Interactive Intelligence Reports Fourth-Quarter and Full Year 2012 Financial Results

  Interactive Intelligence Reports Fourth-Quarter and Full Year 2012 Financial
  Results

  *Total orders for the fourth quarter up 119 percent from 2011 fourth
    quarter; 2012 total orders up 48 percent year-over-year.
  *Cloud-based orders for the fourth quarter up 311 percent year-over-year;
    2012 cloud-based orders up 123 percent year-over-year.
  *Cloud-based orders in 2012 were 35 percent of total orders, up from 23
    percent in 2011.
  *Recurring revenues in 2012 increased 27 percent year-over-year to 50
    percent of total revenue.

Business Wire

INDIANAPOLIS -- February 4, 2013

Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of
unified IP business communications solutions, has announced financial results
for the fourth quarter and full year ended Dec. 31, 2012.

“Our strong performance during the fourth quarter led to a record year for
orders and revenues,” said Interactive Intelligence founder and CEO, Dr.
Donald Brown. “In 2012, we have further extended our product leadership
position and gained even more momentum in cloud-based offerings, which is the
fastest growing segment of the contact center market. The number of our new
cloud-based customers reached record levels in the fourth quarter and the
total dollar amount of contracts continues growing at a rate significantly
higher than the overall market.

“While continuing to add some of the most recognized global companies as
customers, we remain committed to maintaining our pace of innovation, with
several new products scheduled for release this year,” continued Brown.
“Looking forward, given our strong global pipeline of opportunities, we are
reaffirming our 2013 total order growth forecast of 20 percent and expect
cloud-based orders to represent approximately 50 percent of total 2013 orders.
We remain focused on innovation, product leadership and cloud-based growth and
are confident in our long-term financial profile, which will be driven by
growth in recurring revenues.”

Fourth Quarter 2012 Financial Highlights:

  *Orders: Total orders grew by 119 percent from the fourth quarter of 2011,
    while cloud-based orders were up 311 percent over the fourth quarter of
    2011 and comprised 39 percent of total orders. The company signed 68
    contracts over $250,000, which included 19 orders over $1.0 million, up
    from 37 and six, respectively, in the fourth quarter of 2011.
  *Revenues: Total revenues were $70.5 million, an increase of 22 percent
    over the fourth quarter of 2011. Recurring revenues, which include both
    maintenance and support from perpetual license agreements and cloud-based
    revenues, increased 31 percent to $33.1 million and accounted for 47
    percent of total revenues. Cloud-based revenues increased 47 percent to
    $6.6 million. Product revenues were $27.2 million and services revenues
    were $10.2 million, compared to $26.5 million and $6.0 million,
    respectively, in the fourth quarter of 2011.
  *Total Deferred Revenues: Deferred revenues increased to $91.9 million as
    of Dec. 31, 2012, from $75.4 million as of Dec. 31, 2011. In addition, the
    amount of unbilled future cloud-based revenues as of Dec. 31, 2012
    increased to $89.5 million from $34.6 million as of Dec. 31, 2011. The
    combination of deferred revenues and unbilled future cloud-based revenues
    was $181.4 million, up 65 percent from $110.0 million as of Dec. 31, 2011.
  *Operating Income: GAAP operating income was $3.5 million for the fourth
    quarter of 2012, compared to $6.5 million in the fourth quarter of 2011.
    Non-GAAP* operating income was $5.9 million for the fourth quarter of
    2012, with a non-GAAP operating margin of 8.4 percent, compared to $8.7
    million and a non-GAAP operating margin of 15.0 percent in the fourth
    quarter of 2011. The year-over-year decline in operating income resulted
    from the deferral of revenues due to an increase in cloud-based orders,
    certain premises-based orders received in the fourth quarter of 2012 for
    which revenues were deferred to future periods, and the increased
    investment in sales, marketing, and research and development to expand the
    company’s product leadership and share in the cloud-based market.

  *Net Income: GAAP net income for the fourth quarter of 2012 was $2.3
    million, or $0.11 per diluted share based on 20.3 million weighted average
    diluted shares outstanding. This compares to GAAP net income for the same
    quarter in 2011 of $4.6 million, or $0.23 per diluted share based on 19.9
    million weighted average diluted shares outstanding.

    Non-GAAP net income for the fourth quarter of 2012 was $5.7 million, or
    $0.28 per diluted share. This compares to non-GAAP net income of $7.3
    million, or $0.37 per diluted share for the same quarter in 2011.

  *Cash, Cash Equivalents and Investments: As of Dec. 31, 2012, we had cash,
    cash equivalents and investments of $80.6 million.
  *Cash Flows: During the fourth quarter of 2012, the company generated $3.6
    million in cash flow from operations and used $2.9 million for capital
    expenditures, which included expansion of its cloud infrastructure.

Full Year 2012 Financial Highlights:

  *Orders: Total orders increased 48 percent in 2012 compared to 2011, while
    cloud-based orders were up 123 percent year-over-year. The company signed
    158 contracts over $250,000, which included 42 orders over $1.0 million,
    up from 113 and 17, respectively, in 2011. Cloud-based orders were 35
    percent of total orders, up from 23 percent in 2011.
  *Revenues: Total revenues were $237.4 million in 2012, an increase of 13
    percent over 2011. Recurring revenues increased 27 percent to $118.3
    million. Cloud-based revenues increased 54 percent year-over-year to $22.0
    million. Product revenues were $88.6 million and services revenues were
    $30.4 million in 2012, compared to $92.8 million and $23.4 million,
    respectively, in 2011.
  *Operating Income: GAAP operating income in 2012 was $1.1 million, compared
    to $21.6 million in 2011. Non-GAAP operating income in 2012 was $10.2
    million, with a non-GAAP operating margin of 4.3 percent, compared to
    $29.3 million and a non-GAAP operating margin of 13.9 percent in 2011. The
    year-over-year decline in operating income resulted from deferral of
    revenues due to an increase in cloud-based orders, certain premises-based
    orders received in 2012 for which revenues were deferred to future
    periods, and the increased investment in sales, marketing, and research
    and development to expand the company’s product leadership and share in
    the cloud-based market.
  *Net Income: GAAP net income was $906,000, or $0.04 per diluted share based
    on 20.2 million weighted average diluted shares outstanding. This compares
    to GAAP net income in 2011 of $14.8 million, or $0.74 per diluted share
    based on 19.9 million weighted average diluted shares outstanding. The
    annual effective tax rate was 46 percent and includes a tax reserve on
    certain tax positions of the company, offset by one-time benefits recorded
    in 2012 principally related to a change in the company’s treatment of its
    officer compensation.

    Non-GAAP net income was $10.1 million, or $0.50 per diluted share,
    compared to non-GAAP net income in 2011 of $24.9 million, or $1.25 per
    diluted share.

  *Cash Flows: During the full year of 2012, the company generated $20.0
    million in cash flow from operations, used $22.7 million for acquisitions,
    and used $15.6 million for capital expenditures, which included expansion
    of its cloud infrastructure.

* A reconciliation of GAAP to non-GAAP financial measures has been provided in
the financial statement tables included with this press release. An
explanation of these measures is also included below under the heading
“Non-GAAP Measures.”

Additional Fourth-Quarter 2012 and Recent Highlights:

  *Interactive Intelligence was honored with a 2012 Cloud Computing
    Excellence Award from TMC’s Cloud Computing Magazine.
  *Interactive Intelligence launched Interaction Mobilizer^™ for Windows 8, a
    software platform that enables mid-size to large contact centers and
    enterprises to rapidly deploy customer service applications for tablets
    and other mobile devices.
  *Interactive Intelligence released Interaction Dialer^® version 4.0, a
    major predictive dialer software upgrade which was designed to improve
    ease-of-use, simplify management, and help contact centers more
    effectively execute dialing campaigns.
  *The company launched an e-commerce website, the Interactive Intelligence
    Marketplace^℠, giving customers and resellers fast and easy access to
    products that complement the vendor’s all-in-one IP communications
    software suite.

Interactive Intelligence will host a conference call today at 4:30 p.m.
Eastern time (EST) featuring Dr. Brown and the company's CFO, Stephen R. Head.
A live Q&A session will follow opening remarks.

To access the teleconference, please dial 1 877.324.1969 at least five minutes
prior to the start of the call. Ask for the teleconference by the following
name: “Interactive Intelligence fourth-quarter earnings call.” The
teleconference will also be broadcast live on the company's investor
relations' page at http://investors.inin.com. An archive of the teleconference
will be posted following the call.

About Interactive Intelligence

Interactive Intelligence Group Inc. (Nasdaq: ININ) is a global provider of
contact center, unified communications, and business process automation
software and services. The company's unified IP business communications
solutions, which can be deployed on-premise or via the cloud, are ideal for
industries such as financial services, insurance, outsourcers, collections,
and utilities. Interactive Intelligence was founded in 1994 and has more than
5,000 customers worldwide. The company is among Forbes Magazine's 2011 Best
Small Companies in America and Software Magazine's 2012 Top 500 Global
Software and Service Providers. It employs approximately 1,400 people and is
headquartered in Indianapolis, Indiana. The company has offices throughout
North America, Latin America, Europe, Middle East, Africa and Asia Pacific.
Interactive Intelligence can be reached at +1 317.872.3000 or info@inin.com;
on the Net: www.inin.com.

Non-GAAP Measures

The non-GAAP measures shown in this release include revenue which was not
recognized on a GAAP basis due to purchase accounting adjustments and exclude
non-cash stock-based compensation expense, the amortization of certain
intangible assets related to acquisitions by the company and non-cash income
tax expense. Reconciliations of these non-GAAP measures to the most directly
comparable GAAP measures are included with the financial information included
in this press release. These measures are not in accordance with, or an
alternative for, GAAP and may be different from non-GAAP measures used by
other companies. Stock-based compensation expense and amortization of
intangibles related to acquisitions are non-cash and certain amounts of income
tax expense are non-cash. Management believes that the presentation of
non-GAAP results, when shown in conjunction with corresponding GAAP measures,
provides useful information to management and investors regarding financial
and business trends related to the company's results of operations. Further,
management believes that these non-GAAP measures improve management's and
investors' ability to compare the company's financial performance with other
companies in the technology industry. Because stock-based compensation
expense, non-cash income tax expense amounts and amortization of intangibles
related to acquisitions can vary significantly between companies, it is useful
to compare results excluding these amounts. Management also uses financial
statements that exclude stock-based compensation expense related to stock
options, non-cash income tax amounts and amortization of intangibles related
to acquisitions for its internal budgets.

Forward Looking Statements

This release may contain certain forward-looking statements that involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following: rapid technological changes in
the industry; the company's ability to maintain profitability; to manage
successfully its growth; to manage successfully its increasingly complex
third-party relationships resulting from the software and hardware components
being licensed or sold with its solutions; to maintain successful
relationships with certain suppliers which may be impacted by the competition
in the technology industry; to maintain successful relationships with its
current and any new partners; to maintain and improve its current products; to
develop new products; to protect its proprietary rights adequately; to
successfully integrate acquired businesses; and other factors described in the
company's SEC filings, including the company's latest annual report on Form
10-K.

Interactive Intelligence is the owner of the marks INTERACTIVE INTELLIGENCE,
its associated LOGO and numerous other marks. All other trademarks mentioned
in this document are the property of their respective owners.

Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
                                                             
                                                                   
                                                                   
                         Three Months Ended          Year Ended
                         December 31,                December 31,
                         2012          2011          2012          2011
                         (unaudited)   (unaudited)   (unaudited)
Revenues:
     Product             $  27,207     $  26,538     $ 88,626      $ 92,786
     Recurring              33,120        25,186       118,343       93,363
     Services              10,215      5,951      30,396      23,377  
         Total             70,542      57,675     237,365     209,526 
         revenues
Costs of revenues:
     Product                6,742         5,818        24,329        25,095
     Recurring              9,053         6,227        32,227        23,801
     Services               6,796         4,600        22,868        16,389
     Amortization of       58          35         163         140     
     intangible assets
         Total cost of     22,649      16,680     79,587      65,425  
         revenues
Gross profit               47,893      40,995     157,778     144,101 
Operating expenses:
     Sales and              23,172        18,339       79,770        63,039
     marketing
     Research and           12,386        9,522        45,682        35,626
     development
     General and            8,312         6,284        29,722        22,729
     administrative
     Amortization of       494         306        1,521       1,066   
     intangible assets
         Total
         operating         44,364      34,451     156,695     122,460 
         expenses
Operating income            3,529         6,544        1,083         21,641
Other income:
     Interest income,       207           134          772           434
     net
     Other income          (123   )     (118   )    (189    )    144     
     (expense)
Total other income         84          16         583         578     
Income before income        3,613         6,560        1,666         22,219
taxes
Income tax expense         1,343       1,965      760         7,421   
Net income               $  2,270     $  4,595     $ 906        $ 14,798  
Other comprehensive
income:
     Foreign currency
     translation         $  129        $  710        $ (645    )   $ (73     )
     adjustment
     Net unrealized
     investment gain       (191   )     (89    )    163         93      
     (loss)
Comprehensive income     $  2,208     $  5,216     $ 424        $ 14,818  
                                                                   
                                                                   
Net income per share:
Basic                    $  0.12       $  0.24       $ 0.05        $ 0.79
Diluted                     0.11          0.23         0.04          0.74
                                                                   
Shares used to compute
net income per share:
Basic                       19,367        18,908       19,241        18,714
Diluted                     20,308        19,850       20,162        19,885
                                                                   

Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
Unaudited
                                                              
                           Three Months Ended        Year Ended
                           December 31,              December 31,
                           2012        2011         2012          2011
                                                                   
Recurring revenue, as      $ 33,120     $ 25,186     $ 118,343     $ 93,363
reported
Purchase accounting         178        309        522         471     
adjustments
Non-GAAP recurring         $ 33,298    $ 25,495    $ 118,865    $ 93,834  
revenue
                                                                   
Recurring revenue gross    $ 24,067     $ 18,959     $ 86,116      $ 69,562
profit as reported
Purchase accounting          178          309          522           471
adjustments
Non-cash stock-based        135        89         523         422     
compensation expense
Non-GAAP recurring         $ 24,380    $ 19,357    $ 87,161     $ 70,455  
revenue gross profit
Non-GAAP recurring           73.2   %     75.9   %     73.3    %     75.1    %
revenue gross margin
                             
Services revenue, as       $ 10,215     $ 5,951      $ 30,396      $ 23,377
reported
Purchase accounting         -          6          -           54      
adjustments
Non-GAAP services          $ 10,215    $ 5,957     $ 30,396     $ 23,431  
revenue
                                                                   
Services revenue gross     $ 3,419      $ 1,351      $ 7,528       $ 6,988
profit as reported
Purchase accounting          -            6            -             54
adjustments
Non-cash stock-based        27         35         147         101     
compensation expense
Non-GAAP services          $ 3,446     $ 1,392     $ 7,675      $ 7,143   
revenue gross profit
Non-GAAP services            33.7   %     23.4   %     25.3    %     30.5    %
revenue gross margin
                                                                   
Total revenue, as          $ 70,542     $ 57,675     $ 237,365     $ 209,526
reported
Purchase accounting         178        315        522         525     
adjustments
Non-GAAP total revenue     $ 70,720    $ 57,990    $ 237,887    $ 210,051 
                                                                   
Gross Profit               $ 47,893     $ 40,995     $ 157,778     $ 144,101
Purchase accounting          178          315          522           525
adjustments
Operating expenses           58           35           163           140
Non-cash stock-based        162        124        670         523     
compensation expense
Non-GAAP gross profit      $ 48,291    $ 41,469    $ 159,133    $ 145,289 
Non-GAAP gross margin        68.3   %     71.5   %     66.9    %     69.2    %
                                                                   
Operating income, as       $ 3,529      $ 6,544      $ 1,083       $ 21,641
reported
Purchase accounting          769          849          2,487         2,331
adjustments
Non-cash stock-based        1,650      1,294      6,677       5,298   
compensation expense
Non-GAAP operating         $ 5,948     $ 8,687     $ 10,247     $ 29,270  
income
Non-GAAP operating          8.4    %    15.0   %    4.3     %    13.9    %
margin
                                                                             

Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
Unaudited
                                                       
                                      Three Months Ended   Year Ended
                                      December 31,         December 31,
                                      2012      2011      2012      2011
Net income, as reported               $  2,270   $ 4,595   $ 906      $ 14,798
Purchase accounting adjustments:
Increase to revenues:
     Recurring                           178       309       522        471
     Services                            -         6         -          54
Reduction of operating expenses:
     Customer Relationships              449       261       1,341      886
     Technology                          58        35        163        140
     Non-compete agreements              46        45        180        180
     Acquisition Costs                  38       193      281       600
     Total                              769      849      2,487     2,331
Non-cash stock-based compensation
expense:
     Cost of recurring revenues          135       89        523        422
     Cost of services revenues           27        35        147        101
     Sales and marketing                 543       394       2,250      1,677
     Research and development            510       374       1,886      1,570
     General and administrative         435      402      1,871     1,528
     Total                              1,650    1,294    6,677     5,298
Non-cash income tax expense             1,039    522      -         2,434
Non-GAAP net income                   $  5,728   $ 7,260   $ 10,070   $ 24,861
                                                                      
Diluted EPS, as reported              $  0.11    $ 0.23    $ 0.04     $ 0.74
Purchase accounting adjustments          0.04      0.04      0.12       0.12
Non-cash stock-based compensation        0.08      0.07      0.34       0.27
expense
Non-cash income tax expense             0.05     0.03     -         0.12
Non-GAAP diluted EPS                  $  0.28    $ 0.37    $ 0.50     $ 1.25
                                                                        

Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
                                                       
                                              Year Ended
                                              December 31,
                                              2012          2011
Assets                                        (unaudited)
Current assets:
  Cash and cash equivalents                   $ 45,057      $ 28,465
  Short-term investments                        23,816        40,589
  Accounts receivable, net                      68,409        56,331
  Deferred tax assets, net                      16,600        8,952
  Prepaid expenses                              15,565        11,474
  Other current assets                         5,958       4,966   
         Total current assets                   175,405       150,777
Long-term investments                           11,757        23,415
Property and equipment, net                     26,816        18,304
Goodwill                                        38,723        22,696
Intangible assets, net                          22,676        15,029
Other assets, net                              6,419       2,581   
Total assets                                  $ 281,796    $ 232,802 
                                                            
Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                            $ 8,795       $ 5,434
  Accrued liabilities                           23,008        11,111
  Accrued compensation and related expenses     13,640        8,870
  Deferred product revenues                     5,999         3,870
  Deferred services revenues                   67,893      57,423  
         Total current liabilities              119,336       86,708
Long-term deferred revenues                     18,000        14,141
Deferred tax liabilities, net                   99            1,688
Other long-term liabilities                    244         291     
Total liabilities                             $ 137,679    $ 102,828 
                                                            
Shareholders' equity:
  Preferred stock                               -             -
  Common stock                                  194           190
  Additional paid-in-capital                    133,359       119,644
  Accumulated other comprehensive loss          (675    )     (193    )
  Retained earnings                            11,239      10,333  
         Total shareholders' equity            144,117     129,974 
Total liabilities and shareholders' equity    $ 281,796    $ 232,802 
                                                                      

Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
                                                  
                                                                   
                                                      Year Ended
                                                      December 31,
                                                      2012         2011
                                                      (unaudited)
Operating activities:
Net income                                            $ 906        $ 14,798
Adjustments to reconcile net income to net cash
provided by operating activities:
       Depreciation                                     7,975        5,669
       Amortization                                     1,776        1,209
       Other non-cash items                             (757    )    37
       Stock-based compensation expense                 6,676        5,298
       Tax benefits from stock-based payment            (1,586  )    (3,336  )
       arrangements
       Deferred income tax                              (12,311 )    (524    )
       Amortization (accretion) of investment           846          (1,165  )
       income
       Loss (gain) on disposal of fixed assets          (74     )    4
       Changes in operating assets and liabilities:
                  Accounts receivable                   (10,166 )    (13,313 )
                  Prepaid expenses                      (3,918  )    (2,888  )
                  Other current assets                  (975    )    (85     )
                  Other assets                          (3,838  )    (1,778  )
                  Accounts payable                      5,071        (7,700  )
                  Accrued liabilities                   11,941       6,918
                  Accrued compensation and related      4,400        (918    )
                  expenses
                  Deferred product revenues             1,190        489
                  Deferred services revenues           12,850     18,675  
Net cash provided by operating activities              20,006     21,390  
                                                                   
Investing activities:
Sales of available-for-sale investments                 58,234       73,118
Purchases of available-for-sale investments             (30,348 )    (98,205 )
Purchases of property and equipment                     (15,554 )    (13,280 )
Acquisitions, net of cash                               (22,651 )    (13,376 )
Unrealized gain (loss) on investment                   (138    )   1       
Net cash used in investing activities                  (10,457 )   (51,742 )
                                                                   
Financing activities:
Proceeds from stock options exercised                   5,030        6,671
Proceeds from issuance of common stock                  680          510
Employee taxes withheld for restricted stock units      (253    )    -
Tax benefits from stock-based payment arrangements     1,586      3,336   
Net cash provided by financing activities              7,043      10,517  
Net increase (decrease) in cash and cash                16,592       (19,835 )
equivalents
Cash and cash equivalents, beginning of period         28,465     48,300  
Cash and cash equivalents, end of period              $ 45,057    $ 28,465  
                                                                   
Cash paid during the period for:
Interest                                              $ 5          $ 3
Income taxes                                            3,213        2,835
                                                                   
Other non-cash item:
Purchases of property and equipment payable at end      44           70
of period
                                                                             

Supplemental Data
(Dollars in thousands)
(unaudited)
                                                                             
                 2011                                    2012
                 Q1     Q2     Q3     Q4     Total   Q1     Q2      Q3     Q4     Total
Margins
(GAAP):
   Product       70.2%   73.6%   69.1%   78.1%   73.4%   70.9%   69.5%    73.4%   75.2%   72.5%
   Recurring     74.5%   74.0%   73.8%   75.3%   74.0%   73.8%   72.4%    72.3%   72.7%   72.8%
   Services      40.3%   28.0%   27.9%   22.7%   29.9%   19.7%   22.6%    18.9%   33.5%   24.8%
   Overall       68.1%   68.9%   66.7%   71.1%   68.8%   66.8%   65.2%    65.6%   67.9%   66.5%
                                                                                          
Year-over-year
Revenue Growth
(GAAP):
   Product       31.5%   33.7%   7.3%    9.0%    18.7%   -4.8%   -18.8%   3.3%    2.5%    -6.2%
   Recurring     30.3%   35.1%   45.7%   22.8%   33.0%   31.1%   27.2%    17.9%   31.5%   29.1%
   Services      87.7%   30.4%   26.3%   4.3%    31.6%   -8.4%   23.5%    34.7%   71.7%   30.0%
   Overall       36.3%   33.9%   24.6%   13.9%   26.0%   10.6%   5.4%     13.7%   22.3%   13.3%
                                                                                          
Orders:
   Over $1       3       5       3       6       17      6       8        9       19      42
   million
   Between
   $250,000      24      27      14      31      96      11      28       28      49      116
   and $1
   million
                                                                                          
Number of new    65      81      55      103     304     60      67       65      110     302
customers
                                                                                          
Average new
customer
order:
   Overall       $ 275   $ 240   $ 314   $ 259   $ 267   $ 240   $ 349    $ 409   $ 623   $ 440
   Cloud-based   488     282     3,691   642     693     761     557      822     1,134   866
                                                                                          

ININ-G

Contact:

Interactive Intelligence
Stephen R. Head, Chief Financial Officer, +1-317-715-8412
steve.head@inin.com
OR
ICR, Inc.
Seth Potter, Investor Relations, +1-646-277-1230
seth.potter@icrinc.com
OR
Interactive Intelligence
Christine Holley, Senior Director of Market Communications, +1-317-715-8220
christine.holley@inin.com
 
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