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Published byNora Holland Modified over 9 years ago
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Recommendation: Buy Ian Strgar and Daniel Greenfield March 5 th, 2013
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Background ›Founded in 1997 as reseller of telecom services –SLC, formerly known as UNC inc, name change in ‘09 ›Launch SaaS deployment based call center software platform in 2005 - Revenue model transition
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Segments ›Telecommunications: Qwest, Verizon, Global Crossing –Typically 1-3 year contracts ›Software: Delivery/Support of SaaS based call center software –Typically last 1-2 years, billed monthly –InContact sales team: 37 sales reps, up 37% from 11Q4
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Key Reseller Agreements ›Siemens –NOT Exclusive, minimum purchase agreements: $4.5, $7, $5 million in 2012, 2013, and first 7 seven months of 2014 ›Verizon Wireless –North America market share, not yet ½ way through Verizon’s customer base –12Q4 – Booked largest contract to date through Verizon reseller agreement ›Main Benefit: 3000+ sales team behind InContact platform
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Call Center Industry Background ›Private Branch Exchange (PBX): A switchboard (originally), internal telephone system where larger lines are broken down in multiple extensions –Contrast against common carrier operated lines – much more costly
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Wave of the Future: Hosted PBXs ›Increasing internet speeds allow for hosted PBX systems –Calls begin and end at hosting vendor’s data center ›Decentralization, cost pressure
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Primary Software Offerings ›Automatic Call Distributing (ACD) –Handles inbound/outbound calls as efficiently as possible ›Dialer –Number manipulation: preview (information), power (agents available), predictive (agents not available), auto (pre-recorded) ›Interactive Voice Response (IVR) –I.e. pre-recorded help lines for large volumes ›Workforce Optimization (WFO) –Planning, scheduling, forecasting workforce needs
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Competition ›On-Premise –Aspect, Avaya, Cisco: large legacy product vendors hold largest market shares ›Cloud Competitors: –Five9, Interactive Intelligence: less mature products for SMB ›Development of cloud offerings by large software vendors is perhaps InContact’s greatest risk
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InContact vs. On-Premise ›Data from Frost & Sullivan
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Market Opportunity ›Roughly $8 billion opportunity –Data from Frost & Sullivan, DMG Consulting, and Gartner
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Comparable Analysis
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Revenue Model ›Software Revenue –New Customer Sales: 3 pieces of data - new customers books, average # of seats, cost per seat ›New Customers in ’12: 60-65 ›Average # of seats for new customer in ’12: 40 ›Average cost per seat: $1.7k-$2.5k. We took a low end estimate to be conservative ($2k) –Current Customer Sales ›Retained revenue (92%), 6% growth in same store sales of retained customers
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Revenue Model Transition
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Revenue Model Cont. ›Telecom: healthy growth, but decline as % of revenue
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Cost of Revenue ›With cloud transition, COGS declines
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Other Notable DCF Considerations ›Selling & Marketing –Guidance: projected to rise to 28-29% ›Research & Development –Guidance: projected to rise to 9-10% ›Depreciation & Amortization –Straight-line, 2-3% growth ›Tax Rate –Compared to CRM, VZ, ININ –Determined reasonable average: %11-18
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DCF Price Target
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Final Price Target
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Questions
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Beta sensitivity a potential issue…
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Exit Multiple
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Exit Multiple Cont…
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All Things Considered
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From Our Boy, Aswath ›“ When you have a growth company, the discount rate is the least important input into the valuation. It is your revenue growth, margins and cash flows that matter.” -Aswath Damodaran
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Recommendation ›In conclusion, we recommend a buy for all portfolios
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