InVision. Clear vision on SaaS potential. European SaaS opportunity. Clear logic for increasing product adoption

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1 InVision Clear vision on SaaS potential Initiation of coverage Software & comp services InVision offers a rare investment opportunity as a listed European software as a service (SaaS) company. It has seen the pain of making the move across to a SaaS platform and is well positioned to gain from the growth in the use of its injixo workforce management (WFM) software and online training offerings in call centres. Although valued at a premium to more traditional, smaller listed European software companies, it stands at a significant discount to other SaaS plays. 6 March 2014 Price 39.3 Market cap 84m Net cash ( m) as at September Shares in issue 2.1m Free float 19% Year end Revenue ( m) PBT* ( m) EPS* ( ) 12/ (3.8) (3.4) 0.0 N/A N/A 12/ N/A 12/13e N/A 12/14e N/A 12/15e N/A DPS ( ) P/E (x) Yield (%) Note: *PBT and EPS are normalised, excluding acquired intangible amortisation, exceptional items and share-based payments. Our forecasts include the revenues and EBIT figures from the prelims [the only figures released]. Code Primary exchange Share price performance IVX Frankfurt European SaaS opportunity InVision offers a rare investment opportunity as a listed European software company that has made the transition to a SaaS business model and has leading positions in undeveloped markets. The majority of target users still use in-house solutions for WFM and traditional classroom training, but management sees a combined 600m market opportunity in the shift to cloud-based application-specific software and online training. The transition to SaaS has been painful but well executed and the recent results show gains in earnings terms are being seen. Clear logic for increasing product adoption The business case for InVision s WFM product is based on its low price per agent call centre WFM SaaS offer. Management estimates that the 9 cost per agent per month is more than made up for by the typical 30 per agent per month savings. It is far from clear exactly how fast the transition to professional WFM software will be in small- and medium-sized call centres but in many ways this is a situation analogous to the historical moves of SMEs to using customer relationship management (CRM) or accounting packages. With its elearning pricing set at a fraction of the level of traditional teaching methods, this business area also has a compelling story, albeit a less developed one. Valuation: Premium rating but not a SaaS rating InVision is forecast to see strong underlying growth and to generate cash over the coming years. This is, to an extent, reflected in its premium valuation multiples compared to the more traditional smaller European software companies and the larger call centre software vendors, but the discount to the big names of the SaaS world is considerable. This discount could narrow as further evidence of the growth in SaaS revenues comes through. Furthermore, our simple DCF model also suggests that a higher share price is deserved. % 1m 3m 12m Abs Rel (local) week high/low Business description InVision provides workforce management software and online training for contact centres on a software as a service platform. It is based in Germany and is focused on European and North American opportunities as the market moves from in-house to professional solutions. Next event Final results 31 March 2014 Analysts Ian Robertson +44 (0) Dan Ridsdale +44 (0) tech@edisongroup.com Edison profile page InVision is a research client of Edison Investment Research Limited

2 Investment summary Description: Contact centre SaaS and online training InVision provides workforce management software for call centres. Its primary focus is on small and medium-sized centres (<150 agents), where the key growth driver is increased penetration of the workforce management software in place of ad hoc tools, such as Excel. Management believes that of the approximately 2.5m agents in small and medium-sized call centres across North America and Europe, fewer than 10% are covered by workforce management software. InVision s injixo WFM software is on a software as a service platform, allowing it to provide a low-priced ( 9 per month per agent) but fully featured solution with fast and flexible implementation ideal for small- and medium-sized customers. InVision also provides online training for contact centres of all sizes. Management believe that less than 1% of all contact centres use online training, typically relying instead on traditional classroom-based education, and it considers that this could present a similar scale market opportunity to the one InVision has in SaaS WFM. Valuation: Not valued as the SaaS play it is We have examined the valuation of InVision on both a traditional multiples-based approach and using a simple DCF model. We find that InVision trades on revenues and earnings multiples premiums to the more traditional, smaller European software companies and to the major contact centre software players. However, it also trades at significant discounts to the pure-play software as a service US stocks, including Workday and Cornerstone (HR-focused businesses), suggesting that, even considering the discount justifiable for small size and liquidity, it is undervalued. Our basic DCF analysis provides further support for the view that the rapid growth potential and cash generation of InVision as a SaaS software company are not fully reflected in the share price. Financials: Real cash generator After several turbulent years in which InVision was affected by the economic downturn and then by the transition to a SaaS business model, the company should now be positioned for strong cashgenerative growth. We forecast an overall revenue CAGR of 10%, but with the total SaaS revenues showing 20% growth. Our forecast for EBIT growth over the same period is a CAGR of over 150% as the EBIT margin expands up to the levels (>40%) expected of SaaS businesses. We estimate that the company had cash balances of 4.4m as at 31 December 2013 and even with the announced purchase of a new office building in central Dusseldorf for 6m plus approximately 1m extra for fit out and relocation costs this year, we forecast a net cash balance at the end of this year. The shift to SaaS means that there is limited requirement for capex beyond this. Sensitivities: Market take up drives the top line The key sensitivity for InVision is whether the strong positive reaction it has seen to its SaaS products will be continued over the coming years and in particular how rapidly call centres will move away from their general use of ad hoc solutions for WFM and in-house classroom based training. There is the threat of new or increased competition in InVision s chosen market but given InVision s early start and focused offering we regard this is a secondary concern for now. The issues of the majority shareholding of the management and the limited share liquidity should not be ignored. InVision 6 March

3 Company description: A niche SaaS opportunity Background InVision is a leader in the provision of workforce management (WFM) software as a service and online training to call centres. Management believes there is a 600m market opportunity as these markets move from ad hoc in-house solutions, often Excel-based, and in-house classroom based training to professional systems and online education. InVision was founded in 1995 by three young computer scientists in Dusseldorf. Having started by creating enterprise-specific solutions, by 1997 they had begun to focus on solutions for call centres based around Windows client-server architectures. The company remained within the local German speaking markets for its first few years, but in due course it began serving clients in France, Italy, the UK, the Netherlands and Sweden, making its first move into the US in In 2007 the company floated on the Frankfurt Stock Exchange. Having been knocked back by the global financial crisis in 2008 and 2009, InVision launched its SaaS product in early 2011 and shortly afterwards announced the bold strategic move to adopt a pure software as a service business model over an 18-month timescale. Call centre workforce management software The basic task of workforce management software is to work out the staffing levels required to match specific service levels and to predict ongoing staffing needs. The systems work to provide the best fit to service levels, labour costs, regulations and agents preferences. Historical data and predictive modelling are used to forecast demand on agents. Records are also made of actual activities, and subsequently used in the reporting of agent and call centre performance. The obvious benefit of this is that it reduces the costs of providing the required service levels, but, often more importantly, it significantly reduces the chances of understaffing, a failure that can lead to penalty payments far greater than the costs of overstaffing. The cost of staff is by far the greatest element of running a call centre, with industry studies suggesting it accounts for around 70% of costs in developed markets (source: Global Call Center Network). The task of managing this cost is typically ignored in setting up smaller call centres, and it is not until the centres are up and running that managements seek better ways of addressing the issue. InVision s management estimates that in a typical small or medium-sized call centre, for the cost of 9 per month for its injixo WFM product, 30 per month can be saved per agent. We understand that in some cases InVision s customers have seen savings of 25% in labour costs or 80% in administrative time. elearning for call centre staff In addition to the provision of software as a service, InVision also provides training for call centre agents. Having purchased The Call Center School (CCS) in 2011, management has taken this wellestablished but traditional training business and reinvented it. It has stripped out the traditional training methods and developed the online resources to create an elearning platform based on the leading content and reputation that CCS has in the US. While this is not a major contributor to the top line at present, with revenues of 0.2m in FY13e, it should grow strongly, be cash generative and complement the software offering for call centre operators. Management has priced the offering aggressively, setting the cost at, it believes, 10% of that of equivalent classroom training. Furthermore, with less than 1% of all contact centres using online training, management believes the directly addressable market in North America alone is in the region of 300m per year. InVision 6 March

4 The call centre market According to research conducted by Pelorus Associates, there were nearly 95,000 call centres worldwide in Of these approximately two-thirds were in the US and over 20,000 were in Europe. The total number of agent positions globally was a staggering 7.6m. Looking at North America, although the largest call centres account for around 50% of agents, there are still a considerable number of agents in small and medium-sized call centres, 1.6m according to Pelorus estimates. We believe that the mix in Europe is more towards the smaller and medium-sized centres, suggesting that a total potentially addressable market in excess of 2.5m agents exists for InVision in its chosen markets of Europe and North America. Management believes WFM software penetration in the sub-150 agent market to be around 10% but expanding rapidly. While the move towards larger offshore locations was a key feature of the industry in the last decade, in recent years there has been something of a reversal following adverse customer reactions. InVision does not target these vast offshore call centres, but the move to onshoring has seen an expansion in both larger and smaller call centres. A further development in the call centre market in recent years has been the growth in virtual call centres, where many of the operators are actually working from home. Managing this type of workforce poses much the same challenges as those of a traditional call centre plus a few more besides, most notably with respect to performance tracking, accountability and productivity. InVision s management believes that its product is well suited to address the challenges of virtual call centres. InVision move to SaaS Seeing the opportunity in the small and medium-sized market, and understanding that the upfront cost of WFM software was its greatest challenge in the market, towards the end of the decade InVision s management began to explore the potential of cloud technology and then began the development of its own cloud platform (injixo Platform) and the initial WFM application. Having launched and seen the reception for its SaaS product (then called iwfm.com) in early 2011, the formal announcement was made in mid-2011 that the whole company was moving across to a SaaS-based approach. Software as a service is the provision of the software and the required computing power as an allin-one service with the software being run on the software vendor s own computers (or those of a third-party provider) and the customer accessing this via the internet. The customer typically pays for the service on a monthly or annual subscription rather than via the traditional high upfront licence fee with accompanying implementation, maintenance and service costs. Additionally, of course, the SaaS customer no longer needs to invest upfront in significant computing power of its own. The flexible model that SaaS offers is particularly attractive to smaller businesses. On a simple cost basis this compares very favourably with the cost of a traditional workforce management software solution and its accompanying service and hardware expenses. InVision 6 March

5 Exhibit 1: SaaS vs traditional on-premise cost comparison ( ) Number of employees ,000 Old on-premise model Hardware 10,000 10,000 10,000 Subject Software 41,000 54,000 67,000 to Service 56,000 67,500 90,000 negotiations Old Model 107, , , ,000 Cost per annum over five years 21,400 26,300 33,400 60,000 New SaaS model Subscription pm per agent Not competitive Cost per annum 2,700 5,400 10,800 Not competitive Difference per annum 18,700 20,900 22,600 Not competitive Difference per annum per employee Not competitive Source: InVision Although the change in business model was painful (hits to revenues and costs of rewriting software and restructuring operations), the move makes InVision the only leading WFM software provider with a full SaaS service. The only explicit charge taken for the cost was a 0.5m provision in 2011 but there was a rise in the overall other expenses line of 1.5m that year. The primary cost of the process has been in development spend and the service and licence type revenues foregone. The company has been focusing a significant proportion of its R&D effort on the development of its web-based product for several years and has spent over 20m in the four years leading to the transition. It is, of course, impossible to say exactly how much short-term revenues have been affected by the move, but we estimate it amounts to low double-digit millions of euros. The move to a SaaS platform should mean development spend is lower and also more effective. InVision is now working only on a single, universal WFM product for its customers, and the cost of implementing new features or revisions is now minimal because it simply has to update the software that all the SaaS users are working on. Exhibit 2: R&D spend ( 000) 000s 6,000 5,000 4,000 3,000 2,000 1, e Source: InVision, Edison Investment Research Competition The call centre workforce management software industry is dominated by several large players that focus on serving the large call centre market. Approximately 80% of that market has software provided by Aspect (US, private), NICE-IEX (US, NICE.Q) or Verint (US, VRNT.Q). Behind these leaders come Teleopti (Sweden, private), InVision, Pipkins (US, private) and Calabrio (US, private), with a handful of smaller players fighting for the last few percent of the market. The large call centre market is a mature, international market with limited growth opportunities and it is not the target market of InVision. That said, InVision retains a position in this market through those of its larger InVision 6 March

6 customers that transitioned to the injixo WFM SaaS product or who remain on the legacy InVision WFM on premise product. Importantly for InVision, the growth efforts of the leaders are focused not on moving down the size range, but on expanding their product suites into other call centre functions (such as call handling, recording or voice analytics) or across the wider enterprise/customer market (such as enterprise resource planning [ERP] or CRM). Competition for InVision in its target markets comes in the form of other solution-focused software providers, but management believes that its SaaS-focused solution is the best placed to serve this market as it transitions from ad hoc internal methods, typically Excel-based, to professional software solutions. In some ways the situation is analogous to the rise of PC-based accounting systems for small and medium-sized enterprises in the 1990s and the growth of CRM in SMEs in the last decade. Others offer products with hosted operations, notably GMT (now part of Verint), ISC (US, private) and Pipkins, but these are solutions aimed at the larger end of the market. Furthermore, they do not offer true cloud approaches and so their cost structures remain firmly within the on-premises model. Calabrio, Monet (US, private), NICE-IEX, Verint and WFMSG (US, private) have all produced products aimed at the smaller and medium-sized call centre markets, but these are typically more limited versions of pre-existing software platforms that have lacked the flexibility of implementation that InVision s injixo WFM offers as a built for SaaS product. Of all the solutions we believe that Monet has the closest offering to that of InVision, although Monet remains tied to a more traditional sales approach, with the additional costs and complications of resellers. The Call Center School faces no significant direct competition in the elearning space. The market for contact centre training is predominantly in-house provision or small, private providers of classroom-based education. IMCI, part of UBM (UBM.L:UK), is perhaps the most significant player. Although it has webinars, its main offering is very much in the traditional non-scaling traditional model. Customers Although InVision has attempted to move its clients across from licence fee and maintenance contracts to SaaS, some of its larger and more conservative customers have remained on the traditional on-premise product (InVision WFM). These clients are predominantly in Germany and France, but InVision no longer actively promotes on-premise products in any market. In recent years InVision has seen a significant broadening of its customer base. In 2007 the top 10 customers accounted for over half of revenues. They now account for less than a fifth. This move has been driven in large part by the change in the product and business model. This is not to say that the larger client base has been abandoned; InVision retains Deutsche Telekom (Germany, DTE.DE) and IKEA (Sweden, private) as two of its largest customers. Furthermore, it should not be assumed that smaller call centres mean insubstantial clients as injixo WFM cloud customers include CareUK (UK, CUK.L) and Convey Health (US, private). The broadening of the client base in recent years has also been accompanied by a geographical shift in the mix with over half of new customer wins now in the US. This shift towards the US is, of course, increased by The Call Center School, which counts Coca Cola (KO:US), American Express (AXP:US) and Bank of America (BAC:US) among its customers. Route to market By moving to a SaaS approach, InVision no longer requires the typical software company s mix of salespeople, value-added resellers or complex partnership arrangements to get to market. The sales and marketing process is now more focused on marketing rather than selling. The customer InVision 6 March

7 finds out about InVision through marketing (or already knows the brand), visits the website, expresses interest online, is contacted by a sales advisor and given a demonstration and basic training, runs a trial, and then subscribes to a standard product that, with a few flicks of software switches, is adapted to its requirements. Management The management board is made up of two of the three founders of the business, Peter Bollenbeck, mainly responsible for R&D, and Armand Zohari, principally responsible for sales and support. The third founder, Matthias Schroer, who was on the management board until 2011, is a member, along with two others, of the supervisory board. All three of the founders hold significant stakes in the company. The management clearly has the skills and experience to run the business and the capability to make and execute difficult decisions, as shown by the move into SaaS. The fact that members of management continue to participate directly in areas such as product development suggests to us that they will remain grounded in their view of the business. Sensitivities The main driver to the value of the business (see Valuation section below) is whether call centres will move across to SaaS solutions, and more specifically to InVision s products. However, there are other sensitivities that require consideration: Continuing take off in SaaS revenues although the progress to date has been impressive there are risks that the shift of small and medium-sized call centres to workforce management software takes longer than management anticipates. The low price points, rapid payback and flexible implementation suggest to us, at least, that the shift from ad hoc solutions based on applications like Excel towards workforce management software is inevitable, in a way that is similar to accounting and CRM systems before. Competition at present InVision appears to have a lead on both its smaller and larger competitors with regard to the small and medium-sized call centre markets. However, it is quite conceivable that a larger player could create a suitable flexible product or that a smaller or new player could provide a credible product. Open source it remains possible that open-source software could become available for workforce management. However, while such products exist for CRM and accounting, we do not regard it as likely that such a niche software development would attract the required support of open-source developers. Subsuming of product there are a number of software applications within a call centre environment (call handling, voice analytics, dialling systems), and it is noteworthy that some vendors have attempted to grow their business through adding adjoining products. Workforce management could well be one such adjoining product that non-competing vendors may have in their sights, but vendors wishing to move into this space face a choice between developing their own solution or buying one. Taxation as at December 2012 InVision had 12.7m taxable losses available, and it has a very advantageous tax situation (our forecast accounting tax rate is 9.5%). Should the tax situation change with regard to these losses in Germany or the low taxation of IP-related income in Switzerland, this could affect the value of InVision and its shares. Management the concentration of the decision-making and the shareholdings in one place is a common issue among smaller listed companies and it is very much the case with InVision. InVision 6 March

8 We note, however, that management remains committed to the business and that it appears to relish the challenge ahead. Financials Earnings Outline We forecast an overall revenue CAGR of c 10%, but with the total SaaS revenues showing 20% growth. Our forecast for EBIT growth over the same period is a CAGR over 150% as the EBIT margin expands up to the levels (>40%) expected of SaaS businesses. Our forecast incudes the revenues and EBIT figures released in the summarised preliminary results statement on 18 January, but all other elements of the FY13 figures are our estimates. Final results are due for release on 31 March. Revenues Once adopted, Workforce management software is part of the day-to-day operations of a call centre and customers do not stop using it and rarely change suppliers. This means that InVision can predict with some degree of certainty its ongoing base revenues. Although the SaaS business model removes the certainty of multi-year contracts it also removes the large upfront licence fees that can prove problematic when the economy turns down, as InVision found in SaaS transition effect on revenues mix The move to SaaS has disrupted the top line as the business has transitioned across to a subscriptions-driven model and management has actively managed down the services and licences revenues that InVision saw as a traditional software business. As noted above, the exact amount of short-term revenues foregone is impossible to measure, but we estimate that it is in the region of low double-digit millions of euros. Following the move, the long-term prospects are for higher margins, a more scalable business model and a far better position from which to attack the small and medium-sized call centre WFM software market. Exhibit 3: Revenues transition 000s 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, e 2014e 2015e Software and Subs CCS/eLearning* injixo WFM* injixo ex on premise* On premise legacy Service Source: InVision, Edison Investment Research. Note: *SaaS-related revenues. We forecast that the ongoing injixo WFM income from customers transitioned from InVision WFM (the on-premise product) will remain broadly flat. However, we do forecast strong growth in revenues from injixo WFM from new customers as small and medium-sized call centres transition across from internal solutions to low-cost, flexible software offerings such as InVision s. InVision 6 March

9 Call Centre School acquisition and refocusing The Call Centre School is a long established US business with an excellent reputation and a wide range of call centre training products but it was a constrained business. It principally undertook classroom training but was also increasingly working through webinars and e-learning. As a result of this CCS began to work with InVision. Seeing the opportunity to leverage the brand and expertise of CCS across its own and a yet wider customer base, InVision acquired CCS in June 2011 on, we estimate, a revenues multiple of little more than one. InVision s aim is to focus purely on the scalable e-learning business and to end the traditional business. Once again this will have reduced revenues from around 1m a year to approximately a quarter of that level in In the medium to long term, the impact on actual profitability should be a marked improvement. We forecast good growth from the reduced revenue base as the e-learning business becomes established and then moves broadly in line with the growth of injixo WFM. Core Practice disposal Another area in which we expect to see reduced revenues is in services revenues, where the disposal of Core Practice to an MBO means that the 2.8m seen in 2013 is likely to fall to around 1.5m in Core Practice is a small consulting business giving advice on workforce management processes and optimisation. Although profitable the business does not sit with management s strategy of building a purely scalable business. SaaS impact on costs The restructuring and active management of costs has had a dramatic impact upon the underlying cost base at InVision, as shown in the waterfall chart below. InVision is now able to support the same level of customer service with a cost base of just under 10m, whereas a few years back it was incurring annual operating expenses of twice that rate. This chart shows the before and after shots but does not reflect the more than 1.5m increase in other expenses that was seen in Exhibit 4: Income statement transition e 2,000 1,500 1, ' ,000-1,500-2,000 FY10 EBIT Revenues, Other Income COGS Personnel Amort. & Dep'n Other Opex FY13e EBIT Source: InVision, Edison Investment Research The reworking of the software and the changes in the business model have been reflected in the workforce at InVision. The most obvious evidence of this is in the employee numbers; 119 at the end of Q313, down from 163 at the end of 2010 and 241 at the end of But there has also been a significant shift in the mix of skills required of programmers and marketers/salespeople such InVision 6 March

10 that of the 119 staff, only about half pre-date the decision to move to SaaS. Of the current employees, over half work in some form of product development role. Two-thirds of the remainder are in customer-facing positions and the rest work in corporate administration. Staffing remains the largest element of costs accounting for approximately 7.5m in 2013e, 65% of total costs (FY13e Edison estimates). InVision does not actually host the injixo WFM services itself but instead uses Amazon Web Services (AWS) to do so. The cost of piggybacking on the back of Amazon s vast hosting resources is relatively small and significantly less than the cost that InVision would require to undertake the task in house. Additionally, AWS is immediately scalable and provides guaranteed levels of security and uptime that would require a whole technical team were InVision to attempt to do it in-house. The focus on costs has been applied across the board at InVision with almost all of the software within the business now being open source. Taxation As seen above, the corporate and product history of InVision shows that the management is not afraid to innovate or make bold moves and this is even visible in the tax charge. In 2009 InVision took the opportunity to sell its IP to a Swiss subsidiary. As a result of this transaction InVision is exposed to a lower tax rate on its profits such that the group accounting tax rate is expected to trend towards the 9.5% rate that the company pays on its profits in Switzerland. Management believes that this will be the long-term sustainable tax rate for the group. However, with approximately 21m of taxable losses carried forward into 2014e, InVision is currently paying negligible or nil cash taxes and we do not forecast tax payments within our explicit forecast period. Forex Most of InVision s revenues are currently earned in euros and most of its costs are also in euros. However, the shift across to the SaaS model has meant that US revenues are growing strongly. The refocusing of the activities of The Call Centre School may temporarily reduce the US dollar exposure, but we expect the US dollar costs to also rise, albeit not as fast as the revenues. The company holds its cash balances in euros. Cash flow Cash generation is strong. The SaaS business model ensures that payments from debtors are received on a timely basis. The main cash outflow that we anticipate in the short term is the purchase of a new building within Dusseldorf rather than in the suburb of Ratingen. The 6m cost of the building and the anticipated 1m more of renovation, moving costs and the like is to be financed by both cash, approximately 3m, and debt, approximately 4m. The rental saving of 250k a year is expected to be more than the interest income foregone and the 1.3% interest charge on the debt. Having moved to SaaS and using AWS, InVision no longer has the requirement to spend on costly servers or storage equipment of its own. The move has not, of course, reduced the requirement to spend on improving and broadening this product with a development spend of approximately 3.5m a year, none of which is capitalised. In May 2013 InVision embarked upon a share buyback programme of just over 2% of the shares outstanding, and this was extended in December 2013 and January Although at present it is on hold, we expect that this policy of buying in shares will restart in the absence of any major internal projects or M&A opportunities. We believe that any acquisitions in the short term are likely to be similar to the CCS purchase, relatively small scale, opportunistic and with a clear and InVision 6 March

11 relatively low-risk payback. Although management has released no details with regards to paying dividends, we believe that dividends could become a feature of InVision shares in the medium term. Balance sheet InVision has a strong balance sheet with no debt other than the anticipated mortgage on the new premises in Dusseldorf. Despite the bold technological moves that the management has made, it is, we believe, inherently conservative when it comes to finance something that we regard as a distinct virtue in technology companies. Valuation We have considered the valuation of InVision on both a traditional multiples-based approach and a simple DCF methodology. Multiples-based approach There are no direct listed comparators for InVision, but there are a number of companies with common features smaller European software businesses, SaaS companies and workforce or wider HR management software plays. Exhibit 5: Comparator valuation multiples Share price CCY M. Cap m EV x Y/E x EV/Revenues x EV/EBITDA x P/E x FY1 FY2 FY3 FY1 FY2 FY3 FY1 FY2 FY3 InVision 39.3 EUR Dec Workday USD 21,074 20,655 Jan n/a n/a n/a n/a n/a n/a Cornerstone OD 58.4 USD 3,083 3,108 Dec , n/a n/a Salesforce 62.4 USD 37,609 38,044 Jan NetSuite USD 8,595 8,397 Dec Verint 46.8 USD 2,502 2,876 Jan NICE 58.4 USD 2,534 2,091 Dec Allocate 1.18 GBP May n/a n/a n/a GK Software 47.4 EUR Dec n/a n/a n/a IGE + XAO 63.2 EUR Jul n/a n/a i:fao 16 EUR Dec n/a n/a Tracsis 2.33 GBP Jul n/a n/a n/a Brady 0.68 GBP Dec n/a n/a n/a Ideagen 0.33 GBP Apr n/a n/a 13.3 n/a n/a Source: Thomson, Edison Investment Research. Note: Prices as at 3 March The table above shows that InVision s revenues and earnings multiples generally reflect its stronger growth potential compared to other smaller European-listed software companies, although there are other smaller software companies that are awarded higher multiples despite their lower forecast growth. It also shows how InVision trades at a marked premium to Verint and NICE, which are far more substantial contact management software players. However, InVision s shares trade at substantial multiples discounts to the leading listed SaaS companies, Salesforce, Netsuite and Workday. It is noteworthy that Workday and Cornerstone are HR-focused SaaS businesses, giving us reassurance that HR-related software and high valuation multiples are not mutually exclusive. There is no absolute conclusion that can be drawn from these comparators. However, it does appear that, even given the likely discount for smaller company size and share illiquidity, the share price is not fully reflecting the fact that over 70% of its software revenues are from SaaS (FY13e Edison estimates) and that the target market should open up significantly over the coming years. InVision 6 March

12 DCF valuation Our DCF valuation analysis is based upon a basic scenario for the growth of the business over the next 11 years. We assume that the historical InVision WFM on-premise business is maintained, that the injixo WFM product continues to grow strongly and that, once its business and products are established, The Call Centre School revenue growth will move hand in hand with that of injixo WFM for small and medium-sized call centres. Over the medium term, the revenues see strong but declining growth such that, by the end of our DCF forecast period in 2025, growth is at the rate of the wider economy at 1% with 2025e revenues from injixo WFM of 25.6m, which corresponds to 237,000 seats at 9 per month. This would be equivalent to just under a 10% share of the estimated 2.5m seats in smaller and medium-sized call centres in North America and Europe at present. Within our DCF the EBITDA margin peaks at 53%. Although this is above the longer-term guidance of the SaaS industry majors this reflects the fact that, compared to those companies, InVision does not have as great a requirement to invest in new products, marketing or physical assets. We have included the impact upon the valuation of both the historical taxable losses and the 9.5% tax rate due to the housing of the IP within the Swiss subsidiary. Exhibit 6: DCF revenues assumptions ( 000) 000s 35,000 30,000 25,000 20,000 15,000 10,000 5, CCS/eLearning Services On premise legacy injixo ex on premise injixo WFM Source: Edison Investment Research Applying costs of capital of 10%, 11% and 12% yields share prices of 58.1, 51.5 and 46.1 respectively; this is consistent with the multiples-based analysis in suggesting significant share price potential. Conclusion on valuation Both our multiples and DCF-based consideration of the valuation of InVision suggest that the shares are currently undervalued. InVision 6 March

13 Exhibit 7: Financial summary '000s e 2014e 2015e 2016e IFRS IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 12,384 13,228 13,560 13,518 15,524 18,190 Cost of Sales (178) (340) (325) (270) (264) (309) Gross Profit 12,206 12,888 13,235 13,248 15,260 17,881 EBITDA (3,643) 1,168 2,103 3,559 5,793 8,272 Operating Profit (before amort. and except.) (3,860) 816 1,753 3,169 5,403 7,882 Intangible Amortisation Exceptionals Other 104 (125) Operating Profit (3,756) 692 1,753 3,169 5,403 7,882 Net Interest (50) (50) (50) Profit Before Tax (norm) (3,813) 829 1,768 3,119 5,353 7,832 Profit Before Tax (FRS 3) (3,709) 705 1,768 3,119 5,353 7,832 Tax (3,887) 146 (168) (296) (509) (744) Profit After Tax (norm) (7,596) 851 1,600 2,823 4,844 7,088 Profit After Tax (FRS 3) (7,596) 851 1,600 2,823 4,844 7,088 Average Number of Shares Outstanding (m) EPS - normalised ( ) (3.4) EPS - normalised and fully diluted ( ) (3.4) EPS - (IFRS) ( ) (3.4) Dividend per share (c) Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%) BALANCE SHEET Fixed Assets 2,676 2,114 1,881 8,345 7,941 7,846 Intangible Assets 1,253 1,050 1,020 1, Tangible Assets ,999 6,914 6,829 Investments 1, Current Assets 5,831 6,135 7,102 7,440 12,686 19,871 Stocks Debtors 3,845 2,833 1,858 2,222 2,552 2,990 Cash 1,667 2,490 4,433 4,407 9,322 16,069 Other Current Liabilities (4,933) (3,853) (3,862) (3,841) (3,838) (3,841) Creditors (4,913) (3,853) (3,862) (3,841) (3,838) (3,841) Short term borrowings (20) Long Term Liabilities (4,000) (4,000) (4,000) Long term borrowings (4,000) (4,000) (4,000) Other long term liabilities Net Assets 3,574 4,396 5,122 7,944 12,789 19,876 CASH FLOW Operating Cash Flow (2,102) 1,294 3,103 3,124 5,210 7,042 Net Interest Tax Capex (1,028) (374) (285) (7,150) (295) (295) Acquisitions/disposals 0 (148) Financing (653) 71 (875) Dividends Net Cash Flow (3,784) 843 1,943 (4,026) 4,915 6,747 Opening net debt/(cash) (5,431) (1,647) (2,490) (4,433) (407) (5,322) HP finance leases initiated Other Closing net debt/(cash) (1,647) (2,490) (4,433) (407) (5,322) (12,069) Source: InVision accounts, Edison Investment Research InVision 6 March

14 InVision 6 March

15 InVision 6 March

16 Contact details InVision AG Halkestrasse Ratingen Germany +49 (0) Revenue by geography CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS e N/A EPS 2013e-15e 74.0% EBITDA e N/A EBITDA 2013e-15e 66.0% Sales e 5.8% Sales e 7.0% Management team CEO: Peter Bollenbeck ROCE 14e 69.7% Avg ROCE e 23.2% ROE 14e 35.5% Gross margin 14e 98.0% Operating margin 14e 23.4% Gr mgn / Op mgn 14e 4.2x Peter is one of the three founders of InVision and is responsible for product development. Chair of Supervisory Board: Dr Thomas Hermes Thomas is an experienced corporate lawyer and is a partner of Holthoff- Pfoertner, based in Essen and Berlin. Gearing 14e Interest cover 14e N/A N/A CA/CL 14e 1.9 Stock days 14e N/A Debtor days 14e 60.0 Creditor days 14e 34.4 VP: Armand Zohari Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices Armand is one of the three founders of InVision and is responsible for marketing and customer relationships. Head of Finance: Marc Aurel Voges Marc is leads the finance team and is responsible for the financial management and reporting at InVision. Principal shareholders (as at 1 March 2014) (%) InVision Holding GmbH (Management) 24.2 Peter Bollenbeck (Founder, CEO) 17.0 Armand Zohari (Founder, VP) 17.0 Matthias Schroer (Founder, supervisory board) 11.3 % 50% Germany, Austria, Switzerland Rest of world Companies named in this report NICE-IEX (NICE.Q),Verint (VRNT.Q),Deutsche Telekom (DTE.DE), CareUK (CUK.L), UBM (UBM.L), American Express (AXP), Bank of America (BAC), Coca Cola (KO) Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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Frankfurt +49 (0) InVision Schumannstrasse 634b March High Holborn 245 Park Avenue, 39th Floor Level 25, Aurora Place Level 15, 171 Featherston St Frankfurt Germany London +44 (0) London, WC1V 7EE United Kingdom New York , New York US Sydney +61 (0) Phillip St, Sydney NSW 2000, Australia Wellington +64 (0) Wellington 6011 New Zealand