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 months ended March 31, 2011.

The company reported revenues of $47.7 million, an increase of 36 percent from revenues of $35.0 million in the first quarter of 2010. Product revenues increased by 32 percent, recurring revenues by 30 percent, and services revenues by 88 percent compared to the 2010 first quarter.

First-quarter operating results included the following:

• On a generally accepted accounting principles (GAAP) basis, net income of $3.1 million in 2011, with diluted earnings per share (EPS) of $0.16, compared to net income of $1.9 million in 2010, or EPS of $0.10.
• Net income on a non-GAAP* basis of $5.5 million in 2011, with EPS of $0.28, compared to non-GAAP net income of $4.2 million in 2010, or EPS of $0.22.
• GAAP operating income of $4.9 million in 2011, up 23 percent from $4.0 million in 2010.
• Non-GAAP operating income of $6.8 million in 2011, up 34 percent from 2010.
• Other expense of $123,000 in 2011, compared to $733,000 in 2010, reflecting foreign currency translation losses in both years.
• An increase in cash flows from operations to $6.7 million in 2011, compared to $5.3 million in 2010.

For the first quarter of 2011, non-GAAP net income and EPS excluded charges for stock-based compensation of $1.3 million, or EPS of $0.07, purchase accounting adjustments of $510,000, or EPS of $0.03, and non-cash income tax expense of approximately $549,000, or EPS of $0.02.

For the first quarter of 2010, non-GAAP net income and EPS excluded charges for stock-based compensation of $1.0 million, or EPS of $0.05, and non-cash income tax expense of $1.2 million, or EPS of $0.07.

Cash and investment balances, including long-term investments, as of March 31, 2011, increased to $91.9 million with no debt.

“We again saw strong year-over-year order increases across all major geographies and product groups,” said Interactive Intelligence founder and CEO, Dr. Donald E. Brown. “Total orders were up 55 percent over the first quarter of 2010, which included a near tripling in cloud-based contracts year-over-year. We’re executing well on our sales and marketing plans and are benefiting from an increase in new opportunities as a result of our relationships with key strategic partners.”

During the first quarter of 2011, the company was also named a “2011 Service Leader” by CRM Magazine and a "Need to Know Vendor” by Computer Reseller News.

On April 11, 2011, Interactive Intelligence announced that it will ask shareholders at its 2011 annual shareholder meeting to vote on a proposal to reorganize the company as a holding company incorporated in Indiana. The annual meeting is scheduled for June 10, 2011 at 9 a.m., Eastern time (EDT) at the company's world headquarters located at 7601 Interactive Way, Indianapolis, Indiana 46278. Shareholders of record as of the close of business on April 21, 2011 will be entitled to vote by proxy or in person at the annual meeting.

Interactive Intelligence and Interactive Intelligence Group, Inc., its wholly owned subsidiary, have filed a registration statement with the Securities and Exchange Commission (SEC) that includes a preliminary proxy statement/prospectus and other relevant documents in connection with the proposed reorganization. More information regarding the proposed reorganization is available on the company's website at www.inin.com, under the "About Us" tab.

Interactive Intelligence will host a first quarter 2011 earnings conference call April 25 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 first 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, Inc.

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’s solutions, which can be deployed via an on-premise or hosted model, include vertical-specific applications for insurance and collections. Interactive Intelligence was founded in 1994 and has more than 4,000 customers worldwide. The company is among Software Magazine’s 2010 Top 500 Global Software and Services Suppliers, and Forbes Magazine’s 2010 Best Small Companies in America. Interactive Intelligence is also positioned in the leaders’ quadrant of the Gartner Magic Quadrant for Contact Center Infrastructure, Worldwide report (Feb. 22, 2010). The company employs more than 800 people and is headquartered in Indianapolis, Indiana. It has 19 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.

Interactive Intelligence Forward-Looking Statement Disclosure

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.

* 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 and exclude non-cash stock-based compensation expense for stock options, the amortization of certain intangible assets related to acquisitions by the company 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 and amortization of intangibles related to acquisitions are 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, non-cash income tax expense amounts and amortization of intangibles related to acquisitions 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, non-cash income tax amounts and amortization of intangibles related to acquisitions for its internal budgets.

Where to Find Additional Information

Interactive Intelligence, Inc. and Interactive Intelligence Group, Inc. (ININ Group) have filed a registration statement that includes a preliminary proxy statement/prospectus and other relevant documents in connection with the proposed reorganization. INTERACTIVE INTELLIGENCE SHAREHOLDERS ARE URGED TO CAREFULLY READ THESE DOCUMENTS AND THE DEFINITIVE PROXY STATEMENT/PROSPECTUS, WHEN FILED AND MAILED, BECAUSE THEY CONTAIN AND WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED REORGANIZATION. The definitive proxy statement/prospectus will be mailed to Interactive Intelligence shareholders prior to the shareholder meeting. In addition, investors may obtain a free copy of the preliminary proxy statement/prospectus and other filings containing information about Interactive Intelligence, ININ Group, and the proposed reorganization, from the SEC at the SEC’s website at http://www.sec.gov. In addition, copies of the preliminary proxy statement/prospectus and other filings containing information about Interactive Intelligence, ININ Group, and the proposed reorganization can be obtained without charge by sending a request to Interactive Intelligence, Inc., 7601 Interactive Way, Indianapolis, Indiana 46278, Attention: Investor Relations; by calling (317) 872-3000; or by accessing them on Interactive Intelligence, Inc.’s investor relations Web page at http://investors.inin.com/.

Participants in the Solicitation

Interactive Intelligence, its directors, executive officers, certain other members of management, and employees may be deemed to be participants in the solicitation of proxies from the shareholders of Interactive Intelligence in favor of the proposed holding company reorganization. Additional information regarding the interests of potential participants in the proxy solicitation is included in the preliminary proxy statement/prospectus and will be included in the definitive proxy statement/prospectus and other relevant documents that Interactive Intelligence and ININ Group have filed and intend to file with the SEC in connection with the annual meeting of shareholders of Interactive Intelligence, Inc.

This press release is being made pursuant to and in compliance with the Securities Act of 1933, as amended, and does not constitute an offer of any securities for sale or a solicitation of an offer to buy any securities, nor shall there be any sale of the securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction. Any offer of the securities will be made solely by means of a prospectus included in the registration statement and any prospectus supplement that may be issued in connection with such offering.

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

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Interactive Intelligence, Inc. Condensed Consolidated Statements of Income (in thousands, except per share amounts) (unaudited)       Three Months Ended March 31, 2011 2010 Revenues: Product $ 20,766 $ 15,786 Recurring 20,746 15,925 Services   6,218     3,312   Total revenues   47,730     35,023   Costs of revenues: Product 6,196 4,799 Recurring 5,282 3,423 Services 3,712 2,174 Amortization of intangible assets   35     16   Total cost of revenues   15,225     10,412   Gross profit   32,505     24,611   Operating expenses: Sales and marketing 14,157 10,352 Research and development 8,147 6,425 General and administrative 5,095 3,836 Amortization of intangible assets   184     9   Total operating expenses   27,583     20,622   Operating income 4,922 3,989 Other income (expense): Interest income, net 43 42 Other expense   (166 )   (775 ) Total other income (expense)   (123 )   (733 ) Income before income taxes 4,799 3,256 Income tax expense   1,704     1,388   Net income $ 3,095   $ 1,868     Net income per share: Basic $ 0.17 $ 0.11 Diluted 0.16 0.10   Shares used to compute net income per share: Basic 18,417 17,320 Diluted 19,780 18,708 Interactive Intelligence, Inc. Reconciliation of Supplemental Financial Information (in thousands, except per share amounts) (unaudited)       Three Months Ended March 31, 2011 2010   Net income, as reported $ 3,095 $ 1,868 Purchase accounting adjustments: Increase to revenues: Recurring 59 7 Services 31 2 Reduction of operating expenses: Customer relationships 139 9 Technology 35 16 Non-compete agreements 45 - Acquisition costs   201   - Total   510   34 Non-cash stock-based compensation expense: Cost of recurring revenues 105 31 Cost of services 25 48 Sales and marketing 392 324 Research and development 408 298 General and administrative   388   311 Total   1,318   1,012 Non-cash income tax expense   549   1,241 Non-GAAP net income $ 5,472 $ 4,155   Operating income, as reported $ 4,922 $ 3,989 Purchase accounting adjustments 510 34 Non-cash stock-based compensation expense   1,318   1,012 Non-GAAP operating income $ 6,750 $ 5,035   Diluted EPS, as reported $ 0.16 $ 0.10 Purchase accounting adjustments 0.03 0.00 Non-cash stock-based compensation expense 0.07 0.05 Non-cash income tax expense   0.02   0.07 Non-GAAP diluted EPS $ 0.28 $ 0.22 Interactive Intelligence, Inc. Condensed Consolidated Balance Sheets (in thousands)         March 31, December 31, 2011 2010 (unaudited) Assets Current assets: Cash and cash equivalents $ 51,870

 

$ 48,300 Short-term investments 34,439 37,582 Accounts receivable, net 37,295

 

36,130 Deferred tax assets, net 5,112

 

5,499 Prepaid expenses 9,054

 

7,456 Other current assets   4,773  

 

  4,989   Total current assets 142,543 139,956 Long-term investments 5,566 - Property and equipment, net 11,877

 

10,336 Deferred tax assets, net 2,494 2,765 Goodwill 14,567 11,371 Intangible assets, net 12,068 11,001 Other assets, net   931     803   Total assets $ 190,046  

 

$ 176,232     Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 15,139

 

$ 16,364 Accrued compensation and related expenses 5,303

 

6,553 Deferred product revenues 4,989

 

3,350 Deferred services revenues   47,109  

 

  43,281   Total current liabilities 72,540 69,548 Deferred revenue   8,935  

 

  7,420   Total liabilities   81,475     76,968     Shareholders' equity: Preferred stock - - Common stock 186 182 Additional paid-in-capital 109,990 103,837 Accumulated other comprehensive income (235 ) (290 ) Accumulated deficit   (1,370 )   (4,465 ) Total shareholders' equity   108,571     99,264   Total liabilities and shareholders' equity $ 190,046   $ 176,232   Interactive Intelligence, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)         Three Months Ended March 31, 2011 2010   Operating activities: Net income $ 3,095 $ 1,868 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash items 1,481

 

1,059 Stock-based compensation expense 1,318

 

1,012 Tax benefits from stock-based payment arrangements (862 )

 

(1,251 ) Deferred income tax 34

 

(150 ) Accretion of investment income (682 )

 

27 Changes in operating assets and liabilities: Accounts receivable (49 )

 

5,110 Prepaid expenses (1,311 )

 

(346 ) Other current assets 272

 

(47 ) Other assets (128 )

 

53 Accounts payable and accrued liabilities (1,598 )

 

143 Accrued compensation and related expenses (1,585 )

 

(1,304 ) Deferred product revenues 1,793

 

(615 ) Deferred services revenues   4,889  

 

  (214 ) Net cash provided by operating activities   6,667  

 

  5,345     Investing activities: Sales of available-for-sale investments 21,028

 

2,550 Purchases of available-for-sale investments (22,740 )

 

(7,828 ) Purchases of property and equipment (2,139 )

 

(985 ) Acquisition, net of cash (4,111 ) - Unrealized gain on investment   26  

 

  -   Net cash used in investing activities   (7,936 )   (6,263 )   Financing activities: Proceeds from stock options exercised 3,881

 

691 Proceeds from issuance of common stock 96

 

158 Tax benefits from stock-based payment arrangements   862  

 

  1,251   Net cash provided by financing activities   4,839  

 

  2,100     Net increase in cash and cash equivalents 3,570 1,182 Cash and cash equivalents, beginning of period   48,300  

 

  48,497   Cash and cash equivalents, end of period $ 51,870   $ 49,679     Cash paid during the period for: Interest $ -

 

$ 1 Income taxes 842

 

318   Other non-cash item: Purchases of property and equipment payable at end of period $ 746

 

$ 57 Condensed Consolidated Statements of Income - GAAP (in thousands, except per share amounts) (unaudited)       2010 2011 Q1 Q2 Q3 Q4 Total Q1   Revenues: Product $ 15,786 $ 18,315 $ 20,671 $ 25,045 $ 79,817 $ 20,766 Recurring 15,925 16,322 16,595 19,898 68,740 20,746 Services   3,312     4,174     4,565     5,707     17,758     6,218   Total revenues   35,023     38,811     41,831     50,650     166,315     47,730   Costs of revenues: Product 4,799 5,502 6,198 7,369 23,868 6,196 Recurring 3,423 4,043 4,302 5,223 16,991 5,282 Services 2,174 2,144 2,465 3,005 9,788 3,712 Amortization of intangibles   16     16     16     35     83     35   Total cost of revenues   10,412     11,705     12,981     15,632     50,730     15,225   Gross profit   24,611     27,106     28,850     35,018     115,585     32,505   Operating expenses: Sales and marketing 10,352 11,480 12,106 13,134 47,072 14,157 Research and development 6,425 6,945 7,193 7,786 28,349 8,147 General and administrative 3,836 4,013 3,935 4,800 16,584 5,095 Amortization of intangibles   9     9     9     184     211     184   Total operating expenses   20,622     22,447     23,243     25,904     92,216     27,583   Operating income   3,989     4,659     5,607     9,114     23,369     4,922   Other income (expense): Interest income, net 42 67 120 111 340 43 Other income (expense)   (775 )   (590 )   337     (118 )   (1,146 )   (166 ) Total other income (expense)   (733 )   (523 )   457     (7 )   (806 )   (123 ) Income before income taxes 3,256 4,136 6,064 9,107 22,563 4,799 Income tax expense   1,388     1,680     2,561     2,033     7,662     1,704   Net income $ 1,868   $ 2,456   $ 3,503   $ 7,074   $ 14,901   $ 3,095     Net income per share: Basic $ 0.11 $ 0.14 $ 0.20 $ 0.39 $ 0.85 $ 0.17 Diluted $ 0.10 $ 0.13 $ 0.19 $ 0.37 $ 0.79 $ 0.16   Shares used to compute net income per share: Basic 17,320 17,445 17,524 17,956 17,563 18,417 Diluted 18,708 18,772 18,695 19,302 18,894 19,780   Condensed Consolidated Statements of Income - Non-GAAP (in thousands, except per share amounts) (unaudited) 2010 2011 Q1 Q2 Q3 Q4 Total Q1   Revenues: Product $ 15,786 $ 18,315 $ 20,671 $ 25,045 $ 79,817 $ 20,766 Recurring 15,932 16,323 16,595 19,978 68,828 20,805 Services   3,314     4,175     4,566     5,707     17,762     6,249   Total revenues   35,032     38,813     41,832     50,730     166,407     47,820   Costs of revenues: Product 4,799 5,502 6,198 7,369 23,868 6,196 Recurring 3,392 3,983 4,234 5,155 16,764 5,177 Services   2,126     2,141     2,447     2,980     9,694     3,687   Total cost of revenues   10,317     11,626     12,879     15,504     50,326     15,060   Gross profit   24,715     27,187     28,953     35,226     116,081     32,760   Operating expenses: Sales and marketing 10,028 11,162 11,774 12,878 45,842 13,765 Research and development 6,127 6,647 6,908 7,489 27,171 7,739 General and administrative   3,525     3,728     3,609     4,383     15,245     4,506   Total operating expenses   19,680     21,537     22,291     24,750     88,258     26,010   Operating income   5,035     5,650     6,662     10,476     27,823     6,750   Other income (expense): Interest income, net 42 67 120 111 340 43 Other income (expense)   (775 )   (590 )   337     (118 )   (1,146 )   (166 ) Total other income (expense)   (733 )   (523 )   457     (7 )   (806 )   (123 ) Income before income taxes 4,302 5,127 7,119 10,469 27,017 6,627 Income tax expense   147     133     151     55     486     1,155   Net income $ 4,155   $ 4,994   $ 6,968   $ 10,414   $ 26,531   $ 5,472     Net income per share: Basic $ 0.24 $ 0.29 $ 0.40 $ 0.58 $ 1.51 $ 0.30 Diluted 0.22 0.27 0.37 0.54 1.40 0.28   Shares used to compute net income per share: Basic 17,320 17,445 17,524 17,956 17,563 18,417 Diluted 18,708 18,772 18,695 19,302 18,894 19,780   Supplemental Data (Dollars in thousands)   2010 2011 Q1 Q2 Q3 Q4 Total Q1 Non-GAAP Adjustments: Purchase accounting adjustments: Increase to revenues: Recurring $ 7 $ 1 $ - $ 80 $ 88 $ 59 Services 2 1 1 - 4 31   Reduction of operating expenses: Customer relationships 9 9 9 139 166 139 Technology 16 16 16 35 83 35 Non-compete agreements - - - 45 45 45 Acquisition costs   -     -     -     89     89     201   Total purchase accounting adjustments $ 34   $ 27   $ 26   $ 388   $ 475   $ 510     Stock-based compensation expense: Costs of recurring revenues $ 31 $ 60 $ 68 $ 68 $ 227 $ 105 Costs of services revenues 48 3 18 25 94 25 Sales and marketing 324 318 332 256 1,230 392 Research and development 298 298 285 297 1,178 408 General and administrative   311     285     326     328     1,250     388   Total $ 1,012   $ 964   $ 1,029   $ 974   $ 3,979   $ 1,318     Non-cash income tax expense $ 1,241   $ 1,547   $ 2,410   $ 1,978   $ 7,176   $ 549     Other Information: Margins (GAAP): Product 69.6 % 70.0 % 70.0 % 70.6 % 70.1 % 70.2 % Recurring 78.5 % 75.2 % 74.1 % 73.8 % 75.3 % 74.5 % Services 34.4 % 48.6 % 46.0 % 47.3 % 44.9 % 40.3 % Overall 70.3 % 69.8 % 69.0 % 69.1 % 69.5 % 68.1 %   Year-over-year Revenue Growth (GAAP): Product 20.7 % 10.6 % 32.5 % 38.5 % 26.0 % 31.5 % Recurring 18.8 % 23.2 % 15.7 % 34.4 % 23.2 % 30.3 % Services 10.7 % 35.0 % 41.6 % 91.3 % 44.5 % 87.7 % Overall 18.8 % 18.0 % 26.1 % 41.2 % 26.6 % 36.3 %   Orders: Over $1 million 3 2 9 5 19 3 Between $250,000 and $1 million 11 18 16 26 71 24   Number of new customers 71 62 48 77 258 65   Average new customer order: Overall $ 135 $ 178 $ 318 $ 225 $ 206 $ 275 Cloud-based 535 446 617 139 401 488