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Cloud contact center software market leader inContact (Nasdaq:SAAS) reported Q4 and full year earnings on Tuesday, showing strong growth in Q4 revenue. The company raised its revenue and earnings guidance for 2016, including a projection for profitability at the operating level (non-GAAP). In an interview, inContact executives told the Daily Cloud that the cloud contact center market is continuing to take market share from the much larger on-premise contact center market, while at the same time, inContact is market leader in the cloud segment and boosting its share there.

inContact reported Q4 total revenue of $61.5 million, up 24% on the year-earlier quarter. Software revenue, the key component of the business, rose 34% to $40.5 million, as inContact won more larger customers, benefited from holiday period seasonality, and took share. “We’ve landed more large enterprise customers with heavy seasonal use,” said inContact CFO Greg Ayers. InContact now has more than 115 Fortune 500 or Global 2000 customers, and more than 20 customers whom it bills over $1 million annually. Large customers, especially retailers, will typically staff up their contact centers during the busy season, which includes of course the pre-Christmas rush. A customer typically pays inContact based on the peak number of seats (call center agents) it operates during a month. “Valentine’s Day, Mother’s Day, Father’s Day are all holidays where some customers need to add additional staff, to field calls,” Ayers added.

Equally significant, inContact is taking share from the traditional on-premise based systems. Chief Strategy Officer Rajeev Shrivastava told us that the total contact center market is worth about $18 billion a year and relatively flat in terms of growth. Meanwhile, the cloud sector is growing at some 25% a year. “The cloud piece is only about 8% to 10% of the total, so there’s still lots of market available to go after,” Shrivastava said. Customers choose to move their contact center into the cloud for a number of reasons, he said. One important factor is the flexibility to relocate a contact center, for example to a low-cost region of the country, which may be far from the headquarters location. With an on-premise system, servers and cabling would need to be installed to move to a new location. A cloud system also enables contact center agents to work from diverse locations, including their homes. Another factor is that integrations with other software platforms can be added to a cloud system by the software provider, painlessly for the customer. With an on-premise system, that sort of integration or update would typically require work at each server. “Multilocation or at-home workers are equally easy with a cloud contact center,” Shrivastava said. “The agent just needs a computer and a phone or Internet connection.”

Workforce Optimization

inContact made two acquisitions in Q4, spending a total of $18.5 million cash on two small software companies. AC2 Solutions makes software for workforce optimization, enabling contact center managers to monitor and manage their agents to maximize productivity and customer satisfaction. “At a contact center, 75% of your expense is in your workforce, so there’s tremendous return on investment if you can manage your workforce better,” Shrivastava said. The second acquisition, Attensity, makes software for omnichannel analytics, analyzing customer interactions across the full range of channels including social media, voice, text, and more. Both acquired companies were better at technology than they were at sales and marketing, so inContact expects to boost market penetration. Some functionality will go into inContact’s core contact center product, while some of the analytics will be sold as add-on features, enhancing the non-core revenue stream, Ayers said. “The impact will be minimal in 2016, and meaningful in 2017 and 2018.”

One of the highlights of the quarterly report was that inContact generated cash from operations of $3.9 million in the quarter, compared with analyst average expectations of just $1 million. The company achieved positive non-GAAP operating income for the first time in Q4, with a figure of $1.3 million, compared to a loss of $2.8 million in the year-ago quarter. It’s projecting revenue growth of 17% (at the midpoint) and 25% for software revenue growth in 2016, and positive full-year operating profitability for the year, on the non-GAAP basis, (the basis tracked by investors). In the current uncertain stock market environment, profitability is important to investors, and probably helps explain why, as of Wednesday’s close, inContact’s stock was down just 4% this year, while the Nasdaq was off 7% and Salesforce.com (NYSE:CRM), the largest and most famous SAAS company, was down 17%.

Acquisitions

Earlier this month, unified communications vendor Broadsoft (BSFT) announced the acquisition of contact center software startup Transera. Shrivastava said Transera targets smaller customers than inContact. “There are many companies proliferating in the one to 25 seat contact center market, offering very simple solutions, and we are indifferent to them. We are focused on the mid-market and enterprise,” he said. He does not see inContact getting involved directly in the unified communications space, he said. “We view the UC market and the CRM market as two adjacent markets, and we prefer to partner with players in those markets,” he said. On the UC side, inContact has partnerships with RingCentral (RNG) and Fuze (formerly ThinkingPhones), while on the CRM side it partners with Salesforce and Zendesk (NYSE:ZEN).

However, inContact will continue to look for acquisitions, most likely of small software companies that bring complementary technology. “We’ve made nine acquisitions in the past, and depending how opportunities present themselves, we will continue to evaluate them,” he said.