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Interactive Intelligence Reports Fourth-Quarter and Full Year 2012 Financial Results

Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of unified IP business communications solutions, has announced financial results for the fourth quarter and full year ended Dec. 31, 2012.

“Our strong performance during the fourth quarter led to a record year for orders and revenues,” said Interactive Intelligence founder and CEO, Dr. Donald Brown. “In 2012, we have further extended our product leadership position and gained even more momentum in cloud-based offerings, which is the fastest growing segment of the contact center market. The number of our new cloud-based customers reached record levels in the fourth quarter and the total dollar amount of contracts continues growing at a rate significantly higher than the overall market.

“While continuing to add some of the most recognized global companies as customers, we remain committed to maintaining our pace of innovation, with several new products scheduled for release this year,” continued Brown. “Looking forward, given our strong global pipeline of opportunities, we are reaffirming our 2013 total order growth forecast of 20 percent and expect cloud-based orders to represent approximately 50 percent of total 2013 orders. We remain focused on innovation, product leadership and cloud-based growth and are confident in our long-term financial profile, which will be driven by growth in recurring revenues.”

Fourth Quarter 2012 Financial Highlights:

  • Orders: Total orders grew by 119 percent from the fourth quarter of 2011, while cloud-based orders were up 311 percent over the fourth quarter of 2011 and comprised 39 percent of total orders. The company signed 68 contracts over $250,000, which included 19 orders over $1.0 million, up from 37 and six, respectively, in the fourth quarter of 2011.
  • Revenues: Total revenues were $70.5 million, an increase of 22 percent over the fourth quarter of 2011. Recurring revenues, which include both maintenance and support from perpetual license agreements and cloud-based revenues, increased 31 percent to $33.1 million and accounted for 47 percent of total revenues. Cloud-based revenues increased 47 percent to $6.6 million. Product revenues were $27.2 million and services revenues were $10.2 million, compared to $26.5 million and $6.0 million, respectively, in the fourth quarter of 2011.
  • Total Deferred Revenues: Deferred revenues increased to $91.9 million as of Dec. 31, 2012, from $75.4 million as of Dec. 31, 2011. In addition, the amount of unbilled future cloud-based revenues as of Dec. 31, 2012 increased to $89.5 million from $34.6 million as of Dec. 31, 2011. The combination of deferred revenues and unbilled future cloud-based revenues was $181.4 million, up 65 percent from $110.0 million as of Dec. 31, 2011.
  • Operating Income: GAAP operating income was $3.5 million for the fourth quarter of 2012, compared to $6.5 million in the fourth quarter of 2011. Non-GAAP* operating income was $5.9 million for the fourth quarter of 2012, with a non-GAAP operating margin of 8.4 percent, compared to $8.7 million and a non-GAAP operating margin of 15.0 percent in the fourth quarter of 2011. The year-over-year decline in operating income resulted from the deferral of revenues due to an increase in cloud-based orders, certain premises-based orders received in the fourth quarter of 2012 for which revenues were deferred to future periods, and the increased investment in sales, marketing, and research and development to expand the company’s product leadership and share in the cloud-based market.
  • Net Income: GAAP net income for the fourth quarter of 2012 was $2.3 million, or $0.11 per diluted share based on 20.3 million weighted average diluted shares outstanding. This compares to GAAP net income for the same quarter in 2011 of $4.6 million, or $0.23 per diluted share based on 19.9 million weighted average diluted shares outstanding.

    Non-GAAP net income for the fourth quarter of 2012 was $5.7 million, or $0.28 per diluted share. This compares to non-GAAP net income of $7.3 million, or $0.37 per diluted share for the same quarter in 2011.
  • Cash, Cash Equivalents and Investments: As of Dec. 31, 2012, we had cash, cash equivalents and investments of $80.6 million.
  • Cash Flows: During the fourth quarter of 2012, the company generated $3.6 million in cash flow from operations and used $2.9 million for capital expenditures, which included expansion of its cloud infrastructure.

Full Year 2012 Financial Highlights:

  • Orders: Total orders increased 48 percent in 2012 compared to 2011, while cloud-based orders were up 123 percent year-over-year. The company signed 158 contracts over $250,000, which included 42 orders over $1.0 million, up from 113 and 17, respectively, in 2011. Cloud-based orders were 35 percent of total orders, up from 23 percent in 2011.
  • Revenues: Total revenues were $237.4 million in 2012, an increase of 13 percent over 2011. Recurring revenues increased 27 percent to $118.3 million. Cloud-based revenues increased 54 percent year-over-year to $22.0 million. Product revenues were $88.6 million and services revenues were $30.4 million in 2012, compared to $92.8 million and $23.4 million, respectively, in 2011.
  • Operating Income: GAAP operating income in 2012 was $1.1 million, compared to $21.6 million in 2011. Non-GAAP operating income in 2012 was $10.2 million, with a non-GAAP operating margin of 4.3 percent, compared to $29.3 million and a non-GAAP operating margin of 13.9 percent in 2011. The year-over-year decline in operating income resulted from deferral of revenues due to an increase in cloud-based orders, certain premises-based orders received in 2012 for which revenues were deferred to future periods, and the increased investment in sales, marketing, and research and development to expand the company’s product leadership and share in the cloud-based market.
  • Net Income: GAAP net income was $906,000, or $0.04 per diluted share based on 20.2 million weighted average diluted shares outstanding. This compares to GAAP net income in 2011 of $14.8 million, or $0.74 per diluted share based on 19.9 million weighted average diluted shares outstanding. The annual effective tax rate was 46 percent and includes a tax reserve on certain tax positions of the company, offset by one-time benefits recorded in 2012 principally related to a change in the company’s treatment of its officer compensation.

    Non-GAAP net income was $10.1 million, or $0.50 per diluted share, compared to non-GAAP net income in 2011 of $24.9 million, or $1.25 per diluted share.
  • Cash Flows: During the full year of 2012, the company generated $20.0 million in cash flow from operations, used $22.7 million for acquisitions, and used $15.6 million for capital expenditures, which included expansion of its cloud 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.”

Additional Fourth-Quarter 2012 and Recent Highlights:

  • Interactive Intelligence was honored with a 2012 Cloud Computing Excellence Award from TMC’s Cloud Computing Magazine.
  • Interactive Intelligence launched Interaction Mobilizer for Windows 8, a software platform that enables mid-size to large contact centers and enterprises to rapidly deploy customer service applications for tablets and other mobile devices.
  • Interactive Intelligence released Interaction Dialer® version 4.0, a major predictive dialer software upgrade which was designed to improve ease-of-use, simplify management, and help contact centers more effectively execute dialing campaigns.
  • The company launched an e-commerce website, the Interactive Intelligence Marketplace, giving customers and resellers fast and easy access to products that complement the vendor’s all-in-one IP communications software suite.

Interactive Intelligence will host a conference call today at 4:30 p.m. Eastern time (EST) 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 fourth-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 provider of contact center, unified communications, and business process automation software and services. The company's unified IP business communications solutions, which can be deployed on-premise or via the cloud, are ideal for industries such as financial services, insurance, outsourcers, collections, and utilities. Interactive Intelligence was founded in 1994 and has more than 5,000 customers worldwide. The company is among Forbes Magazine's 2011 Best Small Companies in America and Software Magazine's 2012 Top 500 Global Software and Service Providers. It employs approximately 1,400 people and is headquartered in Indianapolis, Indiana. The company has offices throughout North America, Latin America, Europe, Middle East, Africa and Asia Pacific. Interactive Intelligence can be reached at +1 317.872.3000 or [email protected]; on the Net: 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 and exclude non-cash stock-based compensation expense, 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 certain amounts of income tax expense are 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.

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 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 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.

Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
         
 
 
Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(unaudited) (unaudited) (unaudited)
Revenues:
Product $ 27,207 $ 26,538 $ 88,626 $ 92,786
Recurring 33,120 25,186 118,343 93,363
Services   10,215     5,951     30,396     23,377  
Total revenues   70,542     57,675     237,365     209,526  
Costs of revenues:
Product 6,742 5,818 24,329 25,095
Recurring 9,053 6,227 32,227 23,801
Services 6,796 4,600 22,868 16,389
Amortization of intangible assets   58     35     163     140  
Total cost of revenues   22,649     16,680     79,587     65,425  
Gross profit   47,893     40,995     157,778     144,101  
Operating expenses:
Sales and marketing 23,172 18,339 79,770 63,039
Research and development 12,386 9,522 45,682 35,626
General and administrative 8,312 6,284 29,722 22,729
Amortization of intangible assets   494     306     1,521     1,066  
Total operating expenses   44,364     34,451     156,695     122,460  
Operating income 3,529 6,544 1,083 21,641
Other income:
Interest income, net 207 134 772 434
Other income (expense)   (123 )   (118 )   (189 )   144  
Total other income   84     16     583     578  
Income before income taxes 3,613 6,560 1,666 22,219
Income tax expense   1,343     1,965     760     7,421  
Net income $ 2,270   $ 4,595   $ 906   $ 14,798  
Other comprehensive income:
Foreign currency translation adjustment $ 129 $ 710 $ (645 ) $ (73 )
Net unrealized investment gain (loss)   (191 )   (89 )   163     93  
Comprehensive income $ 2,208   $ 5,216   $ 424   $ 14,818  
 
 
Net income per share:
Basic $ 0.12 $ 0.24 $ 0.05 $ 0.79
Diluted 0.11 0.23 0.04 0.74
 
Shares used to compute net income per share:
Basic 19,367 18,908 19,241 18,714
Diluted 20,308 19,850 20,162 19,885
 

Interactive Intelligence Group, Inc.

Reconciliation of Supplemental Financial Information

(in thousands, except per share amounts)

Unaudited

       
Three Months Ended Year Ended
December 31, December 31,
2012   2011 2012 2011
 
Recurring revenue, as reported $ 33,120 $ 25,186 $ 118,343 $ 93,363
Purchase accounting adjustments   178     309     522     471  
Non-GAAP recurring revenue $ 33,298   $ 25,495   $ 118,865   $ 93,834  
 
Recurring revenue gross profit as reported $ 24,067 $ 18,959 $ 86,116 $ 69,562
Purchase accounting adjustments 178 309 522 471
Non-cash stock-based compensation expense   135     89     523     422  
Non-GAAP recurring revenue gross profit $ 24,380   $ 19,357   $ 87,161   $ 70,455  
Non-GAAP recurring revenue gross margin 73.2 % 75.9 % 73.3 % 75.1 %

 

Services revenue, as reported $ 10,215 $ 5,951 $ 30,396 $ 23,377
Purchase accounting adjustments   -     6     -     54  
Non-GAAP services revenue $ 10,215   $ 5,957   $ 30,396   $ 23,431  
 
Services revenue gross profit as reported $ 3,419 $ 1,351 $ 7,528 $ 6,988
Purchase accounting adjustments - 6 - 54
Non-cash stock-based compensation expense   27     35     147     101  
Non-GAAP services revenue gross profit $ 3,446   $ 1,392   $ 7,675   $ 7,143  
Non-GAAP services revenue gross margin 33.7 % 23.4 % 25.3 % 30.5 %
 
Total revenue, as reported $ 70,542 $ 57,675 $ 237,365 $ 209,526
Purchase accounting adjustments   178     315     522     525  
Non-GAAP total revenue $ 70,720   $ 57,990   $ 237,887   $ 210,051  
 
Gross Profit $ 47,893 $ 40,995 $ 157,778 $ 144,101
Purchase accounting adjustments 178 315 522 525
Operating expenses 58 35 163 140
Non-cash stock-based compensation expense   162     124     670     523  
Non-GAAP gross profit $ 48,291   $ 41,469   $ 159,133   $ 145,289  
Non-GAAP gross margin 68.3 % 71.5 % 66.9 % 69.2 %
 
Operating income, as reported $ 3,529 $ 6,544 $ 1,083 $ 21,641
Purchase accounting adjustments 769 849 2,487 2,331
Non-cash stock-based compensation expense   1,650     1,294     6,677     5,298  
Non-GAAP operating income $ 5,948   $ 8,687   $ 10,247   $ 29,270  
Non-GAAP operating margin   8.4 %   15.0 %   4.3 %   13.9 %
 

Interactive Intelligence Group, Inc.

Reconciliation of Supplemental Financial Information

(in thousands, except per share amounts)

Unaudited

     
Three Months Ended Year Ended
December 31, December 31,
2012   2011 2012   2011
Net income, as reported $ 2,270 $ 4,595 $ 906 $ 14,798
Purchase accounting adjustments:
Increase to revenues:
Recurring 178 309 522 471
Services - 6 - 54
Reduction of operating expenses:
Customer Relationships 449 261 1,341 886
Technology 58 35 163 140
Non-compete agreements 46 45 180 180
Acquisition Costs   38   193   281   600
Total   769   849   2,487   2,331
Non-cash stock-based compensation expense:
Cost of recurring revenues 135 89 523 422
Cost of services revenues 27 35 147 101
Sales and marketing 543 394 2,250 1,677
Research and development 510 374 1,886 1,570
General and administrative   435   402   1,871   1,528
Total   1,650   1,294   6,677   5,298
Non-cash income tax expense   1,039   522   -   2,434
Non-GAAP net income $ 5,728 $ 7,260 $ 10,070 $ 24,861
 
Diluted EPS, as reported $ 0.11 $ 0.23 $ 0.04 $ 0.74
Purchase accounting adjustments 0.04 0.04 0.12 0.12
Non-cash stock-based compensation expense 0.08 0.07 0.34 0.27
Non-cash income tax expense   0.05   0.03   -   0.12
Non-GAAP diluted EPS $ 0.28 $ 0.37 $ 0.50 $ 1.25
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
       
Year Ended
December 31,
2012 2011
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 45,057 $ 28,465
Short-term investments 23,816 40,589
Accounts receivable, net 68,409 56,331
Deferred tax assets, net 16,600 8,952
Prepaid expenses 15,565 11,474
Other current assets   5,958     4,966  
Total current assets 175,405 150,777
Long-term investments 11,757 23,415
Property and equipment, net 26,816 18,304
Goodwill 38,723 22,696
Intangible assets, net 22,676 15,029
Other assets, net   6,419     2,581  
Total assets $ 281,796   $ 232,802  
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 8,795 $ 5,434
Accrued liabilities 23,008 11,111
Accrued compensation and related expenses 13,640 8,870
Deferred product revenues 5,999 3,870
Deferred services revenues   67,893     57,423  
Total current liabilities 119,336 86,708
Long-term deferred revenues 18,000 14,141
Deferred tax liabilities, net 99 1,688
Other long-term liabilities   244     291  
Total liabilities $ 137,679   $ 102,828  
 
Shareholders' equity:
Preferred stock - -
Common stock 194 190
Additional paid-in-capital 133,359 119,644
Accumulated other comprehensive loss (675 ) (193 )
Retained earnings   11,239     10,333  
Total shareholders' equity   144,117     129,974  
Total liabilities and shareholders' equity $ 281,796   $ 232,802  
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
     
 
Year Ended
December 31,
2012 2011
(unaudited)
Operating activities:
Net income $ 906 $ 14,798

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

Depreciation 7,975 5,669
Amortization 1,776 1,209
Other non-cash items (757 ) 37
Stock-based compensation expense 6,676 5,298
Tax benefits from stock-based payment arrangements (1,586 ) (3,336 )
Deferred income tax (12,311 ) (524 )
Amortization (accretion) of investment income 846 (1,165 )
Loss (gain) on disposal of fixed assets (74 ) 4
Changes in operating assets and liabilities:
Accounts receivable (10,166 ) (13,313 )
Prepaid expenses (3,918 ) (2,888 )
Other current assets (975 ) (85 )
Other assets (3,838 ) (1,778 )
Accounts payable 5,071 (7,700 )
Accrued liabilities 11,941 6,918
Accrued compensation and related expenses 4,400 (918 )
Deferred product revenues 1,190 489
Deferred services revenues   12,850     18,675  
Net cash provided by operating activities   20,006     21,390  
 
Investing activities:
Sales of available-for-sale investments 58,234 73,118
Purchases of available-for-sale investments (30,348 ) (98,205 )
Purchases of property and equipment (15,554 ) (13,280 )
Acquisitions, net of cash (22,651 ) (13,376 )
Unrealized gain (loss) on investment   (138 )   1  
Net cash used in investing activities   (10,457 )   (51,742 )
 
Financing activities:
Proceeds from stock options exercised 5,030 6,671
Proceeds from issuance of common stock 680 510
Employee taxes withheld for restricted stock units (253 ) -
Tax benefits from stock-based payment arrangements   1,586     3,336  
Net cash provided by financing activities   7,043     10,517  
Net increase (decrease) in cash and cash equivalents 16,592 (19,835 )
Cash and cash equivalents, beginning of period   28,465     48,300  
Cash and cash equivalents, end of period $ 45,057   $ 28,465  
 
Cash paid during the period for:
Interest $ 5 $ 3
Income taxes 3,213 2,835
 
Other non-cash item:
Purchases of property and equipment payable at end of period 44 70
 
Supplemental Data
(Dollars in thousands)
(unaudited)
                       
2011 2012
Q1   Q2   Q3   Q4   Total Q1   Q2   Q3   Q4   Total
Margins (GAAP):
Product 70.2% 73.6% 69.1% 78.1% 73.4% 70.9% 69.5% 73.4% 75.2% 72.5%
Recurring 74.5% 74.0% 73.8% 75.3% 74.0% 73.8% 72.4% 72.3% 72.7% 72.8%
Services 40.3% 28.0% 27.9% 22.7% 29.9% 19.7% 22.6% 18.9% 33.5% 24.8%
Overall 68.1% 68.9% 66.7% 71.1% 68.8% 66.8% 65.2% 65.6% 67.9% 66.5%
 
Year-over-year Revenue Growth (GAAP):
Product 31.5% 33.7% 7.3% 9.0% 18.7% -4.8% -18.8% 3.3% 2.5% -6.2%
Recurring 30.3% 35.1% 45.7% 22.8% 33.0% 31.1% 27.2% 17.9% 31.5% 29.1%
Services 87.7% 30.4% 26.3% 4.3% 31.6% -8.4% 23.5% 34.7% 71.7% 30.0%
Overall 36.3% 33.9% 24.6% 13.9% 26.0% 10.6% 5.4% 13.7% 22.3% 13.3%
 
Orders:
Over $1 million 3 5 3 6 17 6 8 9 19 42
Between $250,000 and $1 million 24 27 14 31 96 11 28 28 49 116
 
Number of new customers 65 81 55 103 304 60 67 65 110 302
 
Average new customer order:
Overall $ 275 $ 240 $ 314 $ 259 $ 267 $ 240 $ 349 $ 409 $ 623 $ 440
Cloud-based 488 282 3,691 642 693 761 557 822 1,134 866
 

ININ-G

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We are reaching the end of the beginning with WebRTC, and real systems using this technology have begun to appear. One challenge that faces every WebRTC deployment (in some form or another) is identity management. For example, if you have an existing service – possibly built on a variety of different PaaS/SaaS offerings – and you want to add real-time communications you are faced with a challenge relating to user management, authentication, authorization, and validation. Service providers will want to use their existing identities, but these will have credentials already that are (hopefully) i...
"Matrix is an ambitious open standard and implementation that's set up to break down the fragmentation problems that exist in IP messaging and VoIP communication," explained John Woolf, Technical Evangelist at Matrix, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
P2P RTC will impact the landscape of communications, shifting from traditional telephony style communications models to OTT (Over-The-Top) cloud assisted & PaaS (Platform as a Service) communication services. The P2P shift will impact many areas of our lives, from mobile communication, human interactive web services, RTC and telephony infrastructure, user federation, security and privacy implications, business costs, and scalability. In his session at @ThingsExpo, Robin Raymond, Chief Architect at Hookflash, will walk through the shifting landscape of traditional telephone and voice services ...
Explosive growth in connected devices. Enormous amounts of data for collection and analysis. Critical use of data for split-second decision making and actionable information. All three are factors in making the Internet of Things a reality. Yet, any one factor would have an IT organization pondering its infrastructure strategy. How should your organization enhance its IT framework to enable an Internet of Things implementation? In his session at Internet of @ThingsExpo, James Kirkland, Chief Architect for the Internet of Things and Intelligent Systems at Red Hat, described how to revolutioniz...
Bit6 today issued a challenge to the technology community implementing Web Real Time Communication (WebRTC). To leap beyond WebRTC’s significant limitations and fully leverage its underlying value to accelerate innovation, application developers need to consider the entire communications ecosystem.
The definition of IoT is not new, in fact it’s been around for over a decade. What has changed is the public's awareness that the technology we use on a daily basis has caught up on the vision of an always on, always connected world. If you look into the details of what comprises the IoT, you’ll see that it includes everything from cloud computing, Big Data analytics, “Things,” Web communication, applications, network, storage, etc. It is essentially including everything connected online from hardware to software, or as we like to say, it’s an Internet of many different things. The difference ...
Cloud Expo 2014 TV commercials will feature @ThingsExpo, which was launched in June, 2014 at New York City's Javits Center as the largest 'Internet of Things' event in the world.