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, 2010.

The company reported revenues of $38.8 million, an increase of 18 percent over the second quarter of 2009. Product revenues were up 10 percent and services revenues increased 26 percent compared to the same quarter last year. During the 2010 second quarter, the company’s analysis of the collectability of invoiced services increased current quarter services revenues by $673,000.

“We again experienced an increase in the dollar amount of orders from last year, which is what drives the growth in our revenues,” said Interactive Intelligence founder and CEO, Dr. Donald E. Brown. “Communications-as-a-service continues to gain momentum, representing 14 percent of orders received. CaaS revenues were up 87 percent this quarter compared to the second quarter of 2009. The ongoing signing of new customers in turn is driving increases in support and professional services revenue.”

The company reported operating income on a generally accepted accounting principles (GAAP) basis of $4.7 million for the 2010 second quarter, up 56 percent from $3.0 million in the same quarter last year. Non-GAAP operating income was $5.6 million for the second quarter of 2010, compared to $3.7 million for the second quarter of 2009.

GAAP net income was $2.5 million, with diluted earnings per share (EPS) of $0.13, compared to $2.1 million, or EPS of $0.12, for the second quarter of 2009. Net income on a non-GAAP basis was $5.0 million, with EPS of $0.26, compared to $4.4 million, or EPS of $0.24, for the same quarter last year.

Non-GAAP net income and EPS for the 2010 second quarter exclude charges for stock-based compensation of $964,000, or EPS of $0.05, and non-cash income tax expense of approximately $1.5 million, or EPS of $0.08. For the second quarter of 2009, 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.

These results include other expense of $523,000 in the 2010 second quarter primarily due to foreign exchange losses, compared to other income of $722,000, primarily from foreign exchange gains, in the same quarter last year. In the second quarter of 2010, the company instituted a currency hedging program to help mitigate future effects of fluctuations in the foreign exchange rates on cash and receivables.

Cash and investment balances as of June 30, 2010 increased to $75.5 million. The company has no debt.

First half 2010 results included:

• Total revenues of $73.8 million, an 18 percent increase over revenues of $62.4 million in the first half of 2009.
• GAAP operating income of $8.6 million, up from $5.4 million for the first half of 2009.
• Non-GAAP operating income of $10.6 million, compared to $7.0 million for the first half of 2009.
• Other expense, principally due to foreign exchange losses, of $1.3 million for the first half of 2010, compared to other income, due to foreign exchange gains, of $406,000 for the first half of 2009.
• GAAP net income of $4.3 million, or EPS of $0.23, compared to $3.3 million, or EPS of $0.19, for the first half of 2009.
• Non-GAAP net income of $9.1 million, or EPS of $0.48, compared to $7.2 million, or EPS of $0.41, for the same period last year.

For the first six months of 2010, non-GAAP net income and EPS exclude charges for stock-based compensation of $2.0 million, or EPS of $0.11, and non-cash income tax expense of $2.8 million, or EPS of $0.14. For the first half of 2009, 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.

Other 2010 second quarter highlights included:

• The signing of a partnership with Buzzient, Inc. to offer integrated social media monitoring, routing and reporting solutions.
• A record number of attendees at the 2010 Interactive Intelligence User Forum in May.
• The company’s designation as one of the "Best Places to Work in Indiana" by the Chamber of Commerce for the fourth consecutive year.
• The honoring of Interactive Intelligence founder and CEO, Dr. Donald E. Brown, by the Indiana University School of Informatics with its “Career Achievement Award.”

Interactive Intelligence will host a conference call July 26 at 4:30 p.m. Eastern time (EDT) featuring Dr. Brown and the company’s CFO, Stephen R. Head. There will be a live Q&A session following 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 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 more than 3,500 customers worldwide. Interactive Intelligence is among Software Magazine’s top 500 global software and services suppliers, 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 2009 Contact Center Infrastructure, Worldwide Magic Quadrant report. Interactive Intelligence employs approximately 700 people and is headquartered in Indianapolis, Indiana. It has 14 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 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 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 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, 2010 2009 2010 2009 Revenues: Product $ 18,212 $ 16,494 $ 33,899 $ 29,543 Services 20,599   16,401 39,935   32,828 Total revenues 38,811   32,895 73,834   62,371 Costs of revenues: Product 5,502 4,841 10,301 8,369 Services 6,187   5,708 11,784   11,210 Total cost of revenues 11,689   10,549 22,085   19,579 Gross profit 27,122   22,346 51,749   42,792 Operating expenses: Sales and marketing 11,480 9,965 21,832 19,179 Research and development 6,945 5,986 13,370 11,613 General and administrative 4,038   3,416 7,899   6,604 Total operating expenses 22,463   19,367 43,101   37,396 Operating income 4,659 2,979 8,648 5,396 Other income (expense): Interest income 67 73 109 181 Other income (expense) (590 ) 649 (1,365 ) 225 Total other income (expense) (523 ) 722 (1,256 ) 406 Income before income taxes 4,136 3,701 7,392 5,802 Income tax expense 1,680   1,604 3,068   2,482 Net income $ 2,456   $ 2,097 $ 4,324   $ 3,320   Net income per share: Basic $ 0.14 $ 0.12 $ 0.25 $ 0.20 Diluted 0.13 0.12 0.23 0.19   Shares used to compute net income per share: Basic 17,445 17,015 17,383 16,981 Diluted 18,772 18,070 18,740 17,859 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, 2010 2009 2010 2009   Net income, as reported $ 2,456 $ 2,097 $ 4,324 $ 3,320 Non-cash stock-based compensation expense: Cost of services 63 50 142 115 Sales and marketing 318 230 642 538 Research and development 298 227 596 472 General and administrative 285 218 596 447 Total 964 725 1,976 1,572 Non-cash income tax expense 1,547 1,544 2,788 2,343 Non-GAAP net income $ 4,967 $ 4,366 $ 9,088 $ 7,235   Operating income, as reported $ 4,659 $ 2,979 $ 8,648 $ 5,396 Non-cash stock-based compensation expense 964 725 1,976 1,572 Non-GAAP operating income $ 5,623 $ 3,704 $ 10,624 $ 6,968   Diluted EPS, as reported $ 0.13 $ 0.12 $ 0.23 $ 0.19 Non-cash stock-based compensation expense 0.05 0.04 0.11 0.09 Non-cash income tax expense 0.08 0.08 0.14 0.13 Non-GAAP diluted EPS $ 0.26 $ 0.24 $ 0.48 $ 0.41 Interactive Intelligence, Inc. Condensed Consolidated Balance Sheets (in thousands)         June 30, December 31, 2010 2009 (unaudited) Assets Current assets: Cash and cash equivalents $ 38,924 $ 48,497 Short-term investments 36,621 16,482 Accounts receivable, net 28,393 32,092 Deferred tax assets, net 5,808 5,808 Prepaid expenses 6,534 5,976 Other current assets 4,486   3,935   Total current assets 120,766 112,790 Property and equipment, net 8,701 8,499 Deferred tax assets, net 6,787 6,505 Other assets, net 4,807   4,874   Total assets $ 141,061   $ 132,668     Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 11,886 $ 11,903 Accrued compensation and related expenses 5,003 4,946 Deferred product revenues 5,632 5,567 Deferred services revenues 34,599   36,225   Total current liabilities 57,120 58,641 Deferred revenue 5,821   6,420   Total liabilities 62,941   65,061     Shareholders' equity: Preferred stock - - Common stock 175 173 Treasury stock (4,654 ) (6,242 ) Additional paid-in-capital 97,560 92,815 Accumulated deficit (14,961 ) (19,139 ) Total shareholders' equity 78,120   67,607   Total liabilities and shareholders' equity $ 141,061   $ 132,668   Interactive Intelligence, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) Unaudited         Six Months Ended June 30, 2010 2009   Operating activities: Net income $ 4,324 $ 3,320 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,058 2,094 Stock-based compensation expense 1,976 1,572 Tax benefits from stock-based payment arrangements (2,789 ) (1,278 ) Deferred income tax (282 ) 538 Accretion of investment income (444 ) (142 ) Changes in operating assets and liabilities: Accounts receivable 3,699 2,969 Prepaid expenses (558 ) 622 Other current assets (551 ) (1,312 ) Other assets 67 308 Accounts payable and accrued liabilities 2,554 1,824 Accrued compensation and related expenses 57 368 Deferred product revenues (32 ) 168 Deferred services revenues (2,128 ) (1,704 ) Net cash provided by operating activities 7,951   9,347     Investing activities: Sales of available-for-sale investments 7,300 10,800 Purchases of available-for-sale investments (27,078 ) (5,850 ) Purchases of property and equipment (2,042 ) (833 ) Acquisition of intangible and other assets, net of cash and cash equivalents acquired -   (2,249 ) Net cash (used in) provided by investing activities (21,820 ) 1,868     Financing activities: Proceeds from stock options exercised 1,343 732 Proceeds from issuance of common stock 164 132 Tax benefits from stock-based payment arrangements 2,789   1,278   Net cash provided by financing activities 4,296   2,142     Net (decrease) increase in cash and cash equivalents (9,573 ) 13,357 Cash and cash equivalents, beginning of period 48,497   34,705   Cash and cash equivalents, end of period $ 38,924   $ 48,062     Cash paid during the period for: Interest $ 1 $ - Income taxes 520 199   Other non-cash item: Purchases of property and equipment payable at end of period $ 247 $ 78