ININ Interactive Intelligence Grp., Inc.

Interactive Intelligence (Nasdaq: ININ), a global provider of unified IP business communications solutions, has announced results for the three and nine months ended Sept. 30, 2010.

The company reported the following for the third quarter of 2010:

• Total revenues of $41.8 million, an increase of 26 percent over revenues of $33.2 million in the same quarter last year.
• Net income on a generally accepted accounting principles (GAAP) basis of $3.5 million, with diluted earnings per share (EPS) of $0.19, compared to net income of $2.8 million and EPS of $0.15 in the third quarter of 2009.
• Non-GAAP* net income of $6.9 million, with EPS of $0.37, up from non-GAAP net income of $5.7 million and EPS of $0.31, in the same quarter last year.

Non-GAAP net income and EPS for the third quarter of 2010 excluded stock-based compensation expense of approximately $1.0 million, or EPS of $0.06, and non-cash income tax expense of $2.4 million, or EPS of $0.12. The 2009 third-quarter non-GAAP net income and EPS excluded stock-based compensation expense of $975,000, or EPS of $0.05, and non-cash income tax expense of $1.9 million, or EPS of $0.11.

Cash and investment balances as of Sept. 30, 2010 were $85.5 million and the company has no debt.

“Our performance during the quarter was strong across North America, Europe, Middle East, Africa, and specific regions throughout Asia-Pacific,” said Interactive Intelligence founder and CEO, Dr. Donald E. Brown. “As we reported in our preliminary third-quarter announcement, we closed a number of large orders during the quarter, which was a main contributor to our increased revenues and earnings. We continue to execute on our strategy of moving up-market, with record average dollar amounts for new orders. We’re also seeing strong increases in new cloud-based communications orders, positively building our recurring revenue base.”

The following are results for the first nine months of 2010:

• Total revenues of $115.7 million, a 21 percent increase over revenues of $95.5 million in the first nine months of 2009.
• Other expense, principally due to foreign exchange losses, of $801,000, compared to other income, principally due to foreign exchange gains, of $938,000 for the same period last year.
• GAAP net income of $7.8 million, or EPS of $0.42, compared to $6.1 million, or EPS of $0.34, for the first nine months of 2009.
• Non-GAAP net income of $16.0 million, or EPS of $0.86, compared to $12.9 million, or EPS of $0.71, for the same period last year.

Non-GAAP net income and EPS for the first nine months of 2010 exclude charges for stock-based compensation of $3.0 million, or EPS of $0.16, and non-cash income tax expense of $5.2 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 $2.5 million, or EPS of $0.14, and non-cash income tax expense of $4.3 million, or EPS of $0.23.

Other recent company highlights included:

• Acquisition of Latitude Software, an accounts receivable management software and services company, effective Oct. 1, 2010.
• Launch of "Ditch the Frustration" campaign designed to provide educational resources to assist consumers and businesses with customer service.
• Opening of on-site health care clinic to help improve employee wellness.
• TMC Labs Unified Communications Innovation award for communications-based process automation product, Interaction Process Automation™ (IPA).
• Network Products Guide's Reader's Trust award for Interaction SIP Station™.
• Frost & Sullivan’s Technology Company of the Year award.
• More than 400 people in attendance at the 12th annual Interactive Intelligence Partner Conference.

Interactive Intelligence will host a conference call Nov. 1 at 4:30 p.m. 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 third-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 Magic Quadrant for Contact Center Infrastructure, Worldwide report (Feb. 22, 2010). Interactive Intelligence employs approximately 800 people and is headquartered in Indianapolis, Indiana. It has 16 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 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 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.

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        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, 2010 2009 2010 2009 Revenues: Product $ 20,586 $ 15,557 $ 54,484 $ 45,100 Services   21,245   17,613   61,181     50,441 Total revenues   41,831   33,170   115,665     95,541 Costs of revenues: Product 6,198 3,950 16,499 12,320 Services   6,767   5,549   18,552     16,758 Total cost of revenues   12,965   9,499   35,051     29,078 Gross profit   28,866   23,671   80,614     66,463 Operating expenses: Sales and marketing 12,106 9,696 33,939 28,877 Research and development 7,193 6,135 20,562 17,747 General and administrative   3,960   3,562   11,859     10,166 Total operating expenses   23,259   19,393   66,360     56,790 Operating income 5,607 4,278 14,254 9,673 Other income (expense): Interest income 120 50 228 232 Other income (expense)   337   480   (1,029 )   706 Total other income (expense)   457   530   (801 )   938 Income before income taxes 6,064 4,808 13,453 10,611 Income tax expense   2,561   2,005   5,627     4,488 Net income $ 3,503 $ 2,803 $ 7,826   $ 6,123   Net income per share: Basic $ 0.20 $ 0.16 $ 0.45 $ 0.36 Diluted 0.19 0.15 0.42 0.34   Shares used to compute net income per share: Basic 17,524 17,148 17,431 17,038 Diluted 18,695 18,486 18,731 18,125   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, 2010 2009 2010 2009   Net income, as reported $ 3,503 $ 2,803 $ 7,826 $ 6,123 Non-cash stock-based compensation expense: Cost of services 86 71 228 186 Sales and marketing 332 352 971 890 Research and development 285 254 881 726 General and administrative   326   298   922   745 Total   1,029   975   3,002   2,547 Non-cash income tax expense   2,410   1,913   5,196   4,257 Non-GAAP net income $ 6,942 $ 5,691 $ 16,024 $ 12,927   Operating income, as reported $ 5,607 $ 4,278 $ 14,254 $ 9,673 Non-cash stock-based compensation expense   1,029   975   3,002   2,547 Non-GAAP operating income $ 6,636 $ 5,253 $ 17,256 $ 12,220   Diluted EPS, as reported $ 0.19 $ 0.15 $ 0.42 $ 0.34 Non-cash stock-based compensation expense 0.06 0.05 0.16 0.14 Non-cash income tax expense   0.12   0.11   0.28   0.23 Non-GAAP diluted EPS $ 0.37 $ 0.31 $ 0.86 $ 0.71   Interactive Intelligence, Inc. Condensed Consolidated Balance Sheets (in thousands)     September 30, December 31, 2010 2009 (unaudited) Assets Current assets: Cash and cash equivalents $ 49,688 $ 48,497 Short-term investments 35,842 16,482 Accounts receivable, net 32,417 32,092 Deferred tax assets, net 5,499 5,808 Prepaid expenses 7,754 5,976 Other current assets   5,039     3,935   Total current assets 136,239 112,790 Property and equipment, net 8,925 8,499 Deferred tax assets, net 6,870 6,505 Other assets, net   4,844     4,874   Total assets $ 156,878   $ 132,668     Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 14,511 $ 11,903 Accrued compensation and related expenses 5,669 4,946 Deferred product revenues 4,950 5,567 Deferred services revenues   40,456     36,225   Total current liabilities 65,586 58,641 Deferred revenue   6,398     6,420   Total liabilities   71,984     65,061     Shareholders' equity: Preferred stock - - Common stock 176 173 Treasury stock (3,973 ) (6,242 ) Additional paid-in-capital 100,199 92,815 Accumulated deficit   (11,508 )   (19,139 ) Total shareholders' equity   84,894     67,607   Total liabilities and shareholders' equity $ 156,878   $ 132,668     Interactive Intelligence, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) Unaudited     Nine Months Ended September 30, 2010 2009   Operating activities: Net income $ 7,826 $ 6,123

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 3,107 3,139 Stock-based compensation expense 3,002 2,547 Tax benefits from stock-based payment arrangements (4,528 ) (2,814 ) Deferred income tax (56 ) 884 Accretion of investment income (407 ) (172 ) Changes in operating assets and liabilities: Accounts receivable (325 ) 2,872 Prepaid expenses (1,778 ) 1,009 Other current assets (1,104 ) (1,928 ) Other assets 30 281 Accounts payable and accrued liabilities 7,143 1,969 Accrued compensation and related expenses 723 1,043 Deferred product revenues (717 ) (1,349 ) Deferred services revenues   4,309     (566 ) Net cash provided by operating activities   17,225     13,038     Investing activities: Sales of available-for-sale investments 15,565 13,100 Purchases of available-for-sale investments (34,678 ) (11,550 ) Purchases of property and equipment (3,540 ) (1,275 )

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

  -     (2,249 ) Net cash used in investing activities   (22,653 )   (1,974 )   Financing activities: Proceeds from stock options exercised 1,830 1,812 Proceeds from issuance of common stock 261 189 Tax benefits from stock-based payment arrangements   4,528     2,814   Net cash provided by financing activities   6,619     4,815     Net increase in cash and cash equivalents 1,191 15,879 Cash and cash equivalents, beginning of period   48,497     34,705   Cash and cash equivalents, end of period $ 49,688   $ 50,584     Cash paid during the period for: Interest $ 1 $ - Income taxes 716 533   Other non-cash item: Purchases of property and equipment payable at end of period $ 22 $ 42