocated as follows (in thousands):

9

Description	Amount
Current assets, including $3,541 of acquired cash	$	3,651
Goodwill	3,175
Customer relationships	690
Tradename and Trademarks	350
Technology	5,550
Total assets acquired	13,416
Current liabilities	(1,101		)
	12,315
Less: noncontrolling interest	(5,665		)
Net assets acquired	$	6,650

The allocation of the purchase price of the acquired assets and liabilities as of December 31, 2013 was based on provisional measurements of fair value as determined by management.  Subsequent to the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, the Company revised its assessment of the fair value of the non-controlling interest in Bright pattern, which resulted in a decrease of approximately $0.7 million to goodwill and non-controlling interest on the balance sheet.  This adjustment has been reflected in the December 31, 2013 balances of non-controlling interest and goodwill in the accompanying condensed consolidated balance sheets.

NOTE 4—EQUITY

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

	Three Months Ended
	March 31,
	2014		2013
Cost of services	$	14	$	74
Research and development	23		75
Selling, general and administrative	27		152
Total	$	64	$	301

NOTE 5—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 March 31, 2014 (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	$	25,600	$	25,600	$	—	$	—

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of December 31, 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	$	28,222	$	28,222	$	—	$	—

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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 March 31, 2014 and December 31, 2013, the Company's first lien credit facility had a fair value of approximately $477.9 million and $476.7 million, respectively. As of March 31, 2014 and December 31, 2013, the Company's senior second lien notes had a fair value of approximately $338.4 million and $322.4 million, respectively. The fair value of the Company's unsecured note payable to a minority shareholder approximates book value as of March 31, 2014 and December 31, 2013.

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 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 ,which is approximately 2% of its current outstanding equity, at a price of 0.79 pence per share based upon annual revenue levels within the first two years of the agreement. The Company recorded the acquired shares at cost and has accounted for this investment under the equity method. Under this method, the Company recorded a reduction in the investment of less than $0.1 million in the first quarter 2014 for its proportionate share of eg’s net loss based on the most recently available financial statements.

NOTE 6—GOODWILL AND OTHER LONG-LIVED ASSETS INCLUDING ACQUIRED INTANGIBLES

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

Balance as of December 31, 2013	$	748,673
Foreign currency translation	(39		)
Balance as of March 31, 2014	$	748,634

NOTE 7—INCOME TAXES

The Company’s income tax expense was $1.6 million for the three months ended March 31, 2014 compared to an income tax benefit of $1.0 million for the three months ended March 31, 2013. The Company’s tax expense (benefit) in each period differs from the amount resulting from applying statutory rates primarily due to foreign operations in lower tax jurisdictions, tax reserve adjustments, valuation allowance adjustments and benefits recorded for tax credits.

The Company’s total unrecognized tax benefits were approximately $21.3 million as of March 31, 2014. The amount of unrecognized tax benefits could be reduced upon closure of tax examinations or if the statute of limitations on certain tax filings expires without assessment from the relevant tax authorities. The Company believes that it is reasonably possible that there could be a reduction in unrecognized tax benefits during the next 12 months of approximately $1.7 million.

NOTE 8—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 9—RELATED PARTY TRANSACTIONS

The Company incurred advisory fees from its majority shareholder totaling $0.5 million for the three months ended March 31, 2014 and 2013. 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 $1.5 million and $1 million as of March 31, 2014 and December 31, 2013, respectively.

As of March 31, 2014 and December 31, 2013, approximately $50.0 million, of the second lien credit facility was held by a corporation owned by certain Class L shareholders. The Company had accrued interest expense of approximately $2.0 million

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and $0.7 million related to certain Class L shareholders' second lien credit facility holdings as of March 31, 2014 and December 31, 2013, respectively. The Company did not make interest payments on the second lien credit facility in the first quarter of 2014 or 2013.

In March 2014, the Company’s majority shareholder acquired LiveVox, Inc. (“LiveVox”) a leading provider of cloud contact center solutions. The Company concurrently entered into a strategic partnership with LiveVox which initially focuses on a joint go to market between the companies. Aspect and LiveVox will cross-license and cross-sell each other’s products to better serve current and new customers. The companies will leverage the scale of both organizations to optimize efficiencies in network and telco infrastructure. The Company’s Chief Executive Officer, Stew Bloom, was appointed to the board of directors of LiveVox. There were no amounts recorded in the accompanying condensed consolidated statements of operations or condensed consolidated balance sheet during the three months ended March 31, 2014 as a result of this partnership.

NOTE 10—SUBSEQUENT EVENTS

On May 6, 2014, Aspect Software, Inc. (as borrower), the Company's domestic operating subsidiary, amended its Credit Facility to extend the maturity of its senior secured revolving facility ("Revolver") with an original maturity date of May 7, 2014, for one week to allow time for discussions and negotiations with interested parties. On May 13, 2014, the Credit Facility was further amended to extend the maturity date of the Revolver through June 2, 2014. The Company expects to have a one year extension finalized before June 2, 2014.

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

12

NOTE 11—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 March 31, 2014 and December 31, 2013, and for the three months ended March 31, 2014 and 2013.

Supplemental Condensed Consolidating Balance Sheet (unaudited)

March 31, 2014

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1,528		$	3,751		$	20,321	$	—		$	25,600
Accounts receivable, net	—			72,065			58,589		(71,349		)	59,305
Deferred tax assets	—			7,747			1,461		—			9,208
Other current assets	—			16,421			6,656		—			23,077
Total current assets	1,528			99,984			87,027		(71,349		)	117,190
Property, plant, and equipment, net	—			16,516			2,224		—			18,740
Intangible assets, net	—			59,104			10,463		—			69,567
Goodwill	—			715,222			33,412		—			748,634
Investment in subsidiaries	(52,298		)	50,220			—		2,078			—
Other assets	268			11,492			9,020		—			20,780
Total assets	$	(50,502	)	$	952,538		$	142,146	$	(69,271	)	$	974,911
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	2,665		$	42,467		$	35,187	$	(71,349	)	$	8,970
Current portion of long-term debt	—			23,292			—		—			23,292
Accrued liabilities	—			49,210			12,611		—			61,821
Deferred revenues	—			63,352			30,793		—			94,145
Total current liabilities	2,665			178,321			78,591		(71,349		)	188,228
Deferred tax liabilities	—			30,031			450		—			30,481
Long-term deferred revenue	—			3,836			1,724		—			5,560
Long-term debt	—			768,657			—		—			768,657
Other long-term liabilities	—			23,991			11,161		—			35,152
Total liabilities	2,665			1,004,836			91,926		(71,349		)	1,028,078
Total Aspect Software Group Holdings Ltd. shareholders’ deficit	(53,167		)	(52,298		)	45,242		2,078			(58,145		)
Noncontrolling interest	—			—			4,978		—			4,978
Total shareholders' (deficit) equity	(53,167		)	(52,298		)	50,220		2,078			(53,167		)
Total liabilities and shareholders’ (deficit) equity	$	(50,502	)	$	952,538		$	142,146	$	(69,271	)	$	974,911

13

Supplemental Condensed Consolidating Balance Sheet (unaudited)

December 31, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1,528		$	3,764		$	22,930	$	—		$	28,222
Accounts receivable, net	—			78,583			50,657		(68,855		)	60,385
Deferred tax assets	—			7,934			1,263		—			9,197
Other current assets	—			14,958			6,062		—			21,020
Total current assets	1,528			105,239			80,912		(68,855		)	118,824
Property, plant, and equipment, net	—			16,396			2,071		—			18,467
Intangible assets, net	—			61,922			10,910		—			72,832
Goodwill	—			715,222			33,451		—			748,673
Investment in subsidiaries	(43,936		)	45,771			—		(1,835		)	—
Other assets	260			13,094			8,987		—			22,341
Total assets	$	(42,148	)	$	957,644		$	136,331	$	(70,690	)	$	981,137
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	2,621		$	35,963		$	39,937	$	(68,855	)	$	9,666
Current portion of long-term debt	—			37,851			—		—			37,851
Accrued liabilities	—			49,354			12,613		—			61,967
Deferred revenues	—			52,330			24,340		—			76,670
Total current liabilities	2,621			175,498			76,890		(68,855		)	186,154
Deferred tax liabilities	—			28,888			451		—			29,339
Long-term deferred revenue	—			3,047			1,408		—			4,455
Long-term debt	—			770,079			—		—			770,079
Other long-term liabilities	—			24,068			12,535		—			36,603
Total liabilities	2,621			1,001,580			91,284		(68,855		)	1,026,630
Total shareholders’ (deficit) equity	(44,769		)	(43,936		)	39,777		(1,835		)	(50,763		)
Noncontrolling interest	—			—			5,270		—			5,270
Total shareholder's (deficit) equity	(44,769		)	(43,936		)	45,047		(1,835		)	(45,493		)
Total liabilities and shareholders’ (deficit) equity	$	(42,148	)	$	957,644		$	136,331	$	(70,690	)	$	981,137

14

Supplemental Condensed Consolidating Statement of Operations (unaudited)

For the Three Months Ended March 31, 2014

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	72,943		$	39,257		$	(4,514	)	$	107,686
Cost of revenues	—			34,685			17,034			(4,514		)	47,205
Gross profit	—			38,258			22,223			—			60,481
Operating expenses:
Research and development	—			11,274			3,013			—			14,287
Selling, general and administrative	44			19,269			11,759			—			31,072
Amortization expense for acquired intangible assets	—			1,792			290			—			2,082
Total operating expenses	44			32,335			15,062			—			47,441
(Loss) income from operations	(44		)	5,923			7,161			—			13,040
Interest and other income (expense), net	8			(16,040		)	(2,825		)	—			(18,857		)
(Loss) income before income taxes	(36		)	(10,117		)	4,336			—			(5,817		)
Provision for income taxes	—			894			719			—			1,613
Equity in (losses) earnings of subsidiaries	(7,101		)	3,910			—			3,191			—
Net (loss) income	(7,137		)	(7,101		)	3,617			3,191			(7,430		)
Less: Net loss attributable to noncontrolling interest	—			—			(292		)	—			(292		)
Net (loss) income attributable to Aspect Software Group Holdings Ltd.	$	(7,137	)	$	(7,101	)	$	3,909		$	3,191		$	(7,138	)

For the Three Months Ended March 31, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	70,935		$	40,116		$	(6,430	)	$	104,621
Cost of revenues	—			30,655			16,990			(6,430		)	41,215
Gross profit	—			40,280			23,126			—			63,406
Operating expenses:
Research and development	—			10,206			2,014			—			12,220
Selling, general and administrative	50			19,932			9,534			—			29,516
Amortization expense for acquired intangible assets	—			6,913			270			—			7,183
Restructuring credits	—			(44		)	(2		)	—			(46		)
Total operating expenses	50			37,007			11,816			—			48,873
(Loss) income from operations	(50		)	3,273			11,310			—			14,533
Interest and other income (expense), net	8			(4,415		)	(12,103		)	—			(16,510		)
(Loss) income before income taxes	(42		)	(1,142		)	(793		)	—			(1,977		)
Benefit from income taxes	—			(40		)	(976		)	—			(1,016		)
Equity in (losses) earnings of subsidiaries	(919		)	183			—			736			—
Net (loss) income	$	(961	)	$	(919	)	$	183		$	736		$	(961	)

15

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

For the Three Months Ended March 31, 2014

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
Net income (loss)	$	(7,137	)	$	(7,101	)	$	3,617		$	3,191	$	(7,430	)
Change in cumulative translation adjustment	—			(335		)	7			16		(312		)
Comprehensive (loss) income	(7,137		)	(7,436		)	3,624			3,207		(7,742		)
Comprehensive loss attributable to noncontrolling interest	—			—			(292		)	—		(292		)
Comprehensive (loss) income attributable to Aspect Software Group Holdings Ltd.	$	(7,137	)	$	(7,436	)	$	3,916		$	3,207	$	(7,450	)

For the Three Months Ended March 31, 2013

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(961	)	$	(919	)	$	183	$	736		$	(961	)
Change in cumulative translation adjustment	—			(451		)	122		(39		)	(368		)
Comprehensive (loss) income	$	(961	)	$	(1,370	)	$	305	$	697		$	(1,329	)

16

Supplemental Condensed Consolidating Statement of Cash Flows (unaudited)

For the Three Months Ended March 31, 2014

(in thousands)	Parent			Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by operating activities	$	(4	)	$	18,096		$	(1,913	)	$	—	$	16,179
Investing activities:
Purchases of property and equipment	$	—		$	(2,009	)	$	(421	)	$	—	$	(2,430	)
Net cash used in investing activities	—			(2,009		)	(421		)	—		(2,430		)
Financing activities:
Repayment of borrowings	—			(16,100		)	—			—		(16,100		)
Proceeds received from issuance of ordinary shares	4											4
Net cash provided by financing activities	4			(16,100		)	—			—		(16,096		)
Effect of exchange rate changes on cash	—			—			(275		)	—		(275		)
Net change in cash and cash equivalents	—			(13		)	(2,609		)	—		(2,622		)
Cash and cash equivalents:
Beginning of period	1,528			3,764			22,930			—		28,222
End of period	$	1,528		$	3,751		$	20,321		$	—	$	25,600

Supplemental Condensed Consolidating Statement of Cash Flows (unaudited)

For the Three Months Ended March 31, 2013

(in thousands)	Parent		Issuer / Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by operating activities	$	1	$	6,401		$	14,842		$	—	$	21,244
Investing activities:
Purchases of property and equipment	—		(1,045		)	(315		)	—		(1,360		)
Purchase of investment	$	—	$	—		$	(1,886	)	$	—	$	(1,886	)
Net cash used in investing activities	—		(1,045		)	(2,201		)	—		(3,246		)
Financing activities:
Repayment of borrowings	—		—			—			—		—
Sales of subsidiaries	—		—			—			—		—
Net cash used in financing activities	—		—			—			—		—
Effect of exchange rate changes on cash	—		—			(1,590		)	—		(1,590		)
Net change in cash and cash equivalents	1		5,356			11,051			—		16,408
Cash and cash equivalents:
Beginning of period	1,527		11,093			69,745			—		82,365
End of period	$	1,528	$	16,449		$	80,796		$	—	$	98,773

17

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 customer contact solutions. Through seamless, two-way communications across phone, chat, email, IVR, 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 ensure a consistent and integrated multi-channel customer support experience while creating more productive business processes. We believe that this integrated multi-channel solution 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.

18

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 months ended March 31, 2014 and 2013:

(Dollars in millions)	Three Months Ended March 31,
	2014			2013			2014		2013
Net revenues	$	107.7		$	104.6		100	%	100	%
Total cost of revenues	47.2			41.2			44	%	39	%
Gross profit	60.5			63.4			56	%	61	%
Operating expenses	47.4			48.9			44	%	47	%
Income from operations	13.1			14.5			12	%	14	%
Interest and other expense, net	(18.9		)	(16.5		)	(18	)%	(16	)%
Loss before income taxes	(5.8		)	(2.0		)	(5	)%	(2	)%
Provision for (benefit from) income taxes	1.6			(1.0		)	1	%	(1	)%
Net loss	(7.4		)	(1.0		)	(7	)%	(1	)%
Less: Net loss attributable to noncontrolling interest	(0.3		)	—			—	%	—	%
Net loss attributable to Aspect Software Group Holdings Ltd.	$	(7.1	)	$	(1.0	)	(7	)%	(1	)%

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 March 31,
	2014		2013		Change ($)
Income from operations	$	13.1	$	14.5	$	(1.4	)
Depreciation and amortization	5.5		10.2		(4.7		)
Stock based compensation	0.1		0.3		(0.2		)
Sponsor management fees	0.5		0.5		—
Other (1)	5.6		2.3		3.3
Adjusted EBITDA	$	24.8	$	27.8	$	(3.0	)

(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.

19

Net Revenue

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

(In millions)	Three Months Ended March 31,
	2014		2013		Change ($)
Product revenue	$	16.9	$	18.2	$	(1.3	)
Maintenance revenue	61.2		66.3		(5.1		)
Services revenue	19.1		20.1		(1.0		)
Hosting & managed services revenue	$	10.5	$	—	$	10.5
Total revenue	$	107.7	$	104.6	$	3.1

The decline in product revenue for the three months ended March 31, 2014, when compared to the prior year is primarily related to a decline in our Unified IP revenue. We have focused our strategy on converting our Signature customers to Unified IP, targeting new logos and better leveraging Workforce Optimization up-sell opportunities to offset the impact of the runoff of our Signature volume, however, we continue to experience lengthening decision and approval cycles and many customers remain cautious with capital investments. Our Voxeo acquisition complimented our managed services offering by adding a hosted deployment alternative. Hosted offerings allow capital investment cautious customers an opportunity to delay cash outflow by switching from up front license fees to a recurring service. Over the past twelve months we have had several customers change their deployment model from on-premise to either hosted or managed services. We expect this trend to continue and we will continue to invest in these alternative deployment methods across our broad scale customer base.

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 2014. In addition, lower volume of product bookings in 2014 resulted in lower first year maintenance revenue.

Hosting and managed services revenue during 2014 represents the acquired Voxeo business as well as recurring revenue from customers that outsource management of their call center hardware and software to us and Aspect's hosted business. Our acquisition of Voxeo significantly enhanced our ability to support cloud, hybrid and premise-based deployments while adding a market-leading IVR and multi-channel self-service capability to our solution portfolio. We expect this revenue stream to become a more significant component of our total revenue as both prospective customers and existing customers opt for solutions requiring lower start up costs and predictable ongoing operating expenses.

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 March 31,
	2014		2013		Change ($)
Cost of product revenue	$	5.3	$	5.0	$	0.3
Cost of maintenance revenue	17.5		18.2		(0.7		)
Cost of services revenue	17.4		16.7		0.7
Cost of hosting & managed services revenue	5.8		—		5.8
Amortization expense for acquired intangible assets	1.2		1.3		(0.1		)
Total cost of revenues	$	47.2	$	41.2	$	6.0

20

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

	Three Months Ended March 31,
	2014		2013		Change (pts)
Product gross margin	68.6	%	72.5	%	(3.9	)
Maintenance gross margin	71.4	%	72.5	%	(1.1	)
Services gross margin	8.9	%	16.9	%	(8.0	)
Hosting & managed services margin	44.8	%	—	%	44.8

The decline in product gross margin in 2014 is primarily related to an increase in third party costs associated with a significant Back Office Optimization deal that closed in the first quarter. In addition, our lower product revenue in 2014 affected our ability to leverage our fixed costs resulting in a lower gross margin in the current year.

The deterioration in maintenance gross margin in 2014 is primarily related to lower volume. We have taken actions to reduce our costs globally to offset the volume decrease and will continue to assess our cost structure as we progress through 2014.

Services gross margin deteriorated for the three months ended March 31, 2014 when compared to the prior year primarily resulting from lower volume of projects as our product revenue declined. As many of our costs are fixed, volume declines affect our ability to leverage these costs.

Operating Expenses

(In millions)	Three Months Ended March 31,
	2014		2013		Change ($)
Research and development	$	14.3	$	12.2	$	2.1
Selling, general and administrative	31.0		29.5		1.5
Amortization expense for acquired intangible assets	2.1		7.2		(5.1		)
Total	$	47.4	$	48.9	$	(1.5	)

The increase in research and development expenses for the three months ended March 31, 2014, is primarily related to the increased headcount from our Voxeo acquisition, severance costs related to realigning our workforce, as well as increased investment in tools to improve our development and delivery of new and enhanced solutions.

The increase in selling, general and administrative expenses for the three months ended March 31, 2014 is primarily related to increased headcount resulting from our Voxeo acquisition.

Amortization expense for acquired intangible assets in 2014 decreased as compared to the same period in the prior year as certain assets became fully amortized.

21

Interest and Other Expense, Net

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

(In millions)	Three Months Ended March 31,
	2014			2013			Change ($)
Interest expense, net	$	19.1		$	16.4		$	2.7
Exchange rate (gain) loss	(0.3		)	0.2			(0.5		)
Other expense (income) , net	0.1			(0.1		)	0.2
Total interest and other expense, net	$	18.9		$	16.5		$	2.4

Interest expense for the three months ended March 31, 2014 increased as compared to the prior year period due

to increased debt levels resulting from $85.0 million of delayed draw term loan and $25.0 million of issued second lien notes to fund the Voxeo acquisition.

For the three months ended March 31, 2014 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 income taxes and the effective tax rate:

(Dollars in millions)	Three Months Ended March 31,
	2014			2013			Change
Provision for (benefit from) income taxes	$	1.6		$	(1.0	)	$	2.6
Effective tax rate	(27.7		)%	51.4		%	(79.1		) pts

Our income tax expense was $1.6 million for the three months ended March 31, 2014 compared to an income tax benefit of $1.0 million for the three months ended March 31, 2013. Our tax expense (benefit) in each period differs from the amount resulting from applying statutory rates primarily due to foreign operations in lower tax jurisdictions, tax reserve adjustments, valuation allowance adjustments and benefits recorded for tax credits.

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LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased by $2.6 million to $25.6 million at March 31, 2014 from $28.2 million at December 31, 2013. 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 three months ended March 31, 2014 and 2013 follows:

(In millions)	Three Months Ended March 31,
	2014			2013
Net cash (used for) provided by:
Net income (loss)	$	(7.4	)	$	(1.0	)
Adjustments to net loss for non-cash items	8.9			10.1
Changes in operating assets and liabilities	14.7			12.1
Operating activities	16.2			21.2
Investing activities	(2.4		)	(3.2		)
Financing activities	(16.1		)	—
Effect of exchange rate changes	(0.3		)	(1.6		)
Net change in cash and cash equivalents	(2.6		)	16.4
Cash and cash equivalents at beginning of period	28.2			82.4
Cash and cash equivalents at end of period	$	25.6		$	98.8

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 thee months ended March, 2013 primarily consisted of our $1.9 million

investment in eg solutions plc. ("eg"), a back office optimization software company in the United Kingdom.

Net cash used in investing activities for the three months ended March 31, 2014 also included $2.4 million of capital expenditures compared to $1.4 million in the prior year. This additional investment in 2014 is primarily related to the our investment in an updated ERP system as well as an initiative to revitalize our existing office space.

Net Cash Used In Financing Activities

Net cash used in financing activities for the three months ended March 31, 2014 primarily represented scheduled principal payments to our first-lien lenders of $6.1 million and a $10.0 million repayment to our revolving credit line.

Debt Covenants

We were in compliance with all of our financial debt covenants as of March 31, 2014.

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, 2014.

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

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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 three months of 2014, 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 three months of 2014, 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 March 31, 2014 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 March 31, 2014 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 8 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 5. Other Information

On May 6, 2014, Aspect Software, Inc. (as borrower), the Company's domestic operating subsidiary, amended its Credit Facility to extend the maturity of its senior secured revolving facility ("Revolver") with an original maturity date of May 7, 2014, for one week to allow time for discussions and negotiations with interested parties. On May 13, 2014, the Credit Facility was further amended to extend the maturity date of the Revolver through June 2, 2014. The Company expects to have a one-year extension finalized before June 2, 2014.

Item 6. Exhibits

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

Exhibit No.	Description
10.1*	Amendment No. 4 to the Credit Agreement dated as of May 14, 2014, among Aspect Software Parent, Inc., Aspect Software, Inc., the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and issuing bank and JPMorgan Chase Bank, N.A. and Bank of America, N.A., as co-syndication agents
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: May 15, 2014	ASPECT SOFTWARE GROUP HOLDINGS LTD.
	By:	/s/ Robert J. Krakauer
		Robert J. Krakauer, Executive Vice President and Chief Financial Officer

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