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BroadSoft (BSFT) Downgraded To 'Perform' By Oppenheimer

 February 28, 2013 03:26 PM

(By Balaseshan) Oppenheimer analyst Andrew Uerkwitz downgraded rating of BroadSoft Inc. (NASDAQ: BSFT) to "Perform" from "Outperform", saying 2013 becomes a transition year, code for flat, for the company.

Uerkwitz said the company's core business while strong is seeing a deceleration on the consumer side. Management indicated that neither enterprise nor new product (BroadCloud/BroadTouch) growth could offset it. This was reflected in 2013 guidance: $1.10-1.35 versus Street/his estimates of $1.68/$1.66.

While the EPS guidance miss is primarily revenue related, the analyst can't look past higher than expected opex which he believes management is increasing to set itself up for 2014/2015 opportunities. Opportunities he worry won't be there. He awaits more clarity before becoming constructive again.

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BSFT reported revenues/EPS of $45.8 million/$0.47. Licensing came in lower, $24.4 million versus $26 million, with maintenance slightly higher than consensus, $21 million versus $20 million. Deferred revenue increased $4 million year-over-year, Uerkwitz noted.

The company's 2013 EPS guidance of $1.10-1.35 reflects higher opex for the transition/acceleration of newer products, namely BroadCloud, the analyst noted. Its Broadworks consumer product, which was about 15% of revenue is expected to be 10%. Upfront service fees related to consumer is the culprit as this segment continues to mature.

The analyst lowered his revenue and raised expenses to reflect updated management guidance. He believes the company is taking a conservative approach due to limited visibility and wanting to be cautious with newer product expectations. Thus his numbers are in the upper half of guidance.

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The analyst sees BSFT playing to be the leader on the enterprise space related to unified communications. This to him is a 2015 material event. Thus he does not expect "design" wins this year even if others do.

While the analyst doesn't want to count BSFT out and see the mid-$20s as a potential floor for now. He sees high risks related to a transition and the likelihood of growing pains. He lowered his rating and sees current valuation as being fair.

BSFT is trading down 29.76% at $21.71 on Thursday.

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