Dealing with quarterly results is always awkward after a company received a buyout offer, and cloud-computing company Interactive Intelligence (ININ) is in that position following the $1.4 billion acquisition offer it received from Genesys in late August. Nevertheless, investors still have expectations that Interactive Intelligence will keep performing well even with a pending buyout, and coming into Friday's third-quarter earnings report, Interactive Intelligence investors expected good gains on the top line and a narrowing of its year-ago loss. For its part, Interactive Intelligence grew sales at a faster pace than most expected, and its adjusted earnings went positive. Let's look more closely at the latest from Interactive Intelligence and what's ahead for the cloud company.
Interactive Intelligence makes progress
Interactive Intelligence's third-quarter results were solid by most measures. Revenue climbed 13% to $110.4 million, accelerating from a slower pace toward the beginning of the year and dramatically outpacing the 8% growth rate that most investors were looking to see. Adjusted net income came in at $1.87 million, reversing a year-earlier loss and working out to adjusted earnings of $0.08 per share. That was far better than the $0.01 per share loss that represented the consensus forecast among investors.
Taking a closer look at Interactive Intelligence's financials, you can see the company's broad strategic plan toward the cloud is shaping up. Recurring revenue comes from subscription charges for cloud offerings and the fees that customers pay for support in relation to on-premises license agreements, and it jumped 23%. By contrast, license and hardware revenue was up a more modest 3%, and the revenue that Interactive Intelligence gets from services actually fell slightly from year-ago levels.
Yet an essential part of Interactive Intelligence's success was in controlling costs. Gross margin jumped by more than four percentage points to more than 64%, mostly because additional cost from incremental increases in recurring revenue is minimal. Operating expense increases outpaced revenue growth, but nevertheless, operating losses narrowed dramatically.
Interactive Intelligence didn't issue a typical press release with its results, nor did it hold a conference call following the filing of its quarterly report with the SEC. That's not unusual in a situation involving a pending acquisition, but it does mean that investors won't have the typical comments from CEO Dr. Donald Brown or other executives showing their take on performance.
What's ahead for Interactive Intelligence and Genesys?
Obviously, the most important event for Interactive Intelligence investors came with Genesys' buyout offer in late August. Under the merger, Interactive Intelligence investors will receive $60.50 per share in cash upon the closing of the merger. That will value Interactive Intelligence at a total of about $1.4 billion, and it represented a premium of roughly 35% to 40% compared to where the stock traded before news of its consideration of strategic alternatives came out.
Brown did comment in the August press release revealing the merger. In his eyes, "The combination of Genesys and Interactive Intelligence provides a complete portfolio to address all market segments by combining Interactive Intelligence's PureCloud, Cloud Communications-as-a-Service, and Customer Interaction Center with Genesys' offerings." The CEO also thinks that the deal will give Interactive Intelligence shareholders what he called "immediate and significant value" while also being beneficial for the company's employees, customers, and strategic partners.
Meanwhile, Genesys has high hopes for the future. In the words of Genesys CEO Paul Segre, "Our combined product portfolio will provide the broadest set of transformative customer experience solutions optimized for customers of all sizes and sophistication levels, available both in the cloud and on-premises." The company expects to invest in ways that will keep PureCloud and related services growing and integrating with existing Genesys products.
Because of the pending merger, Interactive Intelligence shares didn't react to the news, remaining unchanged throughout the trading day following the announcement. Unless something unexpected happens, any growth that Interactive Intelligence produces going forward will go to the benefit of Genesys rather than Interactive Intelligence shareholders.