incontact-hunts-for-acquisitions

InContact (Nasdaq: SAAS) is the leader in the cloud-based call center market, with an aggressive focus on growth. In March the company raised $115 million through the sale of convertible debt. In June, it hired Rajeev Shrivastava as Chief Strategy Officer with a mandate to accelerate the company’s growth. Shrivastava pointed out that last year the company acquired Uptivity for $46 million in cash and stock to integrate its workforce optimization software into inContact’s call center software. In an interview, Shrivastava told the Daily Cloud: “We’ll continue finding technologies adjacent to our space, or core to our space, and buy those companies. We have the cash, we have the equity, and we have the desire.”

According to Shrivastava, the call (or contact) center market is worth over $10 billion a year, and growing at a high single digit percentage. He estimates that some 90% of the business is premise-based, i.e. based on technology located on the call center premises. The other 10% of the revenue goes on cloud-based call centers, and inContact has about 7-10% of that market, he estimates. The cloud-based market is growing much faster, as is demonstrated by inContact’s 29% revenue growth rate in Q2. “We are seeing a big move to the cloud,” Shrivastava said. “It’s not about `the cloud’ in itself; it’s about what you can do, it’s about how you can make it easier [for customers]. For example, you can build APIs so all the systems can talk to each to each other.” An example is that a cloud-based contact center system can interact with a cloud-based customer relationship management system like Salesforce.com, and pull all customer data into the contact center solution and automatically display it to the contact center staffer. While the premise-based business is led by well-known names like Cisco (CSCO), Avaya, and Genesys (a spinoff from Alcatel), the cloud contact center business is led by inContact, with a revenue run rate of $200 million a year, and other newer players like Five9 (FIVN), and Interactive Intelligence (ININ).

Many cloud business leaders talk endlessly about the revolutionary capabilities of their technology. According to Shrivastava, the key to success in the contact center business is much more about solving mundane but important problems for customer, such as helping a contact center manager find the optimal solution when several staff members don’t show up in the morning—a common problem in an industry plagued by high staff turnover. Another important issue is delivering good voice quality on voice calls. Ironically, the solution does not necessarily involve Internet-based voice. “Voice is a non-trivial problem,” said Shrivastava. “We have technology that picks the best route for voice to make the call high-quality and reliable, and if there’s a problem, it helps the customer trouble-shoot the problem. We look at VoIP (voice over IP) and TDM (traditional circuit-based connections). Both are important, because VOIP is the least reliable.”

Although, no customers are named on its website, Shrivastava said that InContact has customers among the Fortune 500 and the Fortune 100. It has a partnership with RingCentral (RNG). Although RingCentral has its own call center solution for smaller users, for users with over about 25 seats, “they need a more sophisticated software solution, so they use our app,” Shrivastava said.

In August, inContact reported Q2 results, and the stock quickly lost 25% of its value. Although revenue grew by 29%, bookings grew only 3%, far less than previously. InContact’s problem was that Wall Street investors tend to look upon bookings as a more important indicator of a software company’s growth than revenue, since bookings usually correspond more closely to actual cash paid by customers, while reported revenue from any customer can often be adjusted according to obscure legal terms on the sales contracts. Bookings figures are especially important today, as software companies transition to a software-as-a-service (SaaS) model, further complicating the analysis of a quarterly report. Shristava said that bookings are not a good indicator of inContact’s growth path. “We are in a land and expand business. We will land a new customer and they might book a $100 deal, but a year later they’re paying us $10,000, as their contact center grows.” He pointed out that the company raised its 2015 revenue guidance (to $210-$215M) in that August announcement and CEO Paul Jarman said a couple of large deals got pushed out from Q2 and should close soon thereafter. The stock has since regained about half of its August losses, and last week Jefferies analyst Kevin DiFucci began covering the stock with a “Buy” rating and a price target of $11.

Shristava appeared confident that the company is heading for further growth, and is gearing up to make that growth happen. As Chief Strategy Officer, he reports to the CEO and has responsibility for product strategy, marketing, and M&A. “We’re strengthening the team,” he said. “We need to have the right technologies, the right people, and the right partners, to take us to the next level.”