Indianapolis, IN-based global customer experience software and services company Interactive Intelligence (News - Alert) Group released its third-quarter (Q3) financial results, and as in previous quarters the company’s long-term strategy and continuing commitment to invest heavily in the cloud is paying off quite nicely.
The highlights of Q3 performance were impressive, and received kudos from financial analysts on the conference call to review results for the quarter and the first nine months of the fiscal year. The reasons for congratulations are in the numbers, which exceeded not only company guidance but analyst expectations. Highlights include:
Total orders up 47 percent from 2012 third quarter;
Cloud-based orders increased 75 percent to 48 percent of total orders;
Total revenues up 32 percent to $78.0 million;
Deferred and unbilled future cloud-based revenues up 83 percent.
In his opening remarks, Interactive Intelligence Founder and CEO Dr. Donald Brown (News - Alert) stated that: "Our performance this quarter was once again driven by strong order growth, particularly in cloud-based orders, as we continued to gain share across all segments of the contact center market." He added that, "We also strengthened our technology leadership by releasing a number of new products and further developing our cloud solutions. Based on our solid results and growing global pipeline, we're increasing our 2013 total order growth forecast from 20 to 25 percent."
In fact, Dr. Brown went on to explain that the premises business was up 29 percent year-over-year along with the significant growth in the cloud and recovering revenue areas thanks to order growth and associated installation and support services. He punctuated the importance of the shift to the cloud and the company’s excitement about it by saying, “The cloud is one of the most powerful drivers in the history of the company.” And, he added that the channel is starting to contribute on the cloud front as well.
Interactive Intelligence is hitting on all cylinders
A more granular look at the numbers demonstrates the confidence Interactive Intelligence has in raising its guidance, despite the fact that Q4 on a year-to-year comparison basis is up against one of company’s strongest quarterly performances in Q4 FY 2012.
Key results for Q3 include:
Orders: Total orders increased by 47 percent from Q3 2012, with cloud-based orders up 75 percent to comprise 48 percent of total orders. The company signed 47 contracts over $250,000, including 12 over $1 million, up from 37 and nine, respectively, in the same quarter last year.
Revenues: Total revenues were $78.0 million, an increase of 32 percent over Q3 2012. Recurring revenues, which include support fees from on-premises license agreements and fees from cloud-based solutions, increased 29 percent and were 48 percent of total revenues. Cloud-based revenues increased 61 percent to $8.6 million, while product revenues were $26.9 million and services revenues were $13.5 million, up 21 percent and 74 percent, respectively, compared to Q3 2012.
Total Deferred Revenues: Deferred revenues were $109 million, up from $83 million compared to Q3 2012. In addition, the amount of unbilled future cloud-based revenues increased to $153 million from $60 million at the end of the Q3 2012. The combination of deferred revenues and unbilled future cloud-based revenues was $262 million, up 83 percent from $143 million at the end of Q3.
Operating Income: GAAP operating income was $3.7 million for Q3 2013, compared to a loss of $915,000 in Q3 2012. Non-GAAP* operating income was $6.7 million, with a non-GAAP operating margin of 8.5 percent, compared to $1.5 million and 2.5 percent, respectively, in Q3. Both GAAP and non-GAAP operating income include a $1.7 million benefit related to the capitalization of development costs for internal-use software related to cloud investments.
Net Income: GAAP net income for Q3 2013 was $1.6 million, or $0.08 per diluted share compared to GAAP net loss of $445,000, or $0.02 per diluted share for Q3 2012. Non-GAAP net income for the third quarter of 2013 was $4.1 million, or $0.20 per diluted share, compared to non-GAAP net income of $1.9 million, or $0.10 per diluted share, for the same quarter in 2012.
The company also has strong cash flow and cash reserves. And, the nine month results were consistent with Interactive Intelligence’s desire to position itself in a stronger position by leveraging its cloud investments into a sound foundation of recurring revenues along with the opportunity to be in larger deals around the world. Again, there was strength in all categories and regions with Europe even showing a nice rebound despite continuing economic uncertainty.
Along with the strong financials, Dr. Brown and CFO Stephen Head also made note of additional company highlights that demonstrate its industry recognition as well as the fruits of its willingness to invest in being a leading innovator in the sector. Some of the recent highlights were:
The company scored the highest overall in technology assessment measures in Ovum's Decision Matrix: Selecting a Multichannel Cloud Contact Center Vendor report.
Received Miercom’s Performance Verified Certification for outstanding performance during rigorous independent testing.
Frost & Sullivan (News - Alert) named Interactive Intelligence its Cloud-based Contact Center Solutions Company of the Year, North America.
The company was ranked by Software Magazine among the world's 500 largest software and services providers for the 13th consecutive year.
The company released its mobile Interaction Supervisor, iPad Edition application, giving contact center supervisors and managers greater mobility for improved quality assurance.
Interactive Intelligence released a Web-based version of its debt collection software suite, Liquid Latitude.
The company's CIC 4.0 software achieved Oracle Validated Integration with Oracle (News - Alert) Sales Cloud and Oracle Cloud Service.
And early this year, the company launched its CaaS Small Center solution for SMBs, and enhanced its Bay Bridge Decisions product suite.
During the Q&A, Dr. Brown and CFO Head had some interesting observations on what the industry looks like and the positioning of the company going forward. First was Brown saying that there will be continued emphasis on the cloud, but that it was clear that some customers for a variety of reasons still desire a premise solution for a variety of ownership, control and compliance reasons, and the beauty of Interactive’s solutions is that they play well no matter customer requirements and desires. He did note that in the coming quarters, attention will be paid to improving gross margins, along with reaping the benefits of the investments in CaaS Small Center and the expanding global reach engendered by the investments in data centers around the world in anticipation in the continued growth of the cloud.
Head emphasized that while 65 percent of the orders were from the direct sales force, the channel still contributed over 50 percent of revenues and that interestingly many of the new orders that were coming in were for premise solutions where the channel is strong.
Brown was particularly encouraged by the fact that because of the industry recognition and the continuing innovations of the company, Interactive’s pipeline is not only growing but they are participating in more deals and larger ones, and he was really looking forward to the contributions that would accrue from the investment in the CaaS Small Center and its dedicated sales operation. He also noted that while customers have been made aware of the company’s roadmap, specifically work being done on Pure Cloud, there is no indication this was giving anyone pause about investing in current and nearer-term solutions, and that Interactive continues to, in fact, take share from competitors because customers like have all of their solutions, be they for workforce automation or targeted for such sectors as insurance and debt collections for social media and multi-channel interactions, etc. available from one platform and easily integrated with other capabilities.
The two executives also explained that one of the things that stood out in this quarter was the fact that there were no blockbuster deals. This may seem almost counter-intuitive, but as they explained, it is a sign of health that they are not reliant on hitting home runs, and that their consistent growth is testament to market acceptance across the board and around the world.
Head also noted that the good news is that the company is, “Putting the pieces in place to be a large cloud company.” It was added that they are spending on compliance solutions on things like HIPPA and SOX so they can be contenders on even the largest and most complex deals.
The word “momentum” was used often during the call, and the numbers certainly indicate that the term is more than appropriate to describe the company’s trajectory. As has been mentioned in the several times that I have discussed quarterly results for the past two years, Interactive Intelligence is in many ways a leading indicator of how the contact center interactions/customer experience market is transforming. They are fascinating to watch in that respect as they are transforming their business model to a recurring revenue-based one to align with the dynamic needs of a rapidly evolving marketplace.
It is more than just a silver lining in the cloud, there is gold. And, while some in the past have cautioned that the company’s smallish gross margins and quarterly financial fluctuations due to revenue recognition challenges based on accounting rules make it hard to follow, the facts are that this is a company to follow if you want to know where the industry is heading. They are heading there fast, and as noted at the top, even the financial analysts appeared to agree on the call, not only was this a nice quarter but the strategy for success going forward looks like it will continue to pay good dividends.
Edited by
Rory J. Thompson