- Total orders up 42 percent from 2013 first quarter.

- Cloud-based orders increased 165 percent to 59 percent of total orders.

- Deferred and unbilled future cloud-based revenues up 56 percent year-over-year.

-

Orders: Total orders increased by 42 percent from the first quarter of 2013, with cloud-based orders up 165 percent to 59 percent of total orders. The company signed 34 orders over $250,000, which included nine orders over $1 million, compared to 39 orders over $250,000, including eight orders over $1 million in the same quarter last year. Average cloud-based orders from new customers increased to $935,000, compared to $788,000 in the first quarter of 2013.

-

Revenues: Total revenues were $79.4 million, up 8 percent from the 2013 first quarter. Recurring revenues, including support fees from on-premises license agreements and fees from cloud-based customers, increased 28 percent to $43.4 million and accounted for 55 percent of total revenues. Cloud-based revenues increased 85 percent to $13.1 million. Product revenues were $22.8 million and services revenues $13.2 million, compared to $28.0 million and $11.4 million, respectively, in the first quarter of 2013.

-

Total Deferred Revenues: Deferred revenues increased to $115.5 million, up from $110.2 million as of March 31, 2013. In addition, the amount of unbilled future cloud-based revenues increased to $205.5 million from $95.8 million at the end of the 2013 first quarter. The combination of deferred and unbilled future cloud-based revenues grew to $321.0 million, up 56 percent from $206.0 million as of March 31, 2013.

-

Operating Income (Loss): GAAP operating loss was $(4.8) million, compared to GAAP operating income of $3.4 million in the same quarter last year. Non-GAAP* operating loss was $(1.0) million, compared to non-GAAP* operating income of $6.2 million in the first quarter of 2013. The year-over-year decline was primarily due to the increase in cloud-based orders, which jumped from 31 percent of total orders in the first quarter of 2013, to 59 percent of total orders in the first quarter of 2014, and are recognized over the life of the contract.

-

Income Taxes: Income tax benefit for the first quarter was $2.2 million. The company’s estimated annual effective tax rate is 43.5 percent.

-

Net Income (Loss): GAAP net loss was $(2.6) million, or $(0.12) per diluted share based on 20.7 million weighted average shares outstanding, compared to GAAP net income for the same quarter in 2013 of $1.5 million, or $0.07 per diluted share based on 20.7 million weighted average diluted shares outstanding. Net income for the first quarter of 2013 included a $600,000 U.S. federal research and development tax credit related to 2012.

-

Cash, Cash Equivalents and Investments: Cash, cash equivalents and investments totaled $104.9 million as of March 31, 2014, compared to $107.8 million at the end of 2013.

-

Cash Flows: The company generated $5.3 million in cash flow from operations in the quarter and used $8.1 million for capital expenditures, which included continued expansion of its cloud infrastructure. 

-

Interactive Intelligence announced that it has entered into a letter of intent to acquire OrgSpan Inc., a privately held company that offers cloud-based enterprise social communications solutions.

-

The company unveiled its Global Alliance Program, which was designed to expand the company’s ecosystem of solutions and relationships to increase partner opportunities and benefits. 

-

Interactive Intelligence’s channel director was named a CRN 2014 Channel Chief based on channel experience, program innovations, and channel-driven revenue.

-

The company created three new C-level positions to further strengthen its operations for improved global software and service delivery. 

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

March 31,

2014

2013

Revenues:

Product

$        22,846

$        27,991

Recurring

Services

Total revenues

Costs of revenues:

Costs of product

Costs of recurring

Costs of services

Amortization of intangible assets

Total costs of revenues

Gross profit

Operating expenses:

Sales and marketing

Research and development

General and administrative

Amortization of intangible assets

Total operating expenses

Operating income (loss)

Other income (expense):

Interest income, net

Other expense

Total other income (expense)

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

$         (2,564)

$          1,457

Other comprehensive income (loss):

Foreign currency translation adjustment

$             559

$             105

Net unrealized investment loss - net of tax

Comprehensive income (loss)

$         (2,022)

$          1,530

Net income (loss) per share:

Basic

Diluted

$           (0.12)

$            0.07

Shares used to compute net income (loss) per share:

Basic

Diluted

Interactive Intelligence Group, Inc.

Reconciliation of Supplemental Financial Information

(in thousands, except per share amounts)

Unaudited

Three Months Ended

March 31,

2014

2013

Recurring revenue, as reported

$      43,409

$      33,827

Purchase accounting adjustments

Non-GAAP recurring revenue

$      43,414

$      33,912

Recurring revenue gross profit as reported

$      28,694

$      23,894

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP recurring revenue gross profit

$      29,006

$      24,145

Non-GAAP recurring revenue gross margin

Services revenue gross profit as reported

$        2,676

$        3,559

Non-cash stock-based compensation expense

Non-GAAP services revenue gross profit

$        2,782

$        3,607

Non-GAAP services revenue gross margin

Total revenue, as reported

$      79,448

$      73,238

Purchase accounting adjustments

Non-GAAP total revenue

$      79,453

$      73,323

Gross Profit, as reported

$      47,383

$      47,517

Revenue adjustments

Acquired technology

Non-cash stock-based compensation expense

Non-GAAP gross profit

$      47,850

$      47,865

Non-GAAP gross margin

Operating income (loss), as reported

$       (4,813)

$        3,415

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP operating income (loss)

$       (1,047)

$        6,196

Non-GAAP operating margin

Interactive Intelligence Group, Inc.

Reconciliation of Supplemental Financial Information

(in thousands, except per share amounts)

Unaudited

Three Months Ended

March 31,

2014

2013

Net income (loss), as reported

$      (2,564)

$       1,457

Purchase accounting adjustments:

Increase to revenues

Reduction of operating expenses:

Customer Relationships

Technology

Non-compete agreements

Acquisition Costs

 -

Total

Non-cash stock-based compensation expense:

Cost of recurring revenues

Cost of services revenues

Sales and marketing

Research and development

General and administrative

Total

Non-GAAP income tax expense adjustment

Non-GAAP net income (loss)

$         (393)

$       3,598

Diluted EPS, as reported

$        (0.12)

$         0.07

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP income tax expense adjustment

Non-GAAP diluted EPS

$        (0.02)

$         0.17

Interactive Intelligence Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

March 31,

December 31,

2014

2013

Assets

(unaudited)

Current assets:

Cash and cash equivalents

$           51,990

$           65,881

Short-term investments

Accounts receivable, net

Deferred tax assets, net

Prepaid expenses

Other current assets

Total current assets

Long-term investments

Property and equipment, net

Goodwill

Intangible assets, net

Other assets, net

Total assets

$         355,233

$         353,222

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$           11,171

$             8,727

Accrued liabilities

Accrued compensation and related expenses

Deferred product revenues

Deferred services revenues

Total current liabilities

Long-term deferred revenues

Deferred tax liabilities, net

Other long-term liabilities

Total liabilities

Shareholders' equity:

Preferred stock

 -

 -

Common stock

Additional paid-in-capital

Accumulated other comprehensive loss

Retained earnings

Total shareholders' equity

Total liabilities and shareholders' equity

$         355,233

$         353,222

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended

March 31,

2014

2013

(unaudited)

Operating activities:

Net income (loss)

$       (2,564)

$        1,457

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation

Amortization

Other non-cash items

Stock-based compensation expense

Tax benefits from stock-based payment arrangements

Deferred income tax

Accretion of investment discount

Loss on disposal of fixed assets

 -

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses

Other current assets

Accounts payable

Accrued liabilities

Accrued compensation and related expenses

Deferred product revenues

Deferred services revenues

Other assets and liabilities

Net cash provided by (used in) operating activities

Investing activities:

Sales of available-for-sale investments

Purchases of available-for-sale investments

Purchases of property and equipment

Capitalized internal use software cost

Unrealized loss on investment

Net cash used in investing activities

Financing activities:

Proceeds from stock options exercised

Proceeds from issuance of common stock

Tax withholding on restricted stock awards

Tax benefits from stock-based payment arrangements

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

$       51,990

$      41,793

Cash paid during the period for:

Interest

$                7

$               4

Income taxes

Other non-cash item:

Purchases of property and equipment payable at end of period

Supplemental Data

(Dollars in thousands)

(unaudited)

2013

2014

Q1

Q2

Q3

Q4

Total

Q1

Margins (GAAP):

Product

Recurring

Services

Overall

Year-over-year Revenue Growth (GAAP):

Product

-18.4%

Recurring

Services

Overall

Orders:

Over $1 million

Between $250,000 and $1 million

Number of new customers

Average new customer order:

Overall

$        335

$        272

$        503

$        485

$         394

$        516

Cloud-based