Interactive Intelligence: Best Is Yet to Come

03/03/2014 8:00 am EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

 

With the market no longer on sale, the best way to make money is to own quality growth companies with sustainable competitive advantages and leading market positions within niche markets, suggests Jim Oberweis, editor of The Oberweis Report.

Indianapolis-based Interactive Intelligence Group (ININ) develops software for contact center infrastructure and unified communications software.

Across verticals like banking, insurance, government, utilities, and retail, Interactive Intelligence's software helps companies manage their call centers and associated client interactions, irrespective of whether by phone, email, web, or fax. The firm is benefitting from three drivers.

First, call centers are moving en masse from traditional PBX-based systems to cutting edge Internet-based (IP) systems.

Second, communications systems are shifting to the cloud, with market growth of 18% for hosted systems, versus 2% for on-premise systems.

Third, customer service is an area of focus for world-class enterprises. From a product standpoint, Interactive's products play to each of these trends.

From a financial perspective, the business model has increasing appeal. While originally a license-driven software business, revenues are transitioning to a cloud-based offering.

While revenues grew 34% in 2013, the transition from license to Systems-as-a-Service (SaaS) masked a faster underlying growth rate.

As the SaaS business continues to grow, the firm will have better revenue visibility in the years to come and fairly attractive margin expansion possibilities as the business matures.

In short, Interactive has the right product, at the right time, with the right management, and a stock price that—while not cheap on the surface—does not reflect the company's recurring revenues and long-term growth potential.

Even though growth has been significant over the last five years, we think the best is yet to come.

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