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Brown avoids sale talk as Interactive tops estimates

August 1, 2016

Interactive Intelligence Group Inc. reported earnings that beat Wall Street forecasts Monday after the market closed, and CEO Don Brown joked around a bit with analysts when asked about the acquisition rumors that helped send shares to a two-year high Friday.

Reuters reported on Friday that the call-center-software company was working with investment bankers in considering a sale, and the Indianapolis-based firm's stock rose by as much as 21 percent, or $228 million in market capitalization, in the span of a few hours.

With about five minutes left in the roughly hour-long earnings call Monday, an analyst finally asked CEO Don Brown about it all.

"Oh, I haven't heard any rumors—no I'm just kidding," Brown said. "No, we're not going to comment on rumors or speculation."

The company posted an adjusted loss of $1.2 million, or 6 cents a share, in the second quarter, which is down from the adjusted profit of $307,000, or 1 cent a share, it had in the same quarter last year.

Analysts surveyed by Thomson Reuters, however, expected a loss of 17 cents a share this quarter.

On a non-adjusted basis, which includes one-time costs, the company lost $10.2 million, or 46 cents a share, versus a $5.1 million loss, or 24 cents a share, in the year-ago period.

Interactive reeled in $108.8 million in revenue in the second quarter, beating analyst expectations of $103.3 million. That's up from $96.3 million in the second quarter of 2015.

Over the past several years, Interactive has been looking to sell its software via cloud-based servers, as opposed to installing it directly on the servers of enterprise customers.

The transition has weighed on Interactive earnings over multiple quarters, as it involves collecting revenue over long subscription terms as opposed to upfront. It also means generating less revenue associated with servicing so-called "on premises" customers.

With that backdrop, the stock slid 71 percent between February 2014 and January 2016, from about $80 a share to about $23 a share. It has rallied since that bottom to about $44 a share this time last week, and as high as $55 a share Friday.

Shares closed Monday at $51.65, off 4.3 percent for the day.

RBC Capital Markets said in a research report that it doesn't expect takeover rumors to materialize given the strong traction it's seeing with Interactive's years-long strategy transition—but it also said a deal wouldn't be farfetched.

"We had viewed a long runway left in the transition to the recently introduced long-term operating model, targeted in [fiscal year 2019] to [fiscal year 2020]," the report said. "One benefit to different ownership, private or under a larger umbrella for example, could be the ability to accelerate this transition outside of the public market view, which makes some sense to us and does have precedent in software."

Brown said although existing on-premise customers haven't been quick to migrate to cloud-based offerings, the company is signing up new customers at a break-neck pace.

Last year, it debuted its PureCloud product—which runs on Amazon.com Inc.'s popular AWS cloud servers—and grabbed 24 customers in the last six months of 2015. This year, it added 118 customers in the first quarter and 204 in the second quarter.

"I [want] to reiterate how well-positioned we are for the future," Brown said on the earnings call. "With over 300 PureCloud customers in just two quarters and a technology like none other in the industry, I continue to believe we're seeing an inflection point for the entire customer-engagement space."

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