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inContact (NASDAQ:SAAS)

Q3 2013 Earnings Call

November 04, 2013 4:30 pm ET

Executives

Gregory S. Ayers - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Paul Jarman - Chief Executive Officer, President and Director

Analysts

Mark R. Murphy - Piper Jaffray Companies, Research Division

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Michael Latimore - Northland Capital Markets, Research Division

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Operator

Good day, and welcome to the inContact, Inc. Third Quarter 2013 Earnings Conference Call. [Operator Instructions] And please note, today's call is being recorded. It is now my pleasure to turn the conference over to Greg Ayers, Chief Financial Officer. Please go ahead.

Gregory S. Ayers

Thank you, and good afternoon. This is Greg Ayers, CFO of inContact. Welcome to our third quarter 2013 conference call. I will begin by presenting the Safe Harbor statement, and I will then turn the call over to CEO, Paul Jarman, to review our third quarter 2013 results and provide an update on important Q3 company developments. Finally, I will provide additional detail on our financial results for the quarter before opening it up for Q&A.

For access to our news release and other information on inContact, please visit our website at www.incontact.com. The Private Securities Litigation Reform Act of 1995 provides the Safe Harbor statement for forward-looking statements made on the company's behalf. All statements, other than statements of historical facts, which address the company's expectations of sources of capital, or which express the company's expectation for the future with respect to financial performance or operating strategies, can be identified as forward-looking statements. Such statements made by the company are based on the knowledge of the environment in which it operates. But because of the factors previously stated, as well as other factors beyond the control of the company, actual results may differ materially from the expectations expressed in the forward-looking statements.

And now I will turn the call over to Paul Jarman.

Paul Jarman

Thanks, Greg. I am pleased to announce that in Q3, we are seeing record achievements across all of our business metrics, including sales pipeline, bookings, implementations and revenue. Q3 was another record bookings quarter, up 35% over what was a very strong comparable quarter of Q3 2012. During the quarter, we closed 71 contracts, 52 with new logo customers and 19 expansion deals. These strong bookings are a direct result of our strategy and continued investment in demand-generation marketing, sales expansion and the growing power of our distribution model.

At the end of the quarter, we had 43 quota-bearing salespeople in 4 U.S. geographies and in the U.K. I'm particularly pleased with our onboarding process that translates into faster time to productivity for our recently hired sales reps. For example, one of the newer reps brought in a large deal with a digital media company that will yield an ACV of more than 3 quarters of $1 million once they complete implementation.

In the third quarter, Software revenue grew 23% year-over-year and Software-related Telecom revenues grew 21%. The steady growth this quarter and year-to-date is giving us a record run rate for Software and Software-related revenues of over $115 million. In addition, adjusted EBITDA for the quarter was $1.9 million.

Now I'd like to share some more details about our strategy, our execution on that strategy and our continued growth and momentum in the cloud. We continue to make strong inroads into the enterprise market as the cloud contact center model is being increasingly adopted by larger organizations. We added 4 new Fortune 500 companies during the quarter and now have 36 on our growing client roster. As of the quarter end, we have 15 customers with annual reoccurring billings of over $500,000. Three of the new deals signed in Q3 are with customers who will yield over $500,000 annually once they are fully deployed on our system. So we continue to successfully move upmarket and win large enterprise deals.

An important factor for us, as well as for all other SaaS players is the ability to manage time to revenue, or in other words, the time it takes to turn up larger contracts. Often, larger organizations have more complex requirements that include integrating or consolidating multiple business systems or connecting multiple divisions and contact center locations. We are aggressively managing the implementation cycles for our larger deals.

I am pleased to report that the enterprise customers that we signed earlier this year have now begun implementation and we'll continue staged roll-out over the coming quarters. One example is a large regional bank that we talked about last quarter. The first 2 stages were completed during this quarter with 350 agents. The remainder of the project is scheduled for completion during first quarter 2014, and the full implementation will be 1,000 agents.

On the other hand, we do also continue to experience win where the customer have a great sense of urgency or a pending deadline. This rapid deployment is a major benefit of our cloud model. One such deal from Q3 was the Georgia Department of Revenue. The Georgia Department of Revenue selected inContact to help improve the customer service experience for state residents while reducing operational costs. They will finish deploying the inContact solution by year-end. As the principal tax collecting agency for the state of Georgia, the organization must scale to meet dramatic fluctuations in call volume. That ranges from 500 calls a day during slower months to up to 5,000 calls a day during the tax season. With previous system, the agency had to hire temporary workers in times of peak demand. With inContact's advanced routing, the Department of Revenue can now route calls across its 11 locations, thus maximizing existing personnel resources and reducing costs related to temporary staff.

During the quarter, we also saw continued momentum among enterprise health care providers who are faced with growing contact volumes, needing to add more services and addressing the changes mandated by the Affordable Care Act. These organizations are turning to the cloud for flexibility and scalability they cannot get with their premise solutions. In Q3, we added 10 new health care customers, 3 of which had over a 6-figure annual contract value. We expect this to continue to be a promising vertical for inContact. Enterprises select inContact for a wide variety of reasons, including: Our 100% focus on the cloud, our redundant and reliability, our connectivity options and our high-touch service models. The good news is that there is ample room for market growth. In a recent report, industry analyst firm, Ovum, predicted that a number of cloud agent seats will more than double within the next 5 years. In the same report, Ovum recognized inContact as a market leader and named us in the coveted shortlist category. According to the report, inContact led all other vendors in 4 out of 6 categories. This market leadership gives us a powerful advantage as the cloud contact center market continues to expand.

inContact is setting the pace for rapid and ongoing innovation. In September, we announced the second major release of our cloud contact center platform this year. This release included a number of unique applications that will only -- not only enhance our enterprise attractiveness, but also extend our competitive advantage. For example, our patented personal connection outbound solution connects agents at the first hello. It eliminates the awkward pause common to standard predictive dialers in the industry. A recent study by Harris Interactive found that nearly 50% of the consumers that surveyed hang up before the agent has a chance to speak because of that annoying pause. Our customers are enthusiastically embracing this new application as a game changer. We believe that personal connection opens up additional addressable market for inContact. As according to Frost & Sullivan, more than 20% of contact center spend in 2012 was related to outbound solutions.

Additionally, this release features supervisor-on-the-go, which is a new mobile app for the iPad. This app empowers call center managers with information that includes realtime control as they walk the floor. The inContact mobile app for the iPad offers significantly more functionality than what is available from competitors.

And finally, as we introduce the new inContact agent console for Salesforce. Native to the force platform, agent console sits right in the Salesforce desktop, giving agents the power to visualize their call queues, manage interactions and disposition post-call work. Seamless screen pops of relevant customer data are delivered automatically so that the agent can increase upsell and cross-sell, improving both first call resolution and customer satisfaction.

Earlier this year, we put more emphasis on our cloud workforce optimization business, which includes a combination of our own organic solutions in addition to the OEM variant suite. WFO is becoming key to the enterprise deals, helping us improve our competitive advantage. In Q3, we saw a significant growth on our WFO business, which increased the overall value of new bookings, as well as expanded contract values with current customers.

In October, we held our fifth annual users conference, ICUC 2013, which was the most successful user event in our history, with customer attendance up almost 40% over last year. The sold-out conference featured more than 25 customer speakers, industry analysts and media attendees, including a record number of partners as paying sponsors. We also had 50 prospects attending this year's conference. Last year, ICUC directly influenced more than 4 million in annual contract values, from either new or existing customers. This year, we expect that ICUC will contribute even more meaningfully to new bookings and existing customer expansion contracts.

inContact has the broadest distribution channel of the other cloud contact center players. We continue to experience good momentum in our reseller channel. And in Q3, approximately 25% of our closed deals were a direct result of these relationships.

The Verizon channel continues to perform very well each quarter. For example, in this quarter, 1 large state government customer added 9 new contracts. The Verizon pipeline is the largest that it's ever been to date, and we're extremely encouraged by these prospects.

We continue to work with Siemens, now known as Unify, to ramp their cloud business in both North America and in Europe. This relationship began slowly, but we are now seeing far better progress than previously. Even with this progress, we do not believe that Unify's actual sell-through revenue will reach the targeted minimum revenue committed by Q3 2014. However, as you recall that Siemens hired a new cloud sales team in North America in Q1, and in Q3 they closed the deal with a Fortune 100 company that has won the world's biggest brands. In addition, more than a dozen Unify associates attended our recent user conference, their pipeline is getting stronger every quarter.

We are also gaining traction with additional partners and our own sales efforts in Europe. For example, we implemented 100 seats for a wireless carrier just last week in Europe with 1 of these partners. As discussed over the past several quarters, we have begun to diversify and expand our partner relationships. The new VAR that signed last quarter has completed sales training in several regions, and we are currently working on opportunities with them that total over 1,500 seats.

The value of our combined pipeline with reseller contracts continues to climb each quarter. Entering Q4, reseller deals are approximately 18% of our total pipeline value, which is up more than 45% from last year.

In summary, the cloud contact center market has clear and powerful momentum, as evidenced by both the growth forecast of industry analysts, as well as the continued acceleration of our enterprise business. These dynamics are great news for inContact. We are a leader in a market that is expected to more than double within the next 5 years. 2013 has been our most significant year for innovative new products, which are in demand with companies of all sizes as they adapt to rapidly changing customer expectations. We have a strong and growing distribution channel that will help us reach the broadest possible audience. We are winning in many large vertical markets and we are converting enterprise bookings into successful implementations and revenue. In fact, we are seeing record achievements across all of these business metrics, including sales pipeline, bookings, implementations and revenue.

We are up to a strong start in bookings for the fourth quarter. We strongly believe that all of this adds up to a record year for inContact, and great momentum heading into next year.

Now I'd like to turn the call back over to Greg to provide additional details on our Q3 financial results.

Gregory S. Ayers

Thank you, Paul. First, I will recap the definitions of our 2 operating segments, software and Telecom. I will then cover our Q3 operating segment and consolidated results, as well as other financial highlights.

Our first segment is the Software segment, which includes all monthly recurring revenue related to the delivery of our software applications, associated professional services and setup fees, as well as minimum purchase commitment revenue. For Q3 2013, I am pleased to report that our Software segment revenue increased to $17.1 million, which represents a 23% increase over the $14 million in Q3 2012. This increase was the result of the following 3 key drivers of our Software revenue: The first driver of quarterly Software revenue growth is existing customer retention. Our Software revenue retention for the quarter remained a very strong and was consistent with previous quarters at a rate above 92%. The second driver of quarterly Software revenue growth is the variable utilization of software services by existing customers. This metric fluctuates due to the seasonality, customer service activities and macroeconomic conditions, as well as the revenue generated from the sale of additional services to existing customers. The measurement of this revenue growth is similar in concept to the retail industry's use of the same-store sales metric. In other words, it excludes attrition and new customer contract revenue. With these existing customers, we experienced a 2.2% increase during the quarter, primarily driven by higher utilization by customers. The third and final driver of our Q3 Software revenue growth is revenue from new contracts that are not yet included in the same-store sales metric. We closed 71 new contracts in the quarter, 52 of which came from new customers, and 19 which were upsells to existing accounts where we expanded our footprint in agent seats, new locations or additional software application offerings. We estimate the expected future value of these contracts will be approximately 35% higher than the total estimated annual contract value of our Q3 2012 bookings.

I would like to take a moment to remind you how inContact calculates bookings. Bookings is an estimate of the annual contract value and not the full value of a multiyear contract, nor does it include the estimated associated connectivity revenue. We believe that this bookings calculation is a better reflection of the true Software revenue run rate that will be added to the business.

In Q3 2013, Software segment gross margin was 59% on a GAAP basis and 71% with noncash charges added back, compared to Q3 2012 60% and 72%, respectively. This slight decrease in gross margin is principally attributable to higher customer service and professional services costs and higher levels of amortization related to acquisitions of technology. Q3's $10 million of Software segment gross profit represents a company record.

Our second segment is the Telecom segment, which includes all voice and long distance services, provided to both our Telecom-only legacy customers, as well as to our Software segment customers. Telecom segment revenue for Q3 2013 was $15.1 million, an 8% increase over the $14 million in Q3 2012. As 80% of the Telecom segment revenue is generated by our Software segment customers, we expect Telecom segment revenue to continue to move in parallel to Software segment revenue.

The Q3 Telecom segment gross margin increased to a record 36%, up from 34% in Q3 2012. This increase in gross margin is principally attributable to continued leverage from our telecom equipment investments. Q3's 25% Telecom segment operating margin is the highest in the company's history.

Our consolidated results for Q3 are as follows: Consolidated revenue increased to $32.2 million, a $4.3 million increase or 15% from Q3 2012's $27.9 million. This revenue increase was driven by the growth in our Software segment and Software-related Telecom. Now that the Software-related Telecom revenue has grown to 80% of total Telecom revenue, 91% of our consolidated revenue is derived from SaaS contract billings and for Q3, totaled $29.2 million.

Consolidated gross margin percentage was 48% in the third quarter, compared to 47% for the same period in 2012. This increase in gross margin is principally attributable to improvement in the Telecom segment through leveraging fixed costs, adding back noncash charges. Consolidated gross margin percentage on a non-GAAP basis was 55% for the third quarter, compared to 54% for the same period in 2012.

Operating expenses were $17.9 million, up $4.1 million from Q3 2012's $13.8 million. Approximately 60% of the increase came from higher levels of investment in Software segment sales and marketing. As Paul mentioned previously, the investment in sales and marketing has paid off over the past 13 quarters, as we continued to achieve year-over-year strong bookings.

GAAP net loss for the quarter was $2.5 million or $0.05 per share, as compared to a net loss of $882,000, or $0.02 per share for Q3 2012. The increase in the net loss is primarily attributable to an increase in noncash charges. Adjusted EBITDA, which is a non-GAAP measure, is an important metric of our operating results due to the significant amount of depreciation and amortization resulting primarily from previous acquisitions of software products, customer bases, network technology, amortization of capitalized software development costs and stock-based comp. Q3 2013 adjusted EBITDA was $1.9 million, versus $2.2 million during the same period in 2012. Year-to-date adjusted EBITDA is approximately $6 million, which is ahead of our expectations of managing the business to approximately $4 million in adjusted EBITDA for the full year.

Q3 marks the seventh sequential quarter that we've generated positive adjusted EBITDA. As of September 30, we had $47.6 million in cash and had access to an additional $18.5 million under our line of credit and term note facility.

In summary, we're pleased with the company's continued success and look forward to continuing our strong momentum over the remainder of the year.

Paul and I will now turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Mark Murphy with Piper Jaffray.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Paul, I wanted to ask you, you had commented on a record pipeline. Is there anything you can share with us in terms of the texture of that pipeline? Is it ahead of your expectations? Is it heavily weighted towards larger deals that will take longer to deploy? Is it more tilted toward some of the partner -- some of the channel deals that you mentioned, and so on and so forth?

Paul Jarman

Yes. So as I mentioned, Mark, about 18% of that pipeline is from the resellers and the rest is coming from our own direct efforts, marketing and referral agents and the different groups that we have. So first of all, I'd say this, is that we are seeing continued interest from that mid and kind of larger mid-customer, seat sizes between maybe 100 to 500 seats. That's probably the biggest chunk of it. And then we see a good size that goes above 500, and a good chunk that goes below 100 seats. So the first thing I would say is that it's really growing nicely from our own efforts, our referral partners and our OEM partners. There's no single, really, significant driver that's out of percentage as you look across the board. Secondly, I would say that we are continuing to see larger opportunities. And some of those are in that midrange, 100 to 300, 400 seats, which we treat pretty much like everything else. And some of those are 1,000 seat deals or larger deals that will take a little longer to implement as we sign them. But what we certainly are seeing is that, there's more and more interest, especially in that mid and larger mid to the cloud.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay, great. And, Greg, I wanted to ask you kind of translating that commentary on the record pipeline, just in terms of how you're designing the business plan. Any high-level thoughts on what we could expect for the growth rate of the Software business? And I mean exclusive of Siemens for the next year to looking forward? In other words, just -- if you can get at the trend of the broader diversified business, maybe you can help us to understand your ambitions there and what might be possible?

Gregory S. Ayers

Yes, Mark, so thanks for your question. I think that it is important to look at the Software segment growth in that way. Based on Paul's comments, the Siemens guaranteed revenue in Q3 will -- at this point, appears to present a slight drag on our overall Software segment growth rate. Paul...

Paul Jarman

Yes, and on the other side of that, I would just say, we look at this market, Mark, and we think that it's reasonable for us to be able to grow organically above 30%. And we see the previous bookings, we see the pipelines and we'll give more formal guidance in the next call as we start the year. But organically, we see this market speeding up.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay, great. The other question, Paul, when you unveiled the outbound dialer technology at the user conference, the audience responded to that very, very enthusiastically. And it made me wonder, if perhaps you can share the pricing for that option, or maybe for what portion of your installed base you think that, that could be a likely cross-sell opportunity?

Paul Jarman

You bet. So there's a couple of things to that question. The first thing is, is remember, in the past, we've been mostly known as a company providing inbound technology. So the first thing this gives us is access to really an additional 20% of the market with an innovative product. So that part, you're going to see pricing for that outbound only between maybe $100 and $150 based on sizes and different things. Secondly, you're going to see between $20 and $40 upsell on a currency as you add that technology. So I would say, most companies have some need for either blended inbound and outbound or some additional outbound. So we're going to see 2 things. We're going to see nice uplift from current customers as they use us for some of that process. And secondly, we're seeing opportunities where in the past we really didn't go after them for pure outbound or more outbound and smaller inbound than we've been able to in the past. So we see nice cross-sell upsell adding to the total price per seat for the package, and we see a whole new market that we've really spent really time in until what we just released a couple of weeks ago.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Great. And last question I wanted to ask, Greg, if this makes sense to you. There was a comment that -- Paul made a comment that the bookings number you produced this quarter, which is a nice looking number, that it occurred against a tough comp. And I think -- so optically, we look at that, the comp from a year ago, we know it was somewhere north of 20%. But I don't think we know exactly what that number is, but I think that number itself a year ago occurred against a very tough comp. So in other words, the number -- the absolute number a year ago is probably a lot higher than we all realized. Is there anyway, if I'm making sense, that you could just help us to understand the commentary about the tough comp?

Gregory S. Ayers

I think you're spot-on, Mark, with regard to it being a high comp. I think that the kind of litmus test or validation of the bookings number this quarter is that it was a record for the company. And so I think it's the third quarter in a row sequentially that we have established a new high mark with regard to the estimated ACV.

Paul Jarman

And last year, Mark, it was a record -- from a numbers standpoint last year, it was a company record. And though it was a smaller percent, the year before was a bigger percent, which I think is what you're also asking, and third quarter has been a new record each of the last 3 years. So you are right, we're working off records and we are working off a tougher comp 2 years ago?

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay. So just to be clear on that, it's a record on top of a record. And you're saying, the absolute ACV bookings number in Q3 is higher than it was in Q2? And it's higher -- it's also higher than it was Q4 a year ago, correct?

Paul Jarman

It's the highest ever for the company.

Operator

We'll take our next question from Jeff Van Rhee with Craig-Hallum.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Couple of questions. First, I apologize, I kind of jumped on a little bit, but did I miss the guidance there?

Paul Jarman

We didn't give guidance for 2014 yet, Jeff. We will do that in the next call, but we did obviously talk through some of the things that we see in the quarter.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And for Q4?

Paul Jarman

No change in guidance.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. So reiterate. Okay. If you segment the sales effort, it sounds like a lot of progress from some of the partner channels and it seems like more to come. How would you take the core direct sales effort in terms of -- I mean, seemingly if the new channels are delivering more than the core is doing something less than 35% bookings growth? Talk about your satisfaction with the core direct sales effort.

Paul Jarman

Yes, so remember 2 things, Jeff. Number one is that, that core sales team helps to close the referral partner deals and participates in many of the reseller deals as we get these teams online. So the first thing I would say is that the core percent, even though as the resellers went from 0% to 18% of pipeline, that's the core, and during that same period has grown at least at equal percentages. And so, remember that the core itself has actually moved quite nicely. And your question is, if the resellers coming off the 20%, is the core not moving? No. Really what you're seeing is some of the core is helping the resellers be successful. And secondly, we've added from low 30s to that 43% in the last, really 9 months, and so there's a portion of that core that's really coming on right now into what I call a productive period.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And then back to the Siemens for a second. Could you just maybe expand a bit on that after we go off the guaranteed minimums? Obviously, you're not guiding the forward year, but we've to put some models out. Can you give us a little better sense of the sequential drag that you envision from that?

Paul Jarman

Yes. So first of all, Jeff, as you know, I can't give individual numbers in some of these areas for the agreements we have. But I would say this. First is, we're seeing some nice progress there as far as the people they've added, the pipeline that's coming and the efforts that's hitting them. And part of that is -- Europe is getting more cloud friendly, and they're having to respond more to the cloud. So I want to first emphasize that we see progress in that relationship. Secondly, as we see these bookings accelerate from Siemens, we have to recognize that it still takes time to implement some of those different contracts into the model. And those implementations will take longer than what that ramp has. So basically, I'm not going to tell you, Jeff, exactly where that will be, but I'll tell you that our goal is to not make that a meaningful difference.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And then 2 last ones, if I could, Greg. The same-store number was seemingly very strong, if I remember right, compared to your expectations. So 2 questions. I guess, one, if you could just validate that was solidly ahead of your expectations. And two, if there was any 1 or 2 line quick explanation as to where most of that came from?

Gregory S. Ayers

So Jeff, the 2.2% increase, quite frankly, was pretty much in line with what we've experienced in Q3. Meaning that in Q3 of '11, it was up 0.9%; in '12, it was up 1.4%. So 2.2% was certainly ahead of historical experience, but we expect to see that slight uptick in Q3. And then obviously, Q4 is seasonally, generally, even much stronger than that. So I will tell you that we have sold more WFO to customers during the year. So it was really, in addition to just utilization, it was probably more upsells of additional products to existing customers.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And last one for me then. As I look at the bookings -- again, this is kind of -- to Mark's first question. It's tough because we don't have absolute numbers, but the year earlier bookings number showed a bigger percentage in Q4 than Q3. How do we think about year-over-year growth? Namely, are we going to see something like 25% or 30%, but the commentary will be it was on an even tougher compare, or how do we -- if you can give just a little more color or clarification there, if possible.

Paul Jarman

Yes, you bet. So the first thing I'd say, Jeff, is we have what we think is good visibility. And I mentioned in the script that we see a very strong start to the fourth quarter. I mentioned we have a record pipeline and you're never done until you're done. But certainly, that bracket for us is somewhere probably between 3 -- 30% and 50%. It's somewhere within that -- that general range is what we would see that would likely happen.

Operator

And we'll take our next question from Mike Latimore with Northland Capital.

Michael Latimore - Northland Capital Markets, Research Division

Just on the usage, I guess. Does the 2.2%, does that trend indicate that maybe the fourth quarter would be in line with normal seasonality or below? Or how do you think about the kind of fourth quarter seasonality on usage?

Paul Jarman

And Greg might add to this, but I would say, Mike, first of all, last year it was up around 5% or 6%, so it was a very good seasonal quarter. I would guess the range is somewhere between 3% to 7%, somewhere in that ballpark. I know that's a pretty big range, but we kind of know it when it builds because some of that is certainly driven by the Christmas and holiday processes. And we're going, to see it -- we expect it to look pretty good. We just -- I would keep to that range until we know the exact number.

Michael Latimore - Northland Capital Markets, Research Division

And I think you said that 25% of bookings came from resellers this quarter and you think at 18% of the pipeline for fourth quarter. Can you just give a little more color on the difference there?

Paul Jarman

Yes. So the first one we gave you is -- just to be clear, is that the -- the 25% is the number of deals in the third quarter and then we just gave you a percentage of pipeline going into fourth, so the metric is a little different. But I would tell you in general is that, what we're seeing is as that reseller channel grows, back to Jeff's other question, which was our core is growing as well. So that pipeline is staying pretty even between the 2. So I wouldn't read into it that the reseller number will be less. It will just grow as a percentage as the whole pipeline and deals and bookings grow.

Michael Latimore - Northland Capital Markets, Research Division

Okay, got it. And are you investing in -- investing more resources in the ability to do implementations? Is that an organization that's kind of building at this point, maybe rapidly than it has in the past?

Paul Jarman

As I said earlier, we're seeing each piece of our business grow, and so we're investing in each piece. And one of the key things, remember at implementations, Mike, is that it's not just about how many people we have here, but as those deals get bigger, there's more pieces to the puzzle. And when there's more divisions, there's timing related to when they go live. So we are adding and we will be adding. The primary constraint is not just about our own people, but it's the process of turning up larger deals between the more sophisticated integration and the stair-step process of the implementation. To give you one other example that we've had is we closed a deal, this is a Fortune 500 company in January. And that company took a couple of months to turn up, then a couple of months to get the other divisions in. But if you looked at their September billing, they billed about $840,000 run rate in software and over $1 million when you add the telecom. So what you saw there was, 3 or 4 months of really nothing, 2 or 3 months just ramping, and then you see them towards the end of that cycle, which was about 9 months, all of a sudden, billing close to $1 million total and over $800,000 in software. So they're going to look in general like that. And that's why we see a lot of value in these types of companies because as they become fully online, they've got great margin and they are great names and they create a lot of revenue for us.

Michael Latimore - Northland Capital Markets, Research Division

And then what's a good stock comp number for the fourth quarter?

Gregory S. Ayers

So the total stock comp for Q3 was about $1.4 million. And so I would think that, that would be a good proxy for Q4.

Operator

We'll take our next question from Mark Schappel with Benchmark.

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Most of my questions have been answered, just a few. Paul, starting with you. Last quarter, you started the longer implementation cycles, particularly in the large deal front. And I was wondering if you kind of go through some of the things that you've been doing to manage those large deals?

Paul Jarman

Yes, you bet. Yes, so first of all, typically, when you look at these implementations, the hardest part is the first step, which is getting the core integrations done and getting their first piece live. And then after that, it's just stepping it through their business. So in those examples that we had from last quarter, there was around 5 larger deals. Today, all 5 of those deals have now gone through that first step of the more complex integrated setup or turnup or implementation. And they're now at different stages of kind of progressing across the company. So we felt like the first and hardest part is done on those deals. And then secondly, they all have different timing for how they roll through their businesses.

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Okay, great. And then, Greg, moving over to you. Do you have the professional services revenue handy for the quarter?

Gregory S. Ayers

Sure.

Mark W. Schappel - The Benchmark Company, LLC, Research Division

And also the year-over-year growth rate, if that's available as well.

Gregory S. Ayers

I don't think I've got the growth rate on that line item, but the total PS revenue for the quarter was $1.5 million.

Mark W. Schappel - The Benchmark Company, LLC, Research Division

$1.5 million. And then finally, Paul, back to you. Been hearing out of some of the traditional premises on competitors out there starting to talk up their cloud games or their cloud businesses of late, and I was just wondering if you noticed any discernible change competitively out there?

Paul Jarman

Mark, there's a couple of answer to that. Let me start by first saying, in the core, in the largest of the competitors, meaning the Avayas, the Ciscos, the Aspects, we're really seeing nothing more than kind of hey, we'll host this for you. And the cost model for that is typically been very easy to compete against. As you look at kind of the other layer of competitors, Genesis made some acquisitions this quarter, but that still is really a hosted model and we feel very comfortable in the competition against them. Certainly, we're seeing like an Interactive continue to host it. They are a little more agile than some of those bigger players I mentioned. But we like our win rates there as well. So I really would say from those more traditional premise players that we're not seeing a ton more competition from a hosted basis. Usually, in most cases, we're fighting really their premise solution, and that's really the key to what we see right now.

Operator

And we have no further questions at this time.

Paul Jarman

Well, we'd like to thank everybody for being on the call and for your interest in inContact. We're excited for where we're going, and the future of this market and our company in it, and thanks and have a great day.

Operator

This concludes today's conference. You may now disconnect your lines and have a wonderful day.

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