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Interactive Intelligence Reports 2016 Second-Quarter Financial Results

•Licensed 204 PureCloud® customers in Q2, up over 70% from Q1 2016
•Cloud subscriptions increase 43% year-over-year
•Total revenues up 13% year-over-year to $108.8 million
•Generated positive operating cash flow

INDIANAPOLIS, August 1, 2016 -- Interactive Intelligence Group Inc. (Nasdaq: ININ), a global leader of cloud services for customer engagement, communications and collaboration, announced financial results for its second quarter ended June 30, 2016.

“PureCloud is happening,” said Dr. Donald Brown, Interactive Intelligence founder and CEO. “One number - 204 - the number of newly licensed PureCloud® customers in the quarter, tells much of this story. We had 24 PureCloud customers at the end of last year. Six months later we had well over 300. This rapid growth reflects the considerable interest and demand we’re seeing from both small and large businesses across all our major geographic markets. This growth also happened with the strong support and involvement of our partners, who accounted for 37% of this quarter’s PureCloud deals.”
    
Brown added: “Our solid top-line results in the quarter were driven by the combination of 43% growth in cloud subscriptions and strong on-premises sales. In addition to a very large transaction that contributed significantly to our on-premises performance, we added another 37 new CIC customers in the second quarter for a total of six deals over $1.0 million. Our top-line growth resulted in a better than expected bottom line, and we continued to generate positive operating cash flow in both the second quarter and first half of this year.”

Brown concluded: “Looking forward, we believe we remain very well positioned to gain market share and become the leader in the customer engagement market. As the only vendor in Gartner’s “leaders” quadrant for both cloud and on-premises contact center solutions, we’re uniquely capable of providing this robust technology that organizations of any size, in any industry, anywhere in the world, can implement in any way. Our commitment to innovation will continue in all phases of our business, from our new flexible licensing and pricing models and accelerated approach to solutions implementation, to, of course, our industry-leading product development.”

Second-Quarter 2016 Financial Highlights:

•
Revenues: Total revenues were $108.8 million, an increase of 13% from $96.3 million in the second quarter of 2015. Recurring revenues, which include cloud subscriptions and support fees from on-premises licenses, increased 23% to $66.0 million and accounted for 61% of total revenues. Revenues from cloud subscriptions grew 43% to $31.3 million from $21.9 million in the same quarter last year. License and hardware revenues were $29.7 million and services revenues were $13.0 million, compared to $27.0 million and $15.5 million, respectively, in the 2015 second quarter.

•
Operating (Loss) Income: The company’s GAAP operating loss was $7.3 million, compared to a loss of $3.8 million in the second quarter of 2015. Its non-GAAP* operating loss was $1.5 million, compared to non-GAAP operating income of $0.7 million in the same quarter last year.



•
Net (Loss) Income: The company’s GAAP net loss was $10.2 million, or $0.46 per diluted share based on 22.1 million weighted average diluted shares outstanding, compared to GAAP net loss of $5.1 million, or $0.24 per diluted share based on 21.5 million weighted average diluted shares outstanding in the same quarter of 2015. Its non-GAAP net loss was $1.2 million, or $0.06 per diluted share, compared to non-GAAP net income of $0.3 million, or $0.01 per diluted share in the same quarter last year.

•
Balance Sheet and Cash Flows: Cash and cash equivalents and investments were $198.2, and total deferred revenues were $133.9 million. The company generated $1.7 million of cash from operating activities during the quarter, compared to using $1.7 million in the 2015 second quarter. Capital expenditures totaled $1.8 million, primarily for data center infrastructure.

*
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 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 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

Reconciliations of the non-GAAP measures shown in this press release to the most directly comparable GAAP measures are included with the financial information included in this 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.
We calculate Adjusted EBITDA by adding back the following items to net loss: depreciation; amortization; interest expense, net; income tax expense; stock-based compensation expense; and other expense, which consists primarily of foreign exchange gains and losses. The other non-GAAP performance 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. Stock-based compensation expense, amortization of intangibles related to acquisitions, and amortization of debt discounts and issuance costs are non-cash. Non-GAAP income tax expense is pro forma, and is calculated as 40% of non-GAAP (loss) income before taxes. Management believes that the presentation of these 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 core 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. Finally, our management also reviews financial statements that include these non-GAAP measures for its internal budgets.


We define free cash flow as operating cash flow less capital expenditures and capitalized software. Management uses free cash flow to evaluate the amount of cash generated by our business that, after the capital investment needed to maintain and grow our business, can be used for repayment of debt and strategic opportunities, including investing in our business and strengthening our balance sheet, and believes that it enhances the understanding of the cash flows of our business for investors.

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; to meet debt service requirements; to manage successfully its increasingly complex third-party relationships resulting from the software and hardware components being licensed or sold with its product offerings; 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 and sensitive customer information adequately; to improve the company’s brand and name recognition; 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 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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
 
Recurring
 
$
66,045

 
$
53,846

 
$
130,335

 
$
108,058

License and hardware
 
29,702

 
27,010

 
51,080

 
48,631

Services
 
13,044

 
15,475

 
26,657

 
29,117

Total revenues
 
108,791

 
96,331

 
208,072

 
185,806

Costs of revenues (1)(2):
 
 
 
 
 
 
 
 
Costs of recurring
 
22,765

 
19,253

 
45,201

 
37,997

Costs of license and hardware
 
5,623

 
6,552

 
12,014

 
13,081

Costs of services
 
11,389

 
11,514

 
22,940

 
22,765

Total costs of revenues
 
39,777

 
37,319

 
80,155

 
73,843

Gross profit
 
69,014

 
59,012

 
127,917

 
111,963

Operating expenses (1)(2):
 
 
 
 
 
 
 
 
Sales and marketing
 
39,808

 
33,875

 
74,244

 
64,984

Research and development
 
23,242

 
16,694

 
46,022

 
30,531

General and administrative
 
13,216

 
12,204

 
25,726

 
24,980

Total operating expenses
 
76,266

 
62,773

 
145,992

 
120,495

Operating loss
 
(7,252
)
 
(3,761
)
 
(18,075
)
 
(8,532
)
Other expense:
 
 
 
 
 
 
 
 
Interest expense, net
 
(1,728
)
 
(590
)
 
(3,565
)
 
(442
)
Other expense
 
(412
)
 
(232
)
 
(663
)
 
(559
)
Total other expense
 
(2,140
)
 
(822
)
 
(4,228
)
 
(1,001
)
Loss before income taxes
 
(9,392
)
 
(4,583
)
 
(22,303
)
 
(9,533
)
Income tax (expense) benefit
 
(767
)
 
(501
)
 
(1,108
)
 
990

Net loss
 
$
(10,159
)
 
$
(5,084
)
 
$
(23,411
)
 
$
(8,543
)
Net loss per share:
 
 

 
 

 
 

 
 

Basic
 
$
(0.46
)
 
$
(0.24
)
 
$
(1.06
)
 
$
(0.40
)
Diluted
 
(0.46
)
 
(0.24
)
 
(1.06
)
 
(0.40
)
Shares used to compute net loss per share:
 
 

 
 

 
 

 
 

Basic
 
22,053

 
21,504

 
22,059

 
21,519

Diluted
 
22,053

 
21,504

 
22,059

 
21,519

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

 
$
177

 
$
372

 
$
354

General and administrative
 
422

 
442

 
839

 
891

Total intangible amortization expense
 
$
608

 
$
619

 
$
1,211

 
$
1,245

(2) Amounts include stock-based compensation expense, as follows:
 
 
 
 
Costs of recurring revenues
 
$
472

 
$
512

 
$
865

 
$
944

Costs of license and hardware revenues
 
25

 
20

 
55

 
42

Costs of services revenues
 
268

 
164

 
542

 
293

Sales and marketing
 
1,548

 
1,154

 
2,365

 
1,715

Research and development
 
1,640

 
963

 
3,394

 
1,782

General and administrative
 
1,175

 
1,063

 
1,876

 
2,093

Total stock-based compensation expense
 
$
5,128

 
$
3,876

 
$
9,097

 
$
6,869


 


Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
GAAP recurring revenue gross profit, as reported
 
$
43,280

 
$
34,593

 
$
85,134

 
$
70,061

Purchase accounting adjustments
 
—

 
3

 
2

 
6

Non-cash stock-based compensation expense
 
472

 
512

 
865

 
944

Non-GAAP recurring revenue gross profit
 
$
43,752

 
$
35,108

 
$
86,001

 
$
71,011

Non-GAAP recurring revenue gross margin
 
66.2
 %
 
65.2
%
 
66.0
 %
 
65.7
 %
 
 
 
 
 
 
 
 
 
GAAP license and hardware revenue gross profit, as reported
 
$
24,079

 
$
20,458

 
$
39,066

 
$
35,550

Acquired technology
 
186

 
177

 
372

 
354

Non-cash stock-based compensation expense
 
25

 
20

 
55

 
42

Non-GAAP license and hardware revenue gross profit
 
$
24,290

 
$
20,655

 
$
39,493

 
$
35,946

Non-GAAP license and hardware revenue gross margin
 
81.8
 %
 
76.5
%
 
77.3
 %
 
73.9
 %
 
 
 
 
 
 
 
 
 
GAAP services revenue gross profit, as reported
 
$
1,655

 
$
3,961

 
$
3,717

 
$
6,352

Non-cash stock-based compensation expense
 
268

 
164

 
542

 
293

Non-GAAP services revenue gross profit
 
$
1,923

 
$
4,125

 
$
4,259

 
$
6,645

Non-GAAP services revenue gross margin
 
14.7
 %
 
26.6
%
 
16.0
 %
 
22.8
 %
 
 
 
 
 
 
 
 
 
GAAP Gross Profit, as reported
 
$
69,014

 
$
59,012

 
$
127,917

 
$
111,963

Purchase accounting adjustments
 
—

 
3

 
2

 
6

Acquired technology
 
186

 
177

 
372

 
354

Non-cash stock-based compensation expense
 
765

 
696

 
1,462

 
1,279

Non-GAAP gross profit
 
$
69,965

 
$
59,888

 
$
129,753

 
$
113,602

Non-GAAP gross margin
 
64.3
 %
 
62.1
%
 
62.4
 %
 
61.1
 %
 
 
 
 
 
 
 
 
 
GAAP Operating loss, as reported
 
$
(7,252
)
 
$
(3,761
)
 
$
(18,075
)
 
$
(8,532
)
Purchase accounting adjustments
 
608

 
622

 
1,213

 
1,251

Non-cash stock-based compensation expense
 
5,128

 
3,876

 
9,097

 
6,869

Non-GAAP operating (loss) income
 
$
(1,516
)
 
$
737

 
$
(7,765
)
 
$
(412
)
Non-GAAP operating margin
 
(1.4
)%
 
0.7
%
 
(3.7
)%
 
(0.2
)%
 
 
 
 
 
 
 
 
 
GAAP Net loss, as reported
 
$
(10,159
)
 
$
(5,084
)
 
$
(23,411
)
 
$
(8,543
)
Purchase accounting adjustments
 
608

 
622

 
1,213

 
1,251

Non-cash stock-based compensation expense
 
5,128

 
3,876

 
9,097

 
6,869

Amortization of debt discount and issuance costs
 
1,613

 
512

 
3,210

 
512

Non-GAAP income tax expense adjustment
 
1,584

 
381

 
4,621

 
(645
)
Non-GAAP net (loss) income
 
$
(1,226
)
 
$
307

 
$
(5,270
)
 
$
(556
)
 
 
 
 
 
 
 
 
 
GAAP Diluted loss per share, as reported
 
$
(0.46
)
 
$
(0.24
)
 
$
(1.06
)
 
$
(0.40
)
Purchase accounting adjustments
 
0.03

 
0.03

 
0.05

 
0.06

Non-cash stock-based compensation expense
 
0.23

 
0.18

 
0.41

 
0.32

Amortization of debt discount and issuance costs
 
0.07

 
0.02

 
0.15

 
0.02

Non-GAAP income tax expense adjustment
 
0.07

 
0.02

 
0.21

 
(0.03
)
Non-GAAP diluted (loss) income per share
 
$
(0.06
)
 
$
0.01

 
$
(0.24
)
 
$
(0.03
)



Interactive Intelligence Group, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Reconciliation of Net Loss to Adjusted EBITDA
 
 
 
 
 
 
 
 
Net loss
 
$
(10,159
)
 
$
(5,084
)
 
$
(23,411
)
 
$
(8,543
)
Depreciation
 
4,170

 
4,068

 
8,617

 
8,227

Amortization
 
3,210

 
1,601

 
6,202

 
2,804

Interest expense, net
 
1,728

 
590

 
3,565

 
442

Income tax expense (benefit)
 
767

 
501

 
1,108

 
(990
)
Stock-based compensation expense
 
5,128

 
3,876

 
9,097

 
6,869

Other expense
 
412

 
232

 
663

 
559

Adjusted EBITDA
 
$
5,256

 
$
5,784

 
$
5,841

 
$
9,368


 
Interactive Intelligence Group, Inc.
Reconciliation of Operating Cash Flow to Free Cash Flow
(in thousands)
(unaudited)
 
 
Six Months Ended
 
 
June 30,
 
 
2016
 
2015
Reconciliation of Operating Cash Flow to Free Cash Flow
 
 
 
 
Operating cash flow
 
$
12,904

 
$
14,162

Capital expenditures
 
(3,781
)
 
(10,659
)
Capitalized software
 
(1,867
)
 
(12,568
)
Free cash flow
 
$
7,256

 
$
(9,065
)
 
  
 
Interactive Intelligence Group, Inc.
Comprehensive Loss
(in thousands)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Net loss
 
$
(10,159
)
 
$
(5,084
)
 
$
(23,411
)
 
$
(8,543
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
(781
)
 
453

 
956

 
(2,809
)
Net unrealized investment gain (loss) - net of tax
 
95

 
(9
)
 
343

 
50

Comprehensive loss
 
$
(10,845
)
 
$
(4,640
)
 
$
(22,112
)
 
$
(11,302
)


Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Assets
 
(unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
106,872

 
$
94,808

Short-term investments
 
58,906

 
64,182

Accounts receivable, net
 
96,997

 
106,950

Prepaid expenses
 
34,197

 
32,709

Other current assets
 
10,242

 
13,264

Total current assets
 
307,214

 
311,913

Long-term investments
 
32,469

 
30,503

Property and equipment, net
 
39,812

 
44,837

Capitalized software, net
 
40,563

 
43,783

Goodwill
 
42,220

 
41,848

Intangible assets, net
 
14,083

 
14,427

Other assets, net
 
6,362

 
6,222

Total assets
 
$
482,723

 
$
493,533

Liabilities and Shareholders' Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
9,771

 
$
10,571

Accrued liabilities
 
17,751

 
17,157

Accrued compensation and related expenses
 
18,448

 
18,910

Deferred license and hardware revenues
 
2,036

 
7,823

Deferred recurring revenues
 
100,057

 
92,773

Deferred services revenues
 
13,052

 
14,979

Total current liabilities
 
161,115

 
162,213

Convertible notes
 
121,232

 
118,022

Long-term deferred revenues
 
18,733

 
19,834

Deferred tax liabilities, net
 
2,294

 
2,143

Other long-term liabilities
 
6,947

 
7,291

Total liabilities
 
310,321

 
309,503

Shareholders' equity:
 
 

 
 

Common stock
 
222

 
218

Additional paid-in-capital
 
247,976

 
237,496

Accumulated other comprehensive loss
 
(9,945
)
 
(11,244
)
Accumulated deficit
 
(65,851
)
 
(42,440
)
Total shareholders' equity
 
172,402

 
184,030

Total liabilities and shareholders' equity
 
$
482,723

 
$
493,533



Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Six Months Ended
 
 
June 30,
 
 
2016
 
2015
 
 
 
 
 
 
 
(unaudited)
Operating activities:
 
 
 
 
Net loss
 
$
(23,411
)
 
$
(8,543
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation
 
8,617

 
8,227

Amortization
 
6,202

 
2,804

Other non-cash items
 
(319
)
 
(856
)
Stock-based compensation expense
 
9,097

 
6,869

Deferred income taxes
 
151

 
(89
)
Amortization of investment premium
 
94

 
151

Loss on disposal of fixed assets
 
403

 
21

Amortization of debt issuance costs
 
353

 
57

Amortization of debt discount
 
2,857

 
455

Gain on sale of subsidiary
 
(452
)
 
—

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
9,839

 
2,188

Prepaid expenses
 
(1,488
)
 
1,453

Other current assets
 
3,022

 
294

Accounts payable
 
(800
)
 
(43
)
Accrued liabilities
 
770

 
(222
)
Accrued compensation and related expenses
 
(462
)
 
80

Deferred licenses and hardware revenues
 
(5,833
)
 
1,945

Deferred recurring revenues
 
7,297

 
(1,520
)
Deferred services revenues
 
(2,599
)
 
358

Other assets and liabilities
 
(434
)
 
533

Net cash provided by operating activities
 
12,904

 
14,162

Investing activities:
 
 

 
 

Sales of available-for-sale investments
 
41,294

 
20,462

Purchases of available-for-sale investments
 
(37,735
)
 
—

Purchases of property and equipment
 
(3,781
)
 
(10,659
)
Capitalized software
 
(1,867
)
 
(12,568
)
Acquisitions and divestitures
 
160

 
—

Net cash used in investing activities
 
(1,929
)
 
(2,765
)
Financing activities:
 
 

 
 

Proceeds from issuance of convertible debt
 
—

 
150,000

Payment for debt issuance costs
 
—

 
(4,521
)
Payment for capped call premiums
 
—

 
(12,750
)
Principal payments on capital lease obligations
 
(176
)
 
—

Proceeds from stock options exercised
 
2,835

 
2,166

Proceeds from issuance of common stock
 
647

 
789

Tax withholding on restricted stock awards
 
(2,217
)
 
(3,309
)
Net cash provided by financing activities
 
1,089

 
132,375

Net increase in cash and cash equivalents
 
12,064

 
143,772

Cash and cash equivalents, beginning of period
 
94,808

 
36,168

Cash and cash equivalents, end of period
 
$
106,872

 
$
179,940

Cash paid during the period for:
 
 

 
 

Interest
 
$
959

 
$
43

Income taxes
 
1,300

 
662

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
 
646

 
105