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Interactive Intelligence Reports Fourth-Quarter and Full Year 2013 Financial Results

Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of software and services designed to improve the customer experience, has announced financial results for the fourth quarter and full year ended Dec. 31, 2013.

“2013 was an excellent year for Interactive intelligence,” said Interactive Intelligence founder and CEO, Dr. Donald Brown. “We significantly increased orders, revenues, earnings and cash, while continuing to gain share and recognition in the contact center market. More than ever, many of the world’s largest companies are turning to us to deliver solutions that optimize the customer experience.”

Brown added, “Looking forward, we are very optimistic about our position in the marketplace based on the breadth and strength of our offering. We remain committed to innovation, and plan to continue investing in research and development, as well as in our sales infrastructure. Based on our strong global pipeline of opportunities, we’re expecting 2014 total order growth of 20 percent or more, which is on top of our better-than-expected 2013 order growth of 30 percent. In addition, we anticipate cloud-based total order growth to outpace that number, and to represent approximately 55 to 60 percent of total 2014 orders.”

Fourth-Quarter 2013 Financial Highlights:

  • Revenues: Total revenues for the fourth quarter were $90.8 million, up 29 percent from the 2012 fourth quarter. Recurring revenues, including support fees from on-premises license agreements and fees from cloud-based customers increased 25 percent to $41.5 million and accounted for 46 percent of total revenues. Cloud-based revenues increased 61 percent to $10.6 million. Product revenues were $34.9 million, and services revenues were $14.4 million, compared to $27.2 million and $10.2 million, respectively, in the fourth quarter of 2012.
  • Orders: Cloud-based orders comprised 47 percent of total orders in the fourth quarter, up from 39 percent of total orders during the same period last year. Total orders for the fourth quarter decreased by 15 percent year-over-year due to the comparison to an exceptionally strong 2012 fourth quarter. The company signed 63 contracts over $250,000, including 15 over $1.0 million, compared to 68 orders over $250,000, including 19 over $1.0 million in the same quarter last year.
  • Total Deferred Revenues: Deferred revenues increased to $116.0 million, up from $91.9 million as of Dec. 31, 2012. In addition, the amount of unbilled future cloud-based revenues increased to $184.2 million from $89.6 million at the end of the fourth quarter of 2012. The combination of deferred revenues and future cloud-based revenues was $300.0 million, up 65 percent from $181.5 million as of Dec. 31, 2012.
  • Operating Income: GAAP operating income was $6.5 million for the fourth quarter, compared to $3.5 million in the fourth quarter of 2012. Non-GAAP* operating income was $9.3 million for the fourth quarter of 2013, with a non-GAAP operating margin of 10.2 percent, compared to $5.9 million and a non-GAAP operating margin of 8.4 percent in the fourth quarter of 2012. Both GAAP and non-GAAP operating income during the fourth quarter of 2013 include a $1.8 million reduction of expense related to the capitalization of development costs for internal use software as Interactive Intelligence continues to develop its cloud offering.
  • Income Taxes: Income tax expense for the fourth quarter was $2.9 million and resulted in an annual effective rate of 27 percent.
  • Net Income: GAAP net income for the fourth quarter was $3.5 million, or $0.17 per diluted share based on 21.4 million weighted average diluted shares outstanding. This compares to GAAP net income for the same quarter in 2012 of $2.3 million, or $0.11 per diluted share based on 20.3 million weighted average diluted shares outstanding.

    Non-GAAP net income for the fourth quarter was $5.6 million, or $0.26 per diluted share. This compares to non-GAAP net income of $5.7 million, or $0.28 per diluted share for the same quarter in 2012.
  • Cash, Cash Equivalents and Investments: Cash, cash equivalents and investments totaled $107.8 million as of Dec. 31, 2013, up from $80.6 at the end of 2012.

Full Year 2013 Financial Highlights:

  • Revenues: Total revenues were $318.2 million, an increase of 34 percent over 2012. Recurring revenues increased 25 percent to $148.0 million, including cloud-based revenues, which increased 55 percent year-over-year to $34.2 million. In 2013, product revenues were $117.7 million, and services revenues were $52.6 million, compared to $88.6 million and $30.4 million, respectively, in 2012.
  • Orders: Total orders increased 30 percent in 2013 compared to 2012, with cloud-based orders up 87 percent year-over-year. The company signed 192 contracts over $250,000, which included 48 orders over $1.0 million, up from 158 and 42, respectively, in 2012. Cloud-based orders were 50 percent of total orders, up from 35 percent in 2012.
  • Operating Income: GAAP operating income in 2013 was $14.4 million, compared to $1.1 million in 2012. Non-GAAP operating income in 2013 was $26.0 million, with a non-GAAP operating margin of 8.1 percent, compared to $10.2 million and a margin of 4.3 percent in 2012. Both GAAP and non-GAAP operating income during 2013 include a $3.6 million reduction of expense related to the capitalization of development costs for internal use software as Interactive continues to develop its cloud offering.
  • Income Taxes: Income tax expense for the full year of 2013 was $3.6 million. The annual effective rate of 27 percent is lower than the expected rate, primarily as a result of research and development tax credits.
  • Net Income: GAAP net income was $9.5 million, or $0.45 per diluted share based on 21.1 million weighted average diluted shares outstanding. This compares to GAAP net income in 2012 of $906,000, or $0.04 per diluted share based on 20.2 million weighted average diluted shares outstanding.

    Non-GAAP net income was $16.7 million, or $0.79 per diluted share, compared to non-GAAP net income in 2012 of $10.1 million, or $0.50 per diluted share.
  • Cash Flows: During the full year of 2013, the company generated $27.4 million in cash flow from operations, and used $20.8 million for capital expenditures and $6.1 million for internal use software.

* 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 2013 and Recent Highlights:

  • Interactive Intelligence’s cloud offering achieved the highest PCI (Payment Card Industry) Data Security Standard level of validation.
  • Interactive Intelligence’s all-in-one IP communications software suite achieved Lync 2013 qualification for interoperability with Microsoft® Lync Server.
  • Interactive Intelligence received Miercom's Performance Verified Certification of its contact center and unified communications software.
  • TMC’s Cloud Computing Magazine honored Interactive Intelligence with its 2013 Cloud Computing Excellence Award.

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 designed to improve the customer experience. The company’s solutions, which can be deployed via the cloud or on-premises, 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 Software Magazine’s 2013 Top 500 Global Software and Service Providers, and has received a Frost & Sullivan Company of the Year Award for the last four consecutive years. In addition, Glassdoor honored Interactive Intelligence with its 2014 Employees’ Choice Award as one of the Best Places to Work in the U.S., and Mashable ranked Interactive Intelligence second on its 2014 list of the Seven Best Tech Companies to Work For. Interactive Intelligence employs more than 1,800 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]. Visit the company on the Web at www.inin.com; on Twitter at www.inin.com/twitter; on Facebook at www.inin.com/facebook; or on LinkedIn at www.inin.com/linkedin.

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 and the amortization of certain intangible assets related to acquisitions by the company, 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 and amortization of intangibles related to acquisitions 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 and amortization of intangibles related to acquisitions 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 and amortization of intangibles amounts 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 and Comprehensive Income
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
 
Revenues:
Product $ 34,895 $ 27,207 $ 117,708 $ 88,626
Recurring 41,471 33,120 147,941 118,343
Services   14,419     10,215     52,585     30,396  
Total revenues   90,785     70,542     318,234     237,365  
Costs of revenues:
Costs of product 7,542 6,742 29,233 24,329
Costs of recurring 13,781 9,053 45,865 32,227
Costs of services 11,444 6,251 38,760 21,099
Amortization of intangible assets   49     58     196     163  
Total costs of revenues   32,816     22,104     114,054     77,818  
Gross profit   57,969     48,438     204,180     159,547  
Operating expenses:
Sales and marketing 29,228 23,717 102,873 81,539
Research and development 12,357 12,386 50,397 45,682
General and administrative 9,459 8,312 34,651 29,722
Amortization of intangible assets   467     494     1,862     1,521  
Total operating expenses   51,511     44,909     189,783     158,464  
Operating income 6,458 3,529 14,397 1,083
Other income (expense):
Interest income, net 215 207 833 772
Other expense   (291 )   (123 )   (2,142 )   (189 )
Total other income (expense)   (76 )   84     (1,309 )   583  
Income before income taxes 6,382 3,613 13,088 1,666
Income tax expense   2,852     1,343     3,573     760  
Net income $ 3,530   $ 2,270   $ 9,515   $ 906  
Other comprehensive income:
Foreign currency translation adjustment $ (567 ) $ 129 $ (907 ) $ (645 )
Net unrealized investment gain (loss) - net of tax   56     (191 )   (94 )   163  
Comprehensive income $ 3,019   $ 2,208   $ 8,514   $ 424  
 
Net income per share:

Basic

$ 0.17 $ 0.12 $ 0.47 $ 0.05

Diluted

0.17 0.11 0.45 0.04
 
Shares used to compute net income per share:
Basic 20,360 19,367 20,033 19,241
Diluted 21,377 20,308 21,088 20,162
 
               
 
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,
2013 2012 2013 2012
 
Recurring revenue, as reported $ 41,471 $ 33,120 $ 147,941 $ 118,343
Purchase accounting adjustments   10     178     202     522  
Non-GAAP recurring revenue $ 41,481   $ 33,298   $ 148,143   $ 118,865  
 
Recurring revenue gross profit as reported $ 27,690 $ 24,067 $ 102,076 $ 86,116
Purchase accounting adjustments 10 178 202 522
Non-cash stock-based compensation expense   218     135     806     523  
Non-GAAP recurring revenue gross profit $ 27,918   $ 24,380   $ 103,084   $ 87,161  
Non-GAAP recurring revenue gross margin 67.3 % 73.2 % 69.6 % 73.3 %
 
Services revenue gross profit as reported $ 2,975 $ 3,964 $ 13,825 $ 9,297
Non-cash stock-based compensation expense   60     27     245     147  
Non-GAAP services revenue gross profit $ 3,035   $ 3,991   $ 14,070   $ 9,444  
Non-GAAP services revenue gross margin 21.0 % 39.1 % 26.8 % 31.1 %
 
Total revenue, as reported $ 90,785 $ 70,542 $ 318,234 $ 237,365
Purchase accounting adjustments   10     178     202     522  
Non-GAAP total revenue $ 90,795   $ 70,720   $ 318,436   $ 237,887  
 
Gross Profit $ 57,969 $ 48,438 $ 204,180 $ 159,547
Revenue adjustments 10 178 202 522
Acquired technology 49 58 196 163
Non-cash stock-based compensation expense   278     162     1,051     670  
Non-GAAP gross profit $ 58,306   $ 48,836   $ 205,629   $ 160,902  
Non-GAAP gross margin 64.2 % 69.1 % 64.6 % 67.6 %
 
Operating income, as reported $ 6,458 $ 3,529 $ 14,397 $ 1,083
Purchase accounting adjustments 526 769 2,308 2,487
Non-cash stock-based compensation expense   2,291     1,650     9,247     6,677  
Non-GAAP operating income $ 9,275   $ 5,948   $ 25,952   $ 10,247  
Non-GAAP operating margin   10.2 %   8.4 %   8.1 %   4.3 %
 
 
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
Net income, as reported $ 3,530   $ 2,270   $ 9,515   $ 906  
Purchase accounting adjustments:
 
Increase to revenues 10 178 202 522
Reduction of operating expenses:
Customer Relationships 422 449 1,682 1,341
Technology 49 58 196 163
Non-compete agreements 45 46 180 180
Acquisition Costs   -     38     48     281  
Total   526     769     2,308     2,487  
Non-cash stock-based compensation expense:
Cost of recurring revenues 218 135 806 523
Cost of services revenues 60 27 245 147
Sales and marketing 663 543 3,109 2,250
Research and development 735 510 2,733 1,886
General and administrative   615     435     2,354     1,871  
Total   2,291     1,650     9,247     6,677  
Non-GAAP income tax expense adjustment   (765 )   1,039     (4,388 )   -  
Non-GAAP net income $ 5,582   $ 5,728   $ 16,682   $ 10,070  
 
Diluted EPS, as reported $ 0.17 $ 0.11 $ 0.45 $ 0.04
Purchase accounting adjustments 0.02 0.04 0.11 0.12
Non-cash stock-based compensation expense 0.11 0.08 0.44 0.34
Non-GAAP income tax expense adjustment   (0.04 )   0.05     (0.21 )   -  
Non-GAAP diluted EPS $ 0.26   $ 0.28   $ 0.79   $ 0.50  
 
           
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
 
December 31 December 31
2013 2012
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 65,881 $ 45,057
Short-term investments 32,162 23,816
Accounts receivable, net 80,414 68,409
Deferred tax assets, net 23,684 16,600
Prepaid expenses 21,989 15,565
Other current assets   13,566     5,958  
Total current assets 237,696 175,405
Long-term investments 9,787 11,757
Property and equipment, net 36,919 26,816
Goodwill 37,298 38,723
Intangible assets, net 20,613 22,676
Other assets, net   10,912     6,419  
Total assets $ 353,225   $ 281,796  
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 8,727 $ 8,796
Accrued liabilities 15,162 19,608
Accrued compensation and related expenses 17,494 13,640
Deferred product revenues 10,412 5,999
Deferred services revenues   81,630     67,893  
Total current liabilities 133,425 115,936
Long-term deferred revenues 23,914 18,000
Deferred tax liabilities, net 2,388 99
Other long-term liabilities   4,140     3,644  
Total liabilities   163,867     137,679  
 
Shareholders' equity:
Preferred stock - -
Common stock 205 194
Additional paid-in-capital 170,075 133,359
Accumulated other comprehensive loss (1,676 ) (675 )
Retained earnings   20,754     11,239  
Total shareholders' equity   189,358     144,117  
Total liabilities and shareholders' equity $ 353,225   $ 281,796  
 
           
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 
Years Ended
December 31,
2013 2012
(unaudited)
Operating activities:
Net income $ 9,515 $ 906
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 11,664 8,547
Amortization 2,058 1,776
Other non-cash items 1,442 (906 )
Stock-based compensation expense 9,247 6,677
Tax benefits from stock-based payment arrangements (13,479 ) (1,586 )
Deferred income tax (4,795 ) (12,311 )
Amortization (accretion) of investment premium (discount) (37 ) 846
Loss on disposal of fixed assets - 74
Changes in operating assets and liabilities:
Accounts receivable (12,005 ) (10,166 )
Prepaid expenses (6,178 ) (4,490 )
Other current assets 737 (975 )
Accounts payable (69 ) 5,072
Accrued liabilities 1,233 11,940
Accrued compensation and related expenses 3,854 4,400
Deferred product revenues 4,284 1,190
Deferred services revenues 19,645 12,850
Other assets and liabilities   259     (2,976 )
Net cash provided by operating activities   27,375     20,868  
 
Investing activities:
Sales of available-for-sale investments 26,803 58,235
Purchases of available-for-sale investments (33,270 ) (30,348 )
Purchases of property and equipment (20,758 ) (15,554 )
Capitalized internal use software cost (6,112 ) (862 )
Acquisitions, net of cash (725 ) (22,651 )
Unrealized gain on investment   34     (138 )
Net cash used in investing activities   (34,028 )   (11,318 )
 
Financing activities:
Proceeds from stock options exercised 14,122 5,029
Proceeds from issuance of common stock 837 680
Tax withholding on restricted stock awards (961 ) (253 )
Tax benefits from stock-based payment arrangements   13,479     1,586  
Net cash provided by financing activities   27,477     7,042  
Net increase in cash and cash equivalents 20,824 16,592
Cash and cash equivalents, beginning of period   45,057     28,465  
Cash and cash equivalents, end of period $ 65,881   $ 45,057  
 
Cash paid during the period for:
Interest $ 6 $ 5
Income taxes 882 3,213
 
Other non-cash item:
Purchases of property and equipment payable at end of period 413 173
 
                           
 
Supplemental Data
(Dollars in thousands)
(unaudited)
 
 
2012 2013
Q1   Q2   Q3   Q4   Total Q1   Q2   Q3   Q4   Total
Margins (GAAP):
Product 70.9 % 69.5 % 73.4 % 75.2 % 72.5 % 71.9 % 74.2 % 75.5 % 78.4 % 75.2 %
Recurring 73.8 % 72.4 % 72.3 % 72.7 % 72.8 % 70.0 % 70.9 % 68.8 % 66.8 % 69.0 %
Services 19.7 % 22.6 % 18.9 % 33.5 % 24.8 % 31.2 % 25.6 % 28.9 % 20.6 % 26.3 %
Overall 66.8 % 65.2 % 65.6 % 67.9 % 66.5 % 64.6 % 64.1 % 64.1 % 63.9 % 64.2 %
 
Year-over-year Revenue Growth (GAAP):
Product -4.8 % -18.8 % 3.3 % 2.5 % -4.5 % 44.0 % 41.9 % 20.6 % 28.3 % 32.8 %
Recurring 31.1 % 27.2 % 17.9 % 31.5 % 26.8 % 22.4 % 23.6 % 28.6 % 25.2 % 25.0 %
Services -8.4 % 23.5 % 34.7 % 71.7 % 30.0 % 100.6 % 96.8 % 74.1 % 41.2 % 73.0 %
Overall 10.6 % 5.4 % 13.7 % 22.3 % 13.3 % 38.8 % 39.2 % 31.5 % 28.7 % 34.1 %
 
Orders:
Over $1 million 6 8 9 19 42 8 13 12 15 48
Between $250,000 and $1 million 11 28 28 49 116 31 30 35 48 144
 
Number of new customers 60 67 65 110 302 74 89 67 86 316
 
Average new customer order:
Overall $ 240 $ 349 $ 409 $ 623 $ 440 $ 335 $ 272 $ 503 $ 485 $ 394
Cloud-based 761 557 822 1,134 866 788 427 796 836 717
 

ININ-G

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IoT is fundamentally transforming the auto industry, turning the vehicle into a hub for connected services, including safety, infotainment and usage-based insurance. Auto manufacturers – and businesses across all verticals – have built an entire ecosystem around the Connected Car, creating new customer touch points and revenue streams. In his session at @ThingsExpo, Macario Namie, Head of IoT Strategy at Cisco Jasper, will share real-world examples of how IoT transforms the car from a static p...
There is little doubt that Big Data solutions will have an increasing role in the Enterprise IT mainstream over time. Big Data at Cloud Expo - to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA - has announced its Call for Papers is open. Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is...
SYS-CON Events has announced today that Roger Strukhoff has been named conference chair of Cloud Expo and @ThingsExpo 2016 Silicon Valley. The 19th Cloud Expo and 6th @ThingsExpo will take place on November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. "The Internet of Things brings trillions of dollars of opportunity to developers and enterprise IT, no matter how you measure it," stated Roger Strukhoff. "More importantly, it leverages the power of devices and the Interne...