For big businesses, handling communications can be a challenging and expensive proposition. Standing up to AT&T (NYSE:T), Verizon (NYSE:VZ), and other big players in the telecom industry, Interactive Intelligence (NASDAQ:ININ) has offered its customers an alternative way of getting solutions to their corporate-telecommunications needs. Increasingly, Interactive Intelligence has provided cloud-based solutions, and many see the cloud as the biggest opportunity the company has going forward. Yet the stock hasn't performed well recently, with shares having lost nearly 30% of their value in 2014. Coming into Wednesday afternoon's fourth-quarter financial report, investors hoped that Interactive Intelligence would give them reason to celebrate, and a turnaround in earnings could provide just the ticket toward starting 2015 off on the right foot. Let's look more closely at Interactive Intelligence's results and whether they could be the start to a brighter future for the company.
Interactive Intelligence's earnings soar into the cloud
Interactive Intelligence's headline numbers were actually mixed. Revenue growth of just 2% to $92.6 million was weaker than expected. But on the net income front, the company did exceptionally well, with non-GAAP figures defying expectations of a modest loss and resulting in adjusted earnings of $0.26 per share, matching last year's results.
Yet looking more closely at Interactive Intelligence's results reveals a tale of two businesses. Product sales for the quarter continued to be weak, falling more than 22%, and revenue from its non-recurring services line-item fell about 1%. Yet recurring revenue, which has become the primary driver of Interactive Intelligence's overall results, soared more than 23% to $51.3 million for the quarter, capping a year in which recurring revenue climbed almost 27%.
In particular, the cloud business was a highlight for the company. Cloud-based revenue soared 78% to $18.9 million, and total cloud-based orders rose 42%. Interactive Intelligence now gets more than half of its total orders from its cloud business, and the company saw impressive gains in the number of quarter-million-dollar and million-dollar big-ticket sales it made to clients during the quarter compared to the same period in 2013. Unbilled revenue from the cloud rose by $115 million from the year-ago period, and total deferred and unbilled cloud-based revenue climbed 37% to land above the $400 million mark.
Founder and CEO Don Brown had encouraging things to say about the release, touting its "major steps toward our goal of becoming the leading provider of technology to optimize the customer experience." Brown especially called out the success of its sales channels in developing high-revenue client relationships that make it easier for the company to sustain its growth going forward.
What's next for Interactive Intelligence?
Interactive Intelligence still has big plans for 2015. Brown pointed to the award-winning multi-tenant PureCloud platform as a focal point for the company this year, and it's clear that developing greater cloud-based recurring revenue will be the primary target of the company's overall strategy going forward.
PureCloud has a lot of potential to bring new growth opportunities to Interactive Intelligence. As the winner of Cloud Computing magazine's product-of-the-year award, PureCloud delivers enterprise communications, collaboration, and customer engagement services in an integrated platform. PureCloud gives its users the flexibility to use the services they need while allowing for future expansion as a customer's needs change. With the release of its first PureCloud-platform service last month, PureCloud Directory, Interactive Intelligence began a rollout that will later include content management, unified communications, and other related services.
Perhaps Interactive Intelligence's biggest prospect is the fact that the company gets so little attention. Only a handful of Wall Street analysts cover the stock, and the company largely flies under the radar of investors focusing more on large-cap stocks.
The key to Interactive Intelligence's long-term success is to keep attracting new customers to its platform and making it so powerful that no client will want to deal with the cost and hassle of switching. With a strong corporate culture and the benefit of having a founder who is still involved in the business and holds a 17% stake, Interactive Intelligence has a lot of potential to recover lost ground in 2015 and beyond.