The cloud-computing industry is broader than many investors realize, with a wide array of different services available to help a multitude of potential clients. Interactive Intelligence (NASDAQ: ININ) has its focus squarely on helping its customers use telecommunications to interact with their own clients more effectively. Coming into Monday's third-quarter earnings report, Interactive Intelligence investors remained nervous about whether the company could continue to make progress toward consistent profitability. Although the tech specialist did lose money, it also showed some encouraging signs of potential future success. Let's take a closer look at how Interactive Intelligence did and what its latest results say about its near-term future.
Interactive Intelligence is still seeing red
Interactive Intelligence's third-quarter results showed that the company still has a long way to go. Sales rose 9% to $97.4 million, which was roughly in line with what investors had expected the company to report. After adjusting for non-GAAP items, Interactive Intelligence lost $951,000, working out to a $0.04 per share loss. With the consensus forecast for a larger loss of $0.17 per share, Interactive Intelligence gave investors a positive surprise.
As we've seen in past quarters, recurring revenue growth was one of the most impressive aspects of Interactive Intelligence's recent results. Recurring revenue climbed 23% on a 77% increase from cloud subscriptions, and more than 60% of the company's total sales now comes from recurring revenue sources. Services revenue also fared well, with a roughly 14% gain in sales from the segment compared to the year-ago quarter. By contrast, license and hardware sales were weaker by 18% to $22.7 million.
Interactive Intelligence also struggled to keep costs under control. Costs of recurring revenue were especially difficult, climbing at a nearly 30% clip compared to a slower rate of increase on the sales side. Interest expense also weighed down Interactive Intelligence's growth.
Interactive Intelligence's founder and CEO Dr. Don Brown kept his focus on the long term. "We are continuing to execute on our strategy to become the leading vendor in the customer engagement market," Brown said. The CEO also pointed to both rising cloud subscriptions and follow-up cloud implementation as critical parts of its overall goal to become the leading player in customer engagement.
Can Interactive Intelligence get into the black?
Interactive Intelligence sees plenty of potential for future success. "Core to our strategy is having unrivaled customer-engagement technology," Brown said. "Being the vendor most capable of providing these options significantly strengthens our current and long-term competitive position."
A look at some of Interactive Intelligence's competitors seems to support that conclusion. For instance, inContact (NASDAQ: SAAS) saw its stock rise on the heels of a solid report in its most recent quarter, as the smaller company posted even higher growth rates than Interactive Intelligence did. Yet inContact has been stuck with net losses for a long time, and few investors think that inContact can make much progress on the bottom line until 2017 at least. Interactive Intelligence might also see losses into 2016, but it still seems more likely to find ways to push toward breakeven results more quickly than inContact.
Inevitably, some investors will be less than enthusiastic about Interactive Intelligence posting a loss, even though it pales in comparison to the larger amount of red ink that most had expected to see. With the stock having taken a substantial hit so far this year, signs that the company might actually be near posting at least a short-term bottom might well be just enough to get people more excited about Interactive Intelligence shares as a long-term investment.