Interactive Intelligence Ekes Out a Modest Profit

Image: Interactive Intelligence.

Helping companies communicate more efficiently both internally and with clients is one of the most valuable services a telecommunications company can provide. Interactive Intelligence has been one of many players seeking to bring the power of cloud computing to the telecom world, and it has successfully found unique software offerings to enhance its clients' telecom experience. Still, coming into Monday afternoon's second-quarter earnings report, Interactive Intelligence investors weren't certain how much closer the company's results would come toward shedding its profuse red ink. To the company's credit, Interactive Intelligence went far further than most had expected, completely expunging its losses on an adjusted basis and posting a modest but meaningful profit. Let's look more closely at Interactive Intelligence and see where it could be headed in the future.

Interactive Intelligence makes a connectionInteractive Intelligence topped expectations both on the top and bottom line during the second quarter. The company posted revenue of $96.3 million, up 21% from the year-ago quarter and well above the $92 million consensus forecast. On the earnings front, Interactive Intelligence's GAAP results were somewhat ugly, with losses of $5.1 million working out to $0.24 per share. Yet after taking out stock-based compensation and other extraordinary items, the company squeezed past the breakeven mark to post net income of $307,000, equal to a penny per share.

Looking more closely at Interactive Intelligence's results shows some ongoing trends. As we've seen in past quarters, Interactive Intelligence enjoyed substantial gains in its key recurring revenue, with a 58% gain this time compared to a year ago now making up well over half of the company's total sales. Yet revenue from the license and hardware division and from the services segment also managed to climb a more modest 26% and 13% respectively.

Interactive Intelligence continued to bring in new clients. For the quarter, the company saw its customer count climb by 68, faster than in the first quarter but slightly slower than in 2014's second quarter. Of those, 38 contracts were for more than $250,000, and the company once again overcame the difficult comparison of having had a very large order in the recurring-cloud arena during 2014 to post impressive increases.

Dr. Don Brown, Interactive Intelligence's founder and CEO, was pleased with the company's results. One area he emphasized was that "Importantly for the future, interest is building for our new multi-tenance cloud offerings." Moreover, Brown noted that Latin America and the Europe/Middle East/Africa segments were especially strong, even with the strength of the U.S. dollar weighing on results.

What's next for Interactive Intelligence?Looking ahead, Interactive Intelligence has a number of opportunities. "We are the only vendor able to meet the needs of customers, whether they prefer on-premises, single-tenant cloud, or multi-tenant cloud solutions," Brown said. "We'll continue to drive up-market in delivering these solutions while also expanding our scope to increase our share in other segments of the communications markets."

The company has also done a good job of gaining access to capital markets. In May, the company raised about $145 million from a convertible bond offering. The five-year notes carry an extremely attractive 1.25% interest rate, and shares would have to appreciate considerably from current levels to trigger the conversion feature on the debt.

In many ways, the key to Interactive Intelligence's long-term performance is simply to keep bringing in new clients. The company noted that it is starting to become more efficient as the number of customers using its service has climbed steadily. With more capacity to bring on new clients, Interactive Intelligence should continue to see each new customer be more profitable than the last, and that could be the catalyst that eventually makes the company consistently post bottom-line results that are in the black.

Despite the news, Interactive Intelligence didn't respond at all in the after-hours session, with the stock finishing unchanged following the announcement. With its dedicated and successful founder still at the helm, the cloud-communications company has every prospect of continuing its string of success and finding new ways to grow far into the future.

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