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Interactive Intelligence Reports 2016 First Quarter Financial Results

•Signed 118 PureCloud® customers in Q1, almost five times greater than Q4 2015
•Cloud subscription revenues up 41% year-over-year
•Total revenues of $99.3 million
•Generated operating cash flow of $11.2 million

INDIANAPOLIS, May 2, 2016 -- Interactive Intelligence Group Inc. (Nasdaq: ININ), a global leader of cloud services for customer engagement, communications and collaboration, has announced financial results for its first quarter ended March 31, 2016.

“PureCloud® sales exceeded our expectations this quarter,” said Dr. Donald Brown, Interactive Intelligence founder and CEO. “We went from 24 PureCloud® customers at the end of last year, to 142 by the close of the first quarter, and we’re still in the very early stages of selling it worldwide. We’re excited to see both large and small customers embrace the speed to value delivered through PureCloud®, which offers a compelling feature-set delivered through a flexible, monthly licensing model enabling rapid configuration and deployment.”

Brown added, “Our indirect channel rapidly adopted PureCloud®, as partners drove almost 25% of the PureCloud® deals in the quarter, and our strategy to simplify our licensing model through monthly contracts was leveraged by the vast majority of our new customers. Overall, we participated in more deals than ever in our history and added a record 163 new customers across all three of our product lines in the quarter.

“Although results from our on-premises solution came in as expected, more of these contracts came from our partner channel in this and the previous quarter,” Brown continued. “This impacted our professional services revenues and the difference went to our bottom line. The business still efficiently generated cash in the quarter, with operating cash flow of $11.2 million.”

Brown concluded, “We are focused on becoming the leader in the customer engagement market, and our strategy is based on providing industry-leading solutions for organizations anywhere, of any size, and implemented in any way, whether in the cloud or on-premises. We plan to gain market share by addressing the fastest growing segment of the market with PureCloud®, while giving no ground to competitors in traditional segments with our robust CIC and CaaSSM offerings.”

First Quarter 2016 Financial Highlights:

•
Revenues: Total revenues were $99.3 million, an increase of 11% from $89.5 million in the first quarter of 2015. Recurring revenues, which include cloud subscriptions and support fees from on-premises licenses, increased 19% to $64.3 million and accounted for 65% of total revenues. Revenues from cloud subscriptions grew 41% to $29.7 million, compared to $21.0 million in the same quarter last year. License and hardware revenues were $21.4 million and services revenues were $13.6 million, compared to $21.6 million and $13.6 million, respectively, in the 2015 first quarter.

•
Operating Loss: GAAP operating loss was $10.8 million, compared to a loss of $4.8 million in the first quarter of 2015. Non-GAAP* operating loss was $6.2 million, compared to a loss of $1.1 million in the same quarter last year.



•
Net Loss: GAAP net loss was $13.3 million, or $0.60 per diluted share based on 22.0 million weighted average diluted shares outstanding, compared to GAAP net loss of $3.5 million, or $0.16 per diluted share based on 21.4 million weighted average diluted shares outstanding in the same quarter of 2015. Non-GAAP net loss was $4.0 million, or $0.18 per diluted share, compared to a loss of $863,000, or $0.04 per diluted share in the same quarter last year.

•
Balance Sheet: Cash and cash equivalents and investments were $198.0 million, compared to $189.5 million as of December 31, 2015. Total deferred revenues were $135.1 million, consistent with $135.4 million at the end of last year.

•
Cash Flows: The company generated $11.2 million of cash from operating activities during the quarter, compared to $15.9 million in the 2015 first quarter. Capital expenditures totaled $2.0 million, primarily for data center infrastructure expansions.

*
A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included with this press release. An explanation of these measures is also included below under the heading “Non-GAAP Measures.”

The company will host a conference call today at 4:30 p.m. Eastern time (EDT) featuring Dr. Brown and the company's CFO, Ashley Vukovits. A live Q&A session will follow opening remarks.

To access the teleconference, 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
Interactive Intelligence Group Inc. (Nasdaq: ININ) is a global leader of cloud services for customer engagement, communications and collaboration designed to help businesses worldwide improve service, increase productivity and reduce costs. Backed by a 20-plus year history of industry firsts, 150-plus pending patent applications, and more than 6,000 global customer deployments, Interactive offers customers fast return on investment, along with robust reliability, scalability and security. It's also the only company recognized by the top global industry analyst firm as a leader in both the cloud and on-premises customer engagement markets. The company is headquartered in Indianapolis, Indiana and has more than 2,000 employees worldwide. For more information, visit www.inin.com.

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, exclude non-cash stock-based compensation expense, certain acquisition-related expenses, the amortization of certain intangible assets related to acquisitions by the company and the amortization of debt discounts and issuance costs and adjust for non-GAAP 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, amortization of intangibles related to acquisitions, and amortization of debt discounts and issuance costs are non-cash, and non-GAAP income tax expense is pro forma based on non-GAAP earnings. 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, our 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, certain acquisition-related expenses, amortization of intangibles related to acquisitions and amortization of debt discounts and issuance costs amounts can vary significantly between companies, it is useful to compare results excluding these amounts. Our management also reviews financial statements that exclude stock-based compensation expense, certain acquisition-related expenses, amortization of intangibles amounts related to acquisitions, amortization of debt discounts and issuance costs, and pro forma income tax expense for its internal budgets.



Forward Looking Statements

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 and competitive pressures in the industry; worldwide economic conditions and their impact on customer purchasing decisions; the company's profitability; the company’s ability to: manage successfully its growth; meet debt service requirements; manage successfully its increasingly complex third-party relationships resulting from the software and hardware components being licensed or sold with its product offerings; maintain successful relationships with certain suppliers which may be impacted by the competition in the technology industry; maintain successful relationships with its current and any new partners; maintain and improve its current products; develop new products; protect its proprietary rights and sensitive customer information adequately; improve the company’s brand and name recognition; 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 is the owner of, and holds certain registrations for, the marks INTERACTIVE INTELLIGENCE, its associated LOGO, PURECLOUD and numerous other trademarks and service marks in the United States and various other jurisdictions around the world. All third-party trademarks mentioned in this document are the property of their respective owners.

ININ-G

Contacts:
Seth Potter
Investor Relations
ICR, Inc.
+1 646.277.1230
seth.potter@icrinc.com

Christine Holley
Senior Director, Market Communications
Interactive Intelligence
+1 317.715.8220
christine.holley@inin.com

###





Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Revenues:
 
 
 
 
Recurring
 
$
64,290

 
$
54,212

License and hardware
 
21,378

 
21,621

Services
 
13,613

 
13,642

Total revenues
 
99,281

 
89,475

Costs of revenues (1)(2):
 
 
 
 
Costs of recurring
 
22,436

 
18,744

Costs of license and hardware
 
6,391

 
6,529

Costs of services
 
11,551

 
11,251

Total costs of revenues
 
40,378

 
36,524

Gross profit
 
58,903

 
52,951

Operating expenses (1)(2):
 
 
 
 
Sales and marketing
 
34,436

 
31,109

Research and development
 
22,780

 
13,837

General and administrative
 
12,510

 
12,776

Total operating expenses
 
69,726

 
57,722

Operating loss
 
(10,823
)
 
(4,771
)
Other expense:
 
 
 
 
Interest (expense) income, net
 
(1,837
)
 
148

Other expense
 
(251
)
 
(327
)
Total other expense
 
(2,088
)
 
(179
)
Loss before income taxes
 
(12,911
)
 
(4,950
)
Income tax (expense) benefit
 
(341
)
 
1,491

Net loss
 
$
(13,252
)
 
$
(3,459
)
Net loss per share:
 
 

 
 

Basic
 
$
(0.60
)
 
$
(0.16
)
Diluted
 
(0.60
)
 
(0.16
)
Shares used to compute net loss per share:
 
 

 
 

Basic
 
22,007

 
21,447

Diluted
 
22,007

 
21,447

(1) Amounts include amortization of purchased intangibles from business combinations, as follows:
Costs of license and hardware revenues
 
$
186

 
$
177

General and administrative
 
417

 
449

Total intangible amortization expense
 
$
603

 
$
626

(2) Amounts include stock-based compensation expense, as follows:
Costs of recurring revenues
 
$
393

 
$
432

Costs of license and hardware revenues
 
30

 
22

Costs of services revenues
 
274

 
129

Sales and marketing
 
817

 
561

Research and development
 
1,754

 
819

General and administrative
 
701

 
1,030

Total stock-based compensation expense
 
$
3,969

 
$
2,993


 


Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
GAAP recurring revenue gross profit, as reported
 
$
41,854

 
$
35,468

Purchase accounting adjustments
 
2

 
3

Non-cash stock-based compensation expense
 
393

 
432

Non-GAAP recurring revenue gross profit
 
$
42,249

 
$
35,903

Non-GAAP recurring revenue gross margin
 
65.7
 %
 
66.2
 %
 
 
 
 
 
GAAP license and hardware revenue gross profit, as reported
 
$
14,987

 
$
15,092

Acquired technology
 
186

 
177

Non-cash stock-based compensation expense
 
30

 
22

Non-GAAP license and hardware revenue gross profit
 
$
15,203

 
$
15,291

Non-GAAP license and hardware revenue gross margin
 
71.1
 %
 
70.7
 %
 
 
 
 
 
GAAP services revenue gross profit, as reported
 
$
2,062

 
$
2,391

Non-cash stock-based compensation expense
 
274

 
129

Non-GAAP services revenue gross profit
 
$
2,336

 
$
2,520

Non-GAAP services revenue gross margin
 
17.2
 %
 
18.5
 %
 
 
 
 
 
GAAP gross profit, as reported
 
$
58,903

 
$
52,951

Purchase accounting adjustments
 
2

 
3

Acquired technology
 
186

 
177

Non-cash stock-based compensation expense
 
697

 
583

Non-GAAP gross profit
 
$
59,788

 
$
53,714

Non-GAAP gross margin
 
60.2
 %
 
60.0
 %
 
 
 
 
 
GAAP operating loss, as reported
 
$
(10,823
)
 
$
(4,771
)
Purchase accounting adjustments
 
605

 
629

Non-cash stock-based compensation expense
 
3,969

 
2,993

Non-GAAP operating loss
 
$
(6,249
)
 
$
(1,149
)
Non-GAAP operating margin
 
(6.3
)%
 
(1.3
)%
 
 
 
 
 
GAAP net loss, as reported
 
$
(13,252
)
 
$
(3,459
)
Purchase accounting adjustments
 
605

 
629

Non-cash stock-based compensation expense
 
3,969

 
2,993

Amortization of debt discount and issuance costs
 
1,597

 
—

Non-GAAP income tax expense adjustment
 
3,037

 
(1,026
)
Non-GAAP net loss
 
$
(4,044
)
 
$
(863
)
 
 
 
 
 
GAAP diluted loss per share, as reported
 
$
(0.60
)
 
$
(0.16
)
Purchase accounting adjustments
 
0.03

 
0.03

Non-cash stock-based compensation expense
 
0.18

 
0.14

Amortization of debt discount and issuance costs
 
0.07

 
—

Non-GAAP income tax expense adjustment
 
0.14

 
(0.05
)
Non-GAAP diluted loss per share
 
$
(0.18
)
 
$
(0.04
)



Interactive Intelligence Group, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Reconciliation of Net Loss to Adjusted EBITDA
 
 
 
 
Net loss
 
$
(13,252
)
 
$
(3,459
)
Depreciation
 
4,447

 
4,736

Amortization
 
2,992

 
626

Interest expense (income), net
 
1,837

 
(148
)
Income tax expense (benefit)
 
341

 
(1,491
)
Stock-based compensation expense
 
3,969

 
2,993

Acquisition-related expenses
 
—

 
1

Other expense
 
251

 
327

Adjusted EBITDA
 
$
585

 
$
3,585

 
 
 
 
 
 
Interactive Intelligence Group, Inc.
Comprehensive Loss
(in thousands)
(unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
Net loss
 
$
(13,252
)
 
$
(3,459
)
Other comprehensive loss:
 
 
 
 
Foreign currency translation adjustment
 
1,737

 
(3,262
)
Net unrealized investment gain - net of tax
 
248

 
59

Comprehensive loss
 
$
(11,267
)
 
$
(6,662
)


Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
 
March 31,
 
December 31,
 
 
2016
 
2015
Assets
 
(unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
114,549

 
$
94,808

Short-term investments
 
58,558

 
64,182

Accounts receivable, net
 
87,107

 
106,950

Prepaid expenses
 
37,252

 
32,709

Other current assets
 
12,301

 
13,264

Total current assets
 
309,767

 
311,913

Long-term investments
 
24,934

 
30,503

Property and equipment, net
 
42,755

 
44,837

Capitalized software, net
 
42,733

 
43,783

Goodwill
 
42,573

 
41,848

Intangible assets, net
 
14,449

 
14,427

Other assets, net
 
6,283

 
6,222

Total assets
 
$
483,494

 
$
493,533

Liabilities and Shareholders' Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
10,209

 
$
10,571

Accrued liabilities
 
17,787

 
17,157

Accrued compensation and related expenses
 
13,576

 
18,910

Deferred license and hardware revenues
 
4,298

 
7,823

Deferred recurring revenues
 
96,276

 
92,773

Deferred services revenues
 
15,367

 
14,979

Total current liabilities
 
157,513

 
162,213

Convertible notes
 
119,619

 
118,022

Long-term deferred revenues
 
19,158

 
19,834

Deferred tax liabilities, net
 
2,229

 
2,143

Other long-term liabilities
 
7,645

 
7,291

Total liabilities
 
306,164

 
309,503

Shareholders' equity:
 
 

 
 

Common stock
 
221

 
218

Additional paid-in-capital
 
242,060

 
237,496

Accumulated other comprehensive loss
 
(9,259
)
 
(11,244
)
Accumulated deficit
 
(55,692
)
 
(42,440
)
Total shareholders' equity
 
177,330

 
184,030

Total liabilities and shareholders' equity
 
$
483,494

 
$
493,533




Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2016
 
2015
 
 
 
 
 
 
 
(unaudited)
Operating activities:
 
 
 
 
Net loss
 
$
(13,252
)
 
$
(3,459
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation
 
4,447

 
4,736

Amortization
 
2,992

 
626

Other non-cash items
 
(214
)
 
(1,352
)
Stock-based compensation expense
 
3,969

 
2,993

Deferred income taxes
 
86

 
(160
)
Amortization of investment premium
 
64

 
124

Loss on disposal of fixed assets
 
279

 
5

Amortization of debt issuance costs
 
176

 
—

Amortization of debt discount
 
1,421

 
—

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
19,843

 
12,425

Prepaid expenses
 
(4,543
)
 
122

Other current assets
 
963

 
(1,051
)
Accounts payable
 
(362
)
 
199

Accrued liabilities
 
690

 
1,040

Accrued compensation and related expenses
 
(5,334
)
 
(2,133
)
Deferred licenses and hardware revenues
 
(3,539
)
 
2,174

Deferred recurring revenues
 
3,403

 
(1,199
)
Deferred services revenues
 
(174
)
 
(18
)
Other assets and liabilities
 
293

 
785

Net cash provided by operating activities
 
11,208

 
15,857

Investing activities:
 
 

 
 

Sales of available-for-sale investments
 
29,741

 
14,805

Purchases of available-for-sale investments
 
(18,364
)
 
—

Purchases of property and equipment
 
(1,964
)
 
(6,260
)
Capitalized software
 
(1,312
)
 
(5,872
)
Net cash provided by investing activities
 
8,101

 
2,673

Financing activities:
 
 

 
 

Principal payments on capital lease obligations
 
(60
)
 
—

Proceeds from stock options exercised
 
1,745

 
1,497

Proceeds from issuance of common stock
 
458

 
388

Tax withholding on restricted stock awards
 
(1,711
)
 
(2,306
)
Net cash provided by (used in) financing activities
 
432

 
(421
)
Net increase in cash and cash equivalents
 
19,741

 
18,109

Cash and cash equivalents, beginning of period
 
94,808

 
36,168

Cash and cash equivalents, end of period
 
$
114,549

 
$
54,277

Cash paid during the period for:
 
 

 
 

Interest
 
$
8

 
$
—

Income taxes
 
728

 
120

Non-cash financing and investing activities:
 
 
 
 
Issuance of retirement plan shares
 
—

 
2,523

Other non-cash item:
 
 
 
 
Purchases of property and equipment payable at end of period
 
450

 
746