Interactive Intelligence Reports 2016 First Quarter Financial Results

INDIANAPOLIS--(BUSINESS WIRE)--

Interactive Intelligence Group Inc. 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 CaaS^℠ 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. 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.

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
Other non-cash item:
Purchases of property and equipment payable at end of period				450					746

ININ-G

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