Interactive Intelligence Reports Second-Quarter 2013 Financial Results

  Interactive Intelligence Reports Second-Quarter 2013 Financial Results

  *Total orders up 115 percent from 2012 second quarter
  *Cloud-based orders quadruple and were 64 percent of total orders
  *Total revenues up 39 percent to $76.2 million

Business Wire

INDIANAPOLIS -- August 5, 2013

Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of
software and services designed to improve the customer experience, has
announced financial results for the three and six months ended June 30, 2013.

“The market is now definitively recognizing how Interactive Intelligence takes
enterprises’ customer service experiences to new levels,” said Interactive
Intelligence Founder and CEO Dr. Donald Brown. “Demand for our solutions
remained strong in the quarter as we executed particularly well in the North
America and Asia Pacific regions. Our exceptional year-over-year increase in
total orders was driven by a more than 400 percent increase in cloud-based
orders, which included the signing of the largest contract in the company’s
history.”

Brown added: “While continuing to drive up-market with our best-in-class
contact center solutions for the enterprise, we recently expanded our product
footprint with the introduction of our cloud-based CaaS Small Center℠ offering
specifically designed for contact centers with under 50 agents. Considering
our strong performance in the quarter and outlook for continued order growth,
we remain confident in our long-term business strategy to increase recurring
revenues, consistently grow faster than the overall market, and lead the
contact center’s migration to the cloud.”

Second Quarter 2013 Financial Highlights:

  *Orders: Total orders increased by 115 percent from the second quarter of
    2012, with cloud-based orders up 469 percent over the second quarter of
    2012 to comprise 64 percent of total orders. The company signed 43
    contracts over $250,000, including 14 over $1 million, up from 36 and 8
    orders in the second quarter of 2012, respectively.
  *Revenues: Total revenues were $76.2 million, an increase of 39 percent
    over the second quarter of 2012. Recurring revenues, which include support
    fees from on-premises license agreements and fees from cloud-based
    solutions, increased 24 percent to $35.1 million and accounted for 46
    percent of total revenues. Cloud-based revenues increased 56 percent to
    $7.9 million. Product revenues were $27.9 million and services revenues
    were $13.2 million, up 42 percent and 97 percent, respectively, compared
    to the second quarter of 2012.
  *Total Deferred Revenues: Deferred revenues increased to $108.3 million as
    of June 30, 2013, from $78.8 million as of June 30, 2012. In addition, the
    amount of unbilled future cloud-based revenues increased to $136.0 million
    from $49.7 million at the end of the 2012 second quarter. The combination
    of deferred revenues and unbilled future cloud-based revenues was $244.3
    million, up 90 percent from $128.5 million as of June 30, 2012.
  *Operating Income: GAAP operating income was $849,000 for the second
    quarter of 2013, compared to a loss of $1.8 million in same quarter last
    year. Non-GAAP* operating income was $3.8 million for the second quarter
    of 2013, with a non-GAAP operating margin of 5.0 percent, compared to
    $391,000 and 0.7 percent, respectively, in the second quarter of 2012.
  *Net Income: Preliminary GAAP net income for the second quarter of 2013 was
    $1.2 million, or $0.06 per diluted share based on 20.9 million weighted
    average diluted shares outstanding. These results compare to GAAP net loss
    of $1.1 million, or $0.06 per diluted share, based on 19.2 million
    weighted average diluted shares outstanding for the same quarter in 2012.

    Preliminary Non-GAAP net income for the second quarter of 2013 was $2.9
    million, or $0.14 per diluted share, compared to non-GAAP net income of
    $580,000, or $0.03 per diluted share, for the same quarter in 2012.

    The final determination of the company’s GAAP and non-GAAP net income and
    earnings per diluted share is subject to the completion of the company’s
    tax provision. The company expects the preparation of its tax provision to
    be completed by the filing of its Quarterly Report on Form 10-Q. The
    preliminary GAAP and non-GAAP net income and earnings per diluted share in
    this release could change materially.
  *Cash, Cash Equivalents, and Investments: As of June 30, 2013, cash, cash
    equivalents, and investments were $87.4 million.
  *Cash Flows: The company generated $13.6 million in cash flow from
    operating activities in the second quarter of 2013 and used $9.3 million
    for capital expenditures, which included expansion of cloud infrastructure
    to support growth. In addition, $1.9 million was received during the
    quarter from the exercise of stock options.

* 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.”

Six Months Ended 2013 Financial Highlights:

  *Orders: Total orders increased by 78 percent from the first six months of
    2012, with cloud-based orders up 262 percent over the first six months of
    2012 to comprise 54 percent of total orders. The company signed 82
    contracts over $250,000, including 22 over $1 million, up from 53 and 14
    in the first six months of 2012, respectively.
  *Revenues: Total revenues were $149.5 million, an increase of 39 percent
    over the first six months of 2012. Recurring revenues increased 23 percent
    to $68.9 million and accounted for 46 percent of total revenues.
    Cloud-based revenues increased 49 percent to $15.0 million. Product
    revenues were $55.9 million and services revenues were $24.6 million, up
    43 percent and 99 percent, respectively, compared to the first six months
    of 2012.
  *Operating Income: GAAP operating income was $4.3 million for the first six
    months of 2013, compared to a loss of $1.5 million over same period last
    year. Non-GAAP operating income was $10.0 million for the first six months
    of 2013, with a non-GAAP operating margin of 6.7 percent, compared to $2.8
    million and 2.6 percent, respectively, during the same period last year.
  *Net Income: Preliminary GAAP net income for the first six months of 2013
    was $2.6 million, or $0.13 per diluted share based on 20.8 million
    weighted average diluted shares outstanding. These results compare to a
    GAAP net loss of $919,000, or $(0.05) per diluted share based on 19.2
    million weighted average diluted shares outstanding for the same period in
    2012. Preliminary GAAP net income for the six months ended June 30, 2013
    includes an income tax benefit related to a change in the company’s
    approach to current year transfer pricing for its foreign subsidiaries and
    the 2012 U.S. Federal research tax credit of $600,000 recognized in the
    first quarter of 2013.

    Preliminary Non-GAAP net income for the first six months of 2013 was $6.5
    million, or $0.31 per diluted share, compared to non-GAAP net income of
    $2.4 million, or $0.13 per diluted share for the same period in 2012.

    See our comment under the second quarter financial highlights regarding
    the completion of the tax provision.

Additional Second Quarter 2013 and Recent Highlights:

  *Interactive Intelligence was once again positioned in the “Leaders”
    quadrant in Gartner’s 2013 Magic Quadrant for Contact Center
    Infrastructure report.
  *The company received the 2013 IP Contact Center Technology Pioneer Award
    from CUSTOMER Magazine for its cloud-based CaaS Small Center℠ solution.
  *Interactive Intelligence released a major upgrade to its debt collection
    software suite, Latitude Center^™, which can be deployed in the cloud or
    on-premises, and gives creditors, collection agencies, and debt buyers of
    all sizes a single-vendor source to manage all aspects of their debt
    collection and recovery process.
  *The company had record attendance at its annual global Interactions 2013
    conference, drawing more than 1,800 attendees from 35 countries.

Interactive Intelligence will host a conference call today at 4:30 p.m.
Eastern time (EDT) 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 second-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 designed to improve the customer experience. The
company’s solutions, which can be deployed via the cloud or on-premises, 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 Software
Magazine’s 2013 Top 500 Global Software and Service Providers, and is the
recipient of TMC’s Cloud Computing Magazine’s 2012 Cloud Computing Excellence
Award. It has received Frost & Sullivan’s Company of the Year Award, Contact
Center Systems, North America, for the last two consecutive years. Interactive
Intelligence employs more than 1,500 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, exclude
non-cash stock-based compensation expense and the amortization of certain
intangible assets related to acquisitions by the company, and adjust for
non-GAAP 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
non-GAAP income tax expense is pro forma based on non-GAAP earnings.
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, our 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 and amortization of
intangibles related to acquisitions amounts can vary significantly between
companies, it is useful to compare results excluding these amounts. Our
management also reviews financial statements that exclude stock-based
compensation expense and amortization of intangibles amounts 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 and Comprehensive Income
(in thousands, except per share amounts)
(unaudited)
                                                                   
                                                                   
                         Three Months Ended          Six Months Ended
                         June 30,                    June 30,
                         2013         2012           2013          2012
                                                                   
Revenues:
Product                  $ 27,909     $ 19,662       $ 55,900      $ 39,097
Recurring                  35,106       28,398         68,933        56,037
Services                  13,227     6,721        24,647      12,415  
Total revenues            76,242     54,781       149,480     107,549 
Costs of
revenues:
Costs of product           7,214        6,000          15,092        11,651
Costs of                   10,233       7,838          20,375        15,079
recurring
Costs of                   9,846        4,825          17,707        9,059
services
Amortization of
intangible                49         35           98          70      
assets
Total costs of            27,342     18,698       53,272      35,859  
revenues
Gross profit              48,900     36,083       96,208      71,690  
Operating
expenses:
Sales and                  25,831       19,631         49,123        37,393
marketing
Research and               13,168       10,966         25,692        21,345
development
General and                8,584        6,943          16,198        13,832
administrative
Amortization of
intangible                468        350          931         651     
assets
Total operating           48,051     37,890       91,944      73,221  
expenses
Operating income           849          (1,807 )       4,264         (1,531  )
(loss)
Other income
(expense):
Interest income,           250          167            449           348
net
Other income              27         92           (1,375  )    (92     )
(expense)
Total other               277        259          (926    )    256     
income (expense)
Income (loss)
before income              1,126        (1,548 )       3,338         (1,275  )
taxes
Income tax
expense                   (38    )    (440   )      717         (356    )
(benefit)
Net income               $ 1,164     $ (1,108 )     $ 2,621      $ (919    )
(loss)
Other
comprehensive
income (loss):
Foreign currency
translation              $ 17         $ (1,164 )     $ 122         $ (783    )
adjustment
Net unrealized
investment                (166   )    (50    )      (198    )    182     
(loss) gain -
net of tax
Comprehensive            $ 1,015     $ (2,322 )     $ 2,545      $ (1,520  )
income (loss)
                                                                   
Net income
(loss) per
share:
Basic                    $ 0.06         (0.06  )     $ 0.13          (0.05   )
Diluted                    0.06         (0.06  )       0.13          (0.05   )
                                                                   
Shares used to
compute net
income (loss)
per share:
Basic                      19,946       19,213         19,826        19,156
Diluted                    20,935       19,213         20,847        19,156
                                                                             

                                                          
                                                                   
Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
Unaudited
                                                                   
                                                                   
                         Three Months Ended          Six Months Ended
                         June 30,                    June 30,
                         2013         2012           2013          2012
                                                                   
Recurring
revenue, as              $ 35,106     $ 28,398       $ 68,933      $ 56,037
reported
Purchase
accounting                63         70           148         200     
adjustments
Non-GAAP
recurring                $ 35,169    $ 28,468      $ 69,081     $ 56,237  
revenue
                                                                   
Recurring
revenue gross            $ 24,873     $ 20,560       $ 48,558      $ 40,958
profit as
reported
Purchase
accounting                 63           70             148           200
adjustments
Non-cash
stock-based               208        130          375         253     
compensation
expense
Non-GAAP
recurring                $ 25,144    $ 20,760      $ 49,081     $ 41,411  
revenue gross
profit
Non-GAAP
recurring                  71.5   %     72.9   %       71.0    %     73.6    %
revenue gross
margin
                           .
Services
revenue, as              $ 13,227     $ 6,721        $ 24,647      $ 12,415
reported
Purchase
accounting                -          -            -           -       
adjustments
Non-GAAP                 $ 13,227    $ 6,721       $ 24,647     $ 12,415  
services revenue
                                                                   
Services revenue
gross profit as          $ 3,381      $ 1,896        $ 6,940       $ 3,356
reported
Purchase
accounting                 -            -              -             -
adjustments
Non-cash
stock-based               67         42           116         76      
compensation
expense
Non-GAAP
services revenue         $ 3,448     $ 1,938       $ 7,056      $ 3,432   
gross profit
Non-GAAP
services revenue           26.1   %     28.8   %       28.6    %     27.6    %
gross margin
                                                                   
Total revenue,           $ 76,242     $ 54,781       $ 149,480     $ 107,549
as reported
Purchase
accounting                63         70           148         200     
adjustments
Non-GAAP total           $ 76,305    $ 54,851      $ 149,628    $ 107,749 
revenue
                                                                   
Gross Profit             $ 48,900     $ 36,083       $ 96,208      $ 71,690
Revenue                    63           70             148           200
adjustments
Technology                 49           35             98            70
Non-cash
stock-based               275        172          491         329     
compensation
expense
Non-GAAP gross           $ 49,287    $ 36,360      $ 96,945     $ 72,289  
profit
Non-GAAP gross             64.6   %     66.3   %       64.8    %     67.1    %
margin
                                                                   
Operating income
(loss) , as              $ 849        $ (1,807 )     $ 4,264       $ (1,531  )
reported
Purchase
accounting                 607          484            1,218         1,072
adjustments
Non-cash
stock-based               2,361      1,714        4,535       3,293   
compensation
expense
Non-GAAP                 $ 3,817     $ 391         $ 10,017     $ 2,834   
operating income
Non-GAAP                  5.0    %    0.7    %      6.7     %    2.6     %
operating margin
                                                                   
                                                                   
                                                                   
Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
Unaudited
                                                                   
                                                                   
                         Three Months Ended          Six Months Ended
                         June 30,                    June 30,
                         2013         2012           2013          2012
Net income
(loss), as               $ 1,164     $ (1,108 )     $ 2,621      $ (919    )
reported
                                                                   
Purchase
accounting
adjustments:
Increase to                63           70             148           200
revenues
Reduction of
operating
expenses:
Customer                   423          305            841           558
Relationships
Technology                 49           35             98            70
Non-compete                45           45             90            90
agreements
Acquisition               27         29           41          154     
Costs
Total                     607        484          1,218       1,072   
Non-cash
stock-based
compensation
expense:
Cost of
recurring                  208          130            375           253
revenues
Cost of services           67           42             116           76
revenues
Sales and                  817          569            1,625         1,101
marketing
Research and               693          473            1,309         870
development
General and               576        500          1,110       993     
administrative
Total                     2,361      1,714        4,535       3,293   
Non-GAAP income
tax expense               (1,211 )    (510   )      (1,851  )    (1,012  )
adjustment
Non-GAAP net             $ 2,921     $ 580         $ 6,523      $ 2,434   
income
                                                                   
Diluted EPS, as          $ 0.06       $ (0.06  )     $ 0.13        $ (0.05   )
reported
Purchase
accounting                 0.03         0.03           0.05          0.06
adjustments
Non-cash
stock-based                0.11         0.09           0.22          0.17
compensation
expense
Non-GAAP income
tax expense               (0.06  )    (0.03  )     $ (0.09   )    (0.05   )
adjustment
Non-GAAP diluted         $ 0.14      $ 0.03        $ 0.31       $ 0.13    
EPS
                                                                             

                                                            
                                                                   
Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
                                                                   
                                                                   
                                                   June            December
                                                   2013            2012
Assets                                             (unaudited)
Current assets:
Cash and cash equivalents                          $ 43,051        $ 45,057
Short-term investments                               32,745          23,816
Accounts receivable, net                             70,312          68,409
Deferred tax assets, net                             17,853          16,600
Prepaid expenses                                     19,157          15,565
Other current assets                                10,439        5,958   
Total current assets                                 193,557         175,405
Long-term investments                                11,563          11,757
Property and equipment, net                          34,592          26,816
Goodwill                                             38,378          38,723
Intangible assets, net                               21,595          22,676
Other assets, net                                   6,373         6,419   
Total assets                                       $ 306,058      $ 281,796 
                                                                   
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable                                   $ 7,953         $ 8,796
Accrued liabilities                                  12,915          23,008
Accrued compensation and related expenses            11,678          10,240
Deferred product revenues                            12,152          5,999
Deferred services revenues                          70,711        67,893  
Total current liabilities                            115,409         115,936
Long-term deferred revenues                          25,460          18,000
Deferred tax liabilities, net                        2,153           99
Other long-term liabilities                         4,240         3,644   
Total liabilities                                  $ 147,262      $ 137,679 
                                                                   
Shareholders' equity:
Preferred stock                                      -               -
Common stock                                         200             194
Additional paid-in-capital                           145,487         133,359
Accumulated other comprehensive loss                 (751    )       (675    )
Retained earnings                                   13,860        11,239  
Total shareholders' equity                          158,796       144,117 
Total liabilities and shareholders' equity         $ 306,058      $ 281,796 
                                                                             

                                                             
                                                                   
Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
                                                                   
                                                                   
                                                     Six Months Ended
                                                     June 30,
                                                     2013          2012
                                                     (unaudited)
Operating activities:
Net income (loss)                                    $ 2,621       $ (919    )
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation                                           5,024         2,901
Amortization                                           950           747
Other non-cash items                                   1,334         120
Stock-based compensation expense                       4,532         3,294
Tax benefits from stock-based payment                  (528    )     (144    )
arrangements
Deferred income tax                                    801           (2,224  )
Amortization (accretion) of investment                 (385    )     294
premium (discount)
Loss on disposal of fixed assets                       -             25
Changes in operating assets and liabilities:
Accounts receivable                                    (1,903  )     5,264
Prepaid expenses                                       (3,592  )     (2,102  )
Other current assets                                   (4,481  )     (178    )
Other assets                                           377           (196    )
Accounts payable                                       281           (392    )
Accrued liabilities                                    (10,207 )     1,072
Accrued compensation and related expenses              1,438         (1,507  )
Deferred product revenues                              6,025         970
Deferred services revenues                            10,271      552     
Net cash provided by operating activities             12,558      7,577   
                                                                   
Investing activities:
Sales of available-for-sale investments                13,576        27,487
Purchases of available-for-sale investments            (22,100 )     (24,161 )
Purchases of property and equipment                    (12,893 )     (6,799  )
Acquisitions, net of cash                              (725    )     (11,322 )
Unrealized gain on investment                         (24     )    (1      )
Net cash used in investing activities                 (22,166 )    (14,796 )
                                                                   
Financing activities:
Proceeds from stock options exercised                  7,569         2,483
Proceeds from issuance of common stock                 404           320
Employee taxes withheld for restricted stock           (899    )     (253    )
units
Tax benefits from stock-based payment                 528         144     
arrangements
Net cash provided by financing activities             7,602       2,694   
Net decrease in cash and cash equivalents              (2,006  )     (4,525  )
Cash and cash equivalents, beginning of               45,057      28,465  
period
Cash and cash equivalents, end of period             $ 43,051     $ 23,940  
                                                                   
Cash paid during the period for:
Interest                                             $ -           $ 4
Income taxes                                           6,954         86
                                                                   
Other non-cash item:
Purchases of property and equipment payable            114           174
at end of period
                                                                             

                                                                                  
                                                                                              
Supplemental Data
(Dollars in thousands)
(unaudited)
                                                                                              
                                                                                              
                       2012                                                       2013
                       Q1        Q2         Q3        Q4         Total        Q1         Q2
                                                                                              
Margins
(GAAP):
Product                  70.9 %     69.5  %     73.4 %     75.2  %     72.5 %       71.9  %     74.2 %
Recurring                73.8 %     72.4  %     72.3 %     72.7  %     72.8 %       70.0  %     70.9 %
Services                 19.7 %     22.6  %     18.9 %     33.5  %     24.8 %       31.2  %     25.6 %
Overall                  66.8 %     65.2  %     65.6 %     67.9  %     66.5 %       64.6  %     64.1 %
                                                                                              
Year-over-year
Revenue Growth
(GAAP):
Product                  -4.8 %     -18.8 %     3.3  %     2.5   %     -4.5 %       44.0  %     41.9 %
Recurring                31.1 %     27.2  %     17.9 %     31.5  %     26.8 %       22.4  %     23.6 %
Services                 -8.4 %     23.5  %     34.7 %     71.7  %     30.0 %       100.6 %     96.8 %
Overall                  10.6 %     5.4   %     13.7 %     22.3  %     13.3 %       38.8  %     39.2 %
                                                                                              
Orders:
Over $1                  6          8           9          19          42           8           14
million
Between
$250,000 and             11         28          28         49          116          31          29
$1 million
                                                                                              
Number of new            60         67          65         110         302          74          89
customers
                                                                                              
Average new
customer
order:
Overall                $ 240      $ 349       $ 409      $ 623       $ 440        $ 335       $ 279
Cloud-based              761        557         822        1,134       866          788         456
                                                                                              

ININ-G

Contact:

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