ININ Interactive Intelligence Grp., Inc.

Interactive Intelligence (Nasdaq: ININ), a global provider of unified IP business communications solutions, has announced operating results for the three and six months ended June 30, 2009.

The company reported revenues of $32.9 million for the second quarter of 2009, an increase of 7.5 percent over revenues of $30.6 million for the second quarter of 2008.

“As previously announced, we received several significant orders in the quarter, including three exceeding $1 million,” said Interactive Intelligence chairman and CEO, Dr. Donald E. Brown. “At the same time, we had continued year-over-year growth in services revenues driven by increasing maintenance and support fees resulting in record total revenues.”

Second quarter 2009 results included:

• Operating income on a generally accepted accounting principles (GAAP) basis of $3.0 million, up from $1.3 million in the second quarter of 2008;
• Non-GAAP operating income of $3.7 million, compared to $2.2 million in the same quarter last year;
• Gross margins of 67.9 percent, compared to 67.3 percent in the second quarter of 2008;
• GAAP net income of $2.1 million, or diluted earnings per share (EPS) of $0.12, up from $845,000, or EPS of $0.04, in the second quarter of 2008;
• Non-GAAP net income of $4.4 million, or EPS of $0.24, compared to $2.4 million, or EPS of $0.13, for the same quarter last year; and
• Cash and investment balances at quarter-end of $54.1 million with no debt.

Non-GAAP net income and EPS exclude charges for stock-based compensation of $725,000, or EPS of $0.04, and non-cash income tax expense of $1.5 million, or EPS of $0.08, for the second quarter of 2009, and charges for stock-based compensation expense of $944,000, or EPS of $0.05, and non-cash income tax expense of $656,000, or EPS of $0.04, for the second quarter of 2008.

“We continue to focus on new product development and expanding our existing offerings,” Dr. Brown said. “These activities include our acquisition in May 2009 of insurance content management solutions company AcroSoft, and the expected launch of our communications-based process automation solution later this year. We believe these initiatives will help drive more value to our existing customers and prospects, and generate additional revenues in 2010.”

First half 2009 results included:

• Total revenues of $62.4 million, a 3.8 percent increase over revenues of $60.1 million for the first half of 2008;
• GAAP operating income of $5.4 million, up from $2.7 million in the first half of 2008;
• Non-GAAP operating income of $7.0 million, compared to $4.5 million in the first half of 2008;
• Gross margins of 68.6 percent, compared to 68.3 percent for the first half of 2008;
• GAAP net income of $3.3 million, or EPS of $0.19, compared to $2.0 million, or EPS of $0.10, for the first half of 2008;
• Non-GAAP net income of $7.2 million, or EPS of $0.41, compared to $5.3 million, or EPS of $0.28, for the same period last year.

Non-GAAP net income and EPS exclude charges for stock-based compensation of $1.6 million, or EPS of $0.09, and non-cash income tax expense of $2.3 million, or EPS of $0.13, for the first six months of 2009, and charges for stock-based compensation expense of $1.9 million, or EPS of $0.10, and non-cash income tax expense of $1.5 million, or EPS of $0.08, for the first six months of 2008.

Second quarter 2009 operating results also included:

• A drop in interest income to $73,000, compared to $344,000 in the second quarter of 2008, due to lower yields on investments;
• Other income, principally related to foreign exchange gains, of $649,000, compared to a loss of $90,000 in the second quarter of 2008; and
• Cash flows from operations of $4.9 million, up from $1.4 million in the second quarter of 2008.

Non-financial highlights from the second quarter of 2009 included:

• Interactive Intelligence acquired insurance content management solutions company AcroSoft to strengthen its insurance offering and incorporate document management capabilities into its all-in-one IP communications software suite;
• Interactive Intelligence announced its communications-based process automation product, Interaction Process Automation™ (IPA);
• Interactive Intelligence signed national reseller, Ronco Communications & Electronics;
• Interactive Intelligence was named among the Indiana Chamber of Commerce’s 2009 "Best Places to Work"; and
• Interactive Intelligence received the 2009 “Unified Communications TMC Labs Innovation Award” recognizing the company’s IPA product.

Interactive Intelligence will host a conference call July 30 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 1.877.545.1490 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 IntelligenceInteractive Intelligence Inc. (Nasdaq: ININ) is a global provider of unified business communications solutions for contact center automation, enterprise IP telephony, and business process automation. The company was founded in 1994 and has approximately 3,000 customers worldwide. Interactive Intelligence is among Software Magazine’s top 500 global software and services suppliers, is ranked among Network World’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. The company is also positioned in the leaders’ quadrant of the Gartner 2008 Contact Center Infrastructure, Worldwide Magic Quadrant report. Interactive Intelligence employs more than 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.

* Non-GAAP MeasuresThe 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. Stock-based compensation expense is non-cash and income tax expense is primarily 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 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.

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: 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 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 Six Months Ended June 30, June 30, 2009 2008 2009 2008 Revenues: Product $ 16,494 $ 15,321 $ 29,543 $ 30,166 Services   16,401   15,289     32,828   29,927 Total revenues   32,895   30,610     62,371   60,093 Costs of revenues: Product 4,841 3,909 8,369 7,039 Services   5,708   6,088     11,210   11,985 Total cost of revenues   10,549   9,997     19,579   19,024 Gross profit   22,346   20,613     42,792   41,069 Operating expenses: Sales and marketing 9,965 10,138 19,179 20,322 Research and development 5,986 5,336 11,613 10,301 General and administrative   3,416   3,848     6,604   7,786 Total operating expenses   19,367   19,322     37,396   38,409 Operating income 2,979 1,291 5,396 2,660 Other income (expense): Interest income 73 344 181 803 Other income (expense)   649   (90 )   225   124 Total other income   722   254     406   927 Income before income taxes 3,701 1,545 5,802 3,587 Income tax expense   1,604   700     2,482   1,625 Net income $ 2,097 $ 845   $ 3,320 $ 1,962   Net income per share: Basic $ 0.12 $ 0.05 $ 0.20 $ 0.11 Diluted 0.12 0.04 0.19 0.10   Shares used to compute net income per share: Basic 17,015 17,972 16,981 17,956 Diluted 18,070 19,077 17,859 19,149             Interactive Intelligence, Inc. Reconciliation of Supplemental Financial Information (in thousands, except per share amounts) Unaudited   Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008   Net income, as reported $ 2,097 $ 845 $ 3,320 $ 1,962 Non-cash stock-based compensation expense: Cost of services 50 69 115 141 Sales and marketing 230 382 538 744 Research and development 227 224 472 432 General and administrative   218   269   447   559 Total   725   944   1,572   1,876 Non-cash income tax expense   1,544   656   2,343   1,477 Non-GAAP net income $ 4,366 $ 2,445 $ 7,235 $ 5,315   Operating income, as reported $ 2,979 $ 1,291 $ 5,396 $ 2,660 Non-cash stock-based compensation expense   725   944   1,572   1,876 Non-GAAP operating income $ 3,704 $ 2,235 $ 6,968 $ 4,536   Diluted EPS, as reported $ 0.12 $ 0.04 $ 0.19 $ 0.10 Non-cash stock-based compensation expense 0.04 0.05 0.09 0.10 Non-cash income tax expense   0.08   0.04   0.13   0.08 Non-GAAP diluted EPS $ 0.24 $ 0.13 $ 0.41 $ 0.28         Interactive Intelligence, Inc. Condensed Consolidated Balance Sheets (in thousands)       June 30, December 31, 2009 2008 (unaudited) Assets Current assets: Cash and cash equivalents $ 48,062 $ 34,705 Short-term investments 5,989 10,805 Accounts receivable, net 24,626 27,533 Deferred tax assets, net 6,139 6,017 Prepaid expenses 4,915 5,507 Other current assets   3,308     1,995   Total current assets 93,039 86,562 Property and equipment, net 9,546 10,762 Deferred tax assets, net 4,476 5,136 Other assets, net   4,837     2,723   Total assets $ 111,898   $ 105,183     Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 11,934 $ 11,361 Accrued compensation and related expenses 3,854 3,486 Deferred product revenues 4,835 4,754 Deferred services revenues   30,679     31,457   Total current liabilities 51,302 51,058 Deferred revenue   6,323     6,878   Total liabilities   57,625     57,936     Shareholders' equity: Preferred stock - - Common stock 171 169 Treasury stock (8,470 ) (9,714 ) Additional paid-in-capital 86,577 83,604 Accumulated deficit   (24,005 )   (26,812 ) Total shareholders' equity   54,273     47,247   Total liabilities and shareholders' equity $ 111,898   $ 105,183             Interactive Intelligence, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) Unaudited     Six Months Ended June 30, 2009 2008   Operating activities: Net income $ 3,320 $ 1,962 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,094 1,690 Stock-based compensation expense 1,572 1,876 Tax benefits from stock-based payment arrangements (1,278 ) - Deferred income tax 538 1,477 Accretion of investment income (142 ) (89 ) Changes in operating assets and liabilities: Accounts receivable 2,969 1,763 Prepaid expenses 622 74 Other current assets (1,312 ) (392 ) Other assets 308 (149 ) Accounts payable and accrued liabilities 1,824 1,438 Accrued compensation and related expenses 368 (1,118 ) Deferred product revenues 168 (1,407 ) Deferred services revenues   (1,704 )   (363 ) Net cash provided by operating activities   9,347     6,762     Investing activities: Sales of available-for-sale investments 10,800 17,650 Purchases of available-for-sale investments (5,850 ) (14,613 ) Purchases of property and equipment (833 ) (4,047 )

Acquisition of intangible and other assets, net of cash andcash equivalents acquired

  (2,249 )   -   Net cash provided by (used in) investing activities   1,868     (1,010 )   Financing activities: Proceeds from stock options exercised 732 442 Proceeds from issuance of common stock 132 131 Tax benefits from stock-based payment arrangements   1,278     -   Net cash provided by financing activities   2,142     573     Net increase in cash and cash equivalents 13,357 6,325 Cash and cash equivalents, beginning of period   34,705     29,359   Cash and cash equivalents, end of period $ 48,062   $ 35,684     Cash paid during the period for: Income taxes $ 199 $ 170   Other non-cash item: Purchases of property and equipment payable at end of period $ (78 ) $ (72 )