Recommendation: Buy Ian Strgar and Daniel Greenfield March 5 th, 2013

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 Revenue model transition

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

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: sales team behind InContact platform

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

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

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

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

InContact vs. On-Premise ›Data from Frost & Sullivan

Market Opportunity ›Roughly $8 billion opportunity –Data from Frost & Sullivan, DMG Consulting, and Gartner

Comparable Analysis

Revenue Model ›Software Revenue –New Customer Sales: 3 pieces of data - new customers books, average # of seats, cost per seat ›New Customers in ’12: ›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

Revenue Model Transition

Revenue Model Cont. ›Telecom: healthy growth, but decline as % of revenue

Cost of Revenue ›With cloud transition, COGS declines

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

DCF Price Target

Final Price Target

Questions

Beta sensitivity a potential issue…

Exit Multiple

Exit Multiple Cont…

All Things Considered

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

Recommendation ›In conclusion, we recommend a buy for all portfolios