ININ Interactive Intelligence Grp., Inc.

Interactive Intelligence (Nasdaq: ININ), a global developer of unified IP business communications solutions, today reported results for the quarter and nine-month period ended Sept. 30, 2008. 2008 third quarter revenues were $30.1 million, a three percent increase from $29.2 million in the same quarter last year. Operating income for the 2008 third quarter was $1.4 million, compared to $2.5 million in the 2007 third quarter. Non-GAAP (generally accepted accounting principles) operating income was $1.8 million, compared to $3.3 million in the third quarter of 2007. Non-GAAP operating income excludes charges for stock-based compensation of $439,000 and $812,000 in the third quarters of 2008 and 2007, respectively. Net income in the 2008 third quarter was $924,000, with diluted earnings per share (EPS) of $0.05, compared to $3.0 million and $0.15, respectively, in the 2007 third quarter. Net income includes fully taxed earnings in 2008. Non-GAAP net income in the third quarter of 2008 was $2.0 million with EPS of $0.11, compared to $3.8 million and $0.19, respectively, in the 2007 third quarter. Non-GAAP net income excludes charges for stock-based compensation and non-cash tax expense. �As in the previous quarter, demand was strong from new customers while current customers limited expansion of their existing implementations,� said Interactive Intelligence founder and CEO, Dr. Donald E. Brown. �Both trends were primarily driven by the difficult economic environment. Organizations looking for immediate efficiencies selected our solutions while many existing customers face slower growth and have reduced capital expenditures. Since our technologies are particularly relevant during slow economic periods, we are responding to the current capital spending conditions by clearly articulating the strong returns on investment and value we deliver to our customers.� For the nine months ended Sept. 30, 2008, revenues were a record $90.1 million, a 12 percent increase from $80.6 million in the same period in 2007. Operating income for the first nine months of 2008 was $4.1 million, compared to $6.1 million for the same period in 2007. For the first nine months of 2008, non-GAAP operating income was $6.4 million, compared to $8.4 million in 2007. Non-GAAP operating income excludes charges for stock-based compensation of $2.3 million in both 2008 and 2007. Net income for the nine months ended Sept. 30, 2008 was $2.9 million, with EPS of $0.15, compared to $7.1 million and $0.37, respectively, in the same period in 2007. Net income includes fully taxed earnings in 2008. Non-GAAP net income was $7.3 million with EPS of $0.38, compared to $9.4 million and $0.49, respectively, in the first nine months of 2007. Non-GAAP net income excludes charges for stock-based compensation and non-cash tax expense. Cash and short-term investments as of Sept. 30, 2008 totaled $49.3 million, up from $46.3 million on Dec. 31, 2007. Cash flow from operations for the first nine months of 2008 was $11.4 million, compared to $9.8 million in the first nine months of 2007. During the third quarter of 2008, the company repurchased 353,000 shares of its common stock for $3.4 million under a plan that was approved by the board of directors in July 2008. Additional Highlights Interactive Intelligence hosted its 10th annual partner conference earlier this month at its headquarters city in Indianapolis, Indiana. The conference attracted more than 190 reseller, consultant and analyst attendees. This year 19 resellers were honored for their 10-year partnerships with Interactive Intelligence. Product highlights during the quarter included the latest release of the company�s Interaction SIP ProxyTM designed to increase reliability, improve security and simplify deployment for distributed enterprises and call centers. In addition, the Joint Interoperability Test Command certified the company�s all-in-one IP communications software suite for use by the Department of Defense. Interactive Intelligence will host a conference call today, Oct. 27, 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 1 877.397.0286 at least five minutes prior to the start of the call. Ask for the teleconference by the following name: �Interactive Intelligence third quarter earnings call.� The teleconference will also be broadcast live on Interactive Intelligence's investor relations' page at http://investors.inin.com. An archive of the teleconference will be posted following the call. The non-GAAP measures shown in this release exclude non-cash stock-based compensation expense for stock options and non-cash income tax expense. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included after 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. 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 historical periods because certain historical periods excluded stock-based compensation expense for stock options (prior to 2007) and income tax expense and benefits have varied significantly and are primarily non-cash. Interactive Intelligence�s management uses these non-GAAP results to compare its performance to its peers in the software industry. Because stock-based compensation expense and non-cash income tax expense amounts 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 and non-cash income tax amounts for its internal budgets. About Interactive Intelligence Interactive Intelligence Inc. (Nasdaq: ININ) is a global provider of unified business communications solutions for contact center automation, enterprise IP telephony, and enterprise messaging. The company was founded in 1994 and has more than 3,000 customers worldwide. Interactive Intelligence is among Software Magazine�s top 500 global software and services suppliers, is ranked among NetworkWorld�s top 200 North American networking vendors, is a BusinessWeek �hot growth 50� company, and is among FORTUNE Small Business Magazine�s top 100 fastest growing companies. Interactive Intelligence employs approximately 600 people and is headquartered in Indianapolis, Indiana. It has six global corporate offices with additional sales offices throughout North 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. This release contains 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: unstable economic conditions; rapid technological changes in the industry; the company's ability to maintain profitability; to manage successfully its growth and increasingly complex third-party relationships; 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; and other factors described in the company's SEC filings, including the company's latest annual report on Form 10-K. Interactive Intelligence Inc. 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. ININ-G Interactive Intelligence, Inc. Condensed Consolidated Statements of Income (in thousands, except per share amounts) Unaudited � � � � � Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (Note 1) (Note 1) Revenues: Product $ 14,687 $ 15,526 $ 44,853 $ 42,484 Services � 15,369 � � 13,676 � 45,296 � � 38,141 � Total revenues � 30,056 � � 29,202 � 90,149 � � 80,625 � Costs of revenues: Product 3,702 4,232 10,741 10,173 Services � 6,059 � � 5,533 � 18,044 � � 15,475 � Total cost of revenues � 9,761 � � 9,765 � 28,785 � � 25,648 � Gross profit � 20,295 � � 19,437 � 61,364 � � 54,977 � Operating expenses: Sales and marketing 9,569 9,286 29,889 26,762 Research and development 5,801 4,348 16,102 12,472 General and administrative � 3,560 � � 3,310 � 11,269 � � 9,660 � Total operating expenses � 18,930 � � 16,944 � 57,260 � � 48,894 � Operating income 1,365 2,493 4,104 6,083 Other income: Interest income, net 329 412 1,132 1,268 Other income (expense) � (71 ) � 29 � (26 ) � (69 ) Total other income � 258 � � 441 � 1,106 � � 1,199 � Income before income taxes 1,623 2,934 5,210 7,282 Income tax benefit (expense) � (699 ) � 37 � (2,324 ) � (163 ) Net income $ 924 � $ 2,971 $ 2,886 � $ 7,119 � � Net income per share: Basic $ 0.05 $ 0.17 $ 0.16 $ 0.41 Diluted 0.05 0.15 0.15 0.37 � Shares used to compute net income per share: Basic 17,976 17,461 17,969 17,388 Diluted 18,855 19,407 19,059 19,336 � � � Note 1: The 2007 amounts for the three and nine month periods have been changed to reflect adjustments to product revenues and related commission expense. These adjustments were deemed immaterial to the prior periods. Interactive Intelligence, Inc. Reconciliation of Supplemental Financial Information (in thousands, except per share amounts) Unaudited � � � � Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 � Net income, as reported $ 924 $ 2,971 $ 2,886 $ 7,119 Non-cash stock-based compensation expense: Cost of services 13 70 154 184 Sales and marketing 132 313 876 943 Research and development 205 153 637 411 General and administrative � 89 � 276 � 648 � 748 Total � 439 � 812 � 2,315 � 2,286 Non-cash income tax expense � 635 � - � 2,112 � - Non-GAAP net income $ 1,998 $ 3,783 $ 7,313 $ 9,405 � Operating income, as reported $ 1,365 $ 2,493 $ 4,104 $ 6,083 Non-cash stock-based compensation expense � 439 � 812 � 2,315 � 2,286 Non-GAAP operating income $ 1,804 $ 3,305 $ 6,419 $ 8,369 � Diluted EPS, as reported $ 0.05 $ 0.15 $ 0.15 $ 0.37 Non-cash stock-based compensation expense 0.02 0.04 0.12 0.12 Non-cash income tax expense � 0.04 � - � 0.11 � - Non-GAAP diluted EPS $ 0.11 $ 0.19 $ 0.38 $ 0.49 Interactive Intelligence, Inc. Condensed Consolidated Balance Sheets (in thousands) � � � � September 30, December 31, 2008 2007 (unaudited) (Note 1) Assets Current assets: Cash and cash equivalents $ 34,476 $ 29,359 Short-term investments 14,845 16,968 Accounts receivable, net 25,231 27,527 Deferred tax assets, net 5,833 5,833 Prepaid expenses 5,297 5,501 Other current assets � 2,513 � � 1,414 � Total current assets 88,195 86,602 Property and equipment, net 11,091 6,932 Deferred tax assets, net 5,735 7,520 Other assets, net � 2,781 � � 2,384 � Total assets $ 107,802 � $ 103,438 � � Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 12,856 $ 9,594 Accrued compensation and related expenses 3,589 4,381 Deferred product revenues 5,104 6,843 Deferred services revenues � 28,611 � � 28,711 � Total current liabilities 50,160 49,529 Noncurrent deferred revenue � 6,151 � � 5,290 � Total liabilities � 56,311 � � 54,819 � � Shareholders' equity: Preferred stock - - Common stock 177 179 Additional paid-in-capital 82,750 79,405 Treasury stock (3,357 ) - Accumulated deficit � (28,079 ) � (30,965 ) Total shareholders' equity � 51,491 � � 48,619 � Total liabilities and shareholders' equity $ 107,802 � $ 103,438 � � � � � � Note 1: December 31, 2007 amounts are derived from the audited Consolidated Balance Sheet included in the 2007 Annual Report on Form 10-K of Interactive Intelligence, Inc., with reclassifications between cash and cash equivalents and short-term investments. These reclassifications were deemed immaterial to the prior period. Interactive Intelligence, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) Unaudited � � � � Nine Months Ended September 30, 2008 2007 � Operating activities: Net income $ 2,886 $ 7,119 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,621 1,941 Stock-based compensation expense 2,315 2,286 Deferred income tax 1,785 - Accretion of investment income (104 ) (317 ) Excess tax benefits from stock-based payment arrangements (177 ) - Changes in operating assets and liabilities: Accounts receivable 2,296 (8,191 ) Prepaid expenses 204 (617 ) Other current assets (1,099 ) 216 Other assets (397 ) (49 ) Accounts payable and accrued liabilities 2,845 1,192 Accrued compensation and related expenses (792 ) 662 Deferred product revenues (1,739 ) 908 Deferred services revenues (100 ) 4,682 Deferred revenue -long term � 861 � � - � Net cash provided by operating activities � 11,405 � � 9,832 � � Investing activities: Sales of available-for-sale investments 20,050 18,115 Purchases of available-for-sale investments (17,890 ) (15,192 ) Purchases of property and equipment (6,186 ) (3,601 ) Acquisition of intangible and other assets � - � � (1,033 ) Net cash used in investing activities � (4,026 ) � (1,711 ) � Financing activities: Proceeds from stock options exercised 717 1,628 Proceeds from issuance of common stock 205 150 Excess tax benefits from stock-based payment arrangements 177 - Repurchase of treasury stock � (3,361 ) � - � Net cash provided by (used in) financing activities � (2,262 ) � 1,778 � Net increase in cash and cash equivalents 5,117 9,899 Cash and cash equivalents, beginning of period � 29,359 � � 13,531 � Cash and cash equivalents, end of period $ 34,476 � $ 23,430 � � Cash paid during the period for: Income taxes $ 195 $ 147 � Other non-cash item: Purchases of property and equipment payable at end of period $ 594 $ -