Cloud Growth Drove Interactive Intelligence Group Inc.'s Q2 Results

By Markets Fool.com

Image source: Interactive Intelligence Group.

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According to founder and CEO Dr. Donald Brown, one number defined Interactive Intelligence's (NASDAQ: ININ) second-quarter results. That number was 204, which was the number of newly licensed PureCloud customers the company licensed during the quarter. Those sales drove the company's second-quarter results, which included double-digit revenue growth and positive operating cash flow.

Interactive Intelligence Group Inc results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$108.8 million

$96.3 million

13%

Net income

($10.2 million)

($5.1 million)

N/A

Earnings per share

($0.46)

($0.24)

N/A

YOY = year over year. Data source: Interactive Intelligence Group Inc.

What happened with Interactive Intelligence Group Inc. this quarter?

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PureCloud was the story this quarter:

  • Driving revenue growth was a 43% surge in revenue from cloud subscriptions to $31.3 million thanks to the 204 new PureCloud license customers during the quarter. Since the start of the year, PureCloud licenses jumped from 24 to more than 300.
  • Overall, recurring revenue, which includes cloud subscriptions and support fees from on-premises licenses increased 23% to $66 million and now accounts for 61% of revenue. Meanwhile, license and hardware revenue grew 10% to $29.7 million while services revenue slipped 16.1% to $13 million.
  • The company's operating loss widened due to higher costs with sales and marketing costs rising 17.5%, research and development costs surging 39.2%, while general and administrative costs increased 8.3%.

  • Despite rising costs, the company generated $1.7 million in cash from operating activities, which is a complete reversal from the second quarter of last year when it used $1.7 million in cash from operating activities.

What management had to say

Brown commented on the company's results by saying that:

Our solid top-line results in the quarter were driven by the combination of 43% growth in cloud subscriptions and strong on-premises sales. In addition to a very large transaction that contributed significantly to our on-premises performance, we added another 37 new CIC customers in the second quarter for a total of six deals over $1.0 million. Our top-line growth resulted in a better than expected bottom line, and we continued to generate positive operating cash flow in both the second quarter and first half of this year.

Brown was very pleased with the rapid growth in PureCloud customers, which were up 70% from just last quarter. He noted that the company was seeing considerable interest and demand across customer groups and in all of its geographic markets. The rapid adoption of this product drove its stronger-than-expected second-quarter showing.

Looking forward

In commenting on the company's outlook, Brown said:

Looking forward, we believe we remain very well positioned to gain market share and become the leader in the customer engagement market. As the only vendor in Gartner's (NYSE: IT) "leaders" quadrant for both cloud and on-premises contact center solutions, we're uniquely capable of providing this robust technology that organizations of any size, in any industry, anywhere in the world, can implement in any way. Our commitment to innovation will continue in all phases of our business, from our new flexible licensing and pricing models and accelerated approach to solutions implementation, to, of course, our industry-leading product development.

As Brown points out, Interactive Intelligence believes it has uniquely positioned itself to gain market share because it can execute a complete vision in two key market segments. That said, it is up against some fierce competition from the likes of tech titan Cisco Systems (NASDAQ: CSCO), for example, which is also a Gartner leader in providing on-premises solutions. In fact, Cisco Systems rates higher in its ability to execute according to Gartner. On the other hand, the cloud field is much more open and represents a significant opportunity for Interactive Data, which has the leading vision according to Gartner thanks in part to PureCloud. Needless to say, its ability to continue signing up new PureCloud customers is critical to its growth going forward.

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Matt DiLallo owns shares of Interactive Intelligence. The Motley Fool owns shares of and recommends Gartner. The Motley Fool recommends Cisco Systems and Interactive Intelligence. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.