·

Total orders up 46 percent from 2013 third quarter

·

Cloud-based orders double to 68 percent of total orders

·

Cloud-based revenues increase 70 percent

·

Deferred and unbilled future cloud-based revenues up 43 percent

·

Orders: Total orders increased 46 percent from the third quarter of 2013, with cloud-based orders up 104 percent to represent 68 percent of total orders. In the third quarter of this year, 56 orders were signed over $250,000, including 12 orders over $1 million, compared to 47 orders over $250,000, including 12 orders over $1 million in the same quarter last year.

·

Revenues: Total revenues were $89.5 million, up 15 percent from the 2013 third quarter. Recurring revenues, including support fees from on-premises license agreements and fees from cloud-based customers, increased 28 percent to $48.1 million and accounted for 54 percent of total revenues. Cloud-based revenues increased 70 percent to $14.7 million. Product revenues were $27.8 million and services revenues $13.6 million, compared to $26.9 million and $13.5 million, respectively, in the same quarter last year.

·

Total Deferred Revenues: As of Sept. 30, 2014, deferred revenues were $107.5 million, compared to $108.7 million at the end of the 2013 third quarter, and the amount of unbilled future cloud-based revenues increased to $265.9 million from $153.0 million at the end of the 2013 third quarter. The combination of deferred and unbilled future cloud-based revenues grew to $373.4 million, up 43 percent from $261.7 million at the end of the 2013 third quarter.

·

Operating Income (Loss): GAAP operating loss was $(3.5) million, compared to GAAP operating income of $3.7 million in the 2013 third quarter. Non-GAAP* operating income was $0.5 million, compared to non-GAAP operating income of $6.7 million in the same quarter last year.

·

Income Taxes: Income tax benefit was $1.3 million, with an estimated annual effective tax rate of 41.0 percent.

·

Net Income (Loss): GAAP net loss was $(2.1) million, or $(0.10) per diluted share based on 20.9 million weighted average diluted shares outstanding, compared to GAAP net income in the same quarter of 2013 of $1.6 million, or $0.08 per diluted share based on 21.2 million weighted average diluted shares outstanding. 

·

Cash, Cash Equivalents, and Investments: Cash, cash equivalents, and investments totaled $69.6 million as of Sept. 30, 2014, compared to $86.0 million as of June 30, 2014.

·

Cash Flows: The company used $6.9 million for operating activities in the third quarter and $4.0 million for capital expenditures, including the continued expansion of its cloud infrastructure, and capitalized $5.1 million for PureCloud development costs.

·

Orders: Excluding the largest cloud-based order in the company’s history received during the second quarter of 2013, total orders increased by 34 percent and cloud-based orders were up 102 percent over the first nine months of 2013. Including this large cloud-based order, total orders increased 6 percent and cloud-based orders were up 24 percent. Cloud-based orders represented 61 percent of total orders during the first nine months of 2014. In this same period, 129 orders were signed over $250,000, including 31 orders over $1 million.

·

Revenues: Total revenues were $248.8 million, an increase of 9 percent over the first nine months of 2013. Recurring revenues increased 28 percent to $136.1 million and accounted for 55 percent of total revenues. Cloud-based revenues increased 76 percent to $41.6 million. Product revenues were $72.2 million, down 13 percent, and services revenues were $40.5 million, up 6 percent compared to the first nine months of 2013.

·

Operating Income (Loss): GAAP operating loss was $(19.8) million for the first nine months of 2014, compared to GAAP operating income of $7.9 million over the same period last year. Non-GAAP operating loss was $(7.1) million for the first nine months of 2014, compared to non-GAAP operating income of $16.7 million during the same period last year. The year-over-year decline was primarily due to lower than anticipated product revenues, combined with increased sales and marketing expenses to capture cloud market share, and increased research and development expenses to accelerate time-to-market of PureCloud.

·

Net Income (Loss): GAAP net loss for the first nine months of 2014 was $(11.5) million, or $(0.55) per diluted share based on 20.9 million weighted average shares outstanding, compared to GAAP net income for the same period in 2013 of $6.0 million, or $0.29 per diluted share based on 21.0 million weighted average diluted shares outstanding. GAAP net income for the nine months ended Sept. 30, 2013 included an income tax benefit primarily driven by a change in transfer pricing implemented during the second quarter of 2013.

·

Cash Flows: The company used $3.1 million in cash flow for operations, $17.1 million for capital expenditures, which included continued expansion of its cloud infrastructure, $9.6 million for PureCloud development costs, and $9.2 million for an acquisition.

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The latest version of Interactive Intelligence’s CIC 4.0 release was certified by the Joint Interoperability Test Command (JITC), which ensures compliance with the Department of Defense standards for faster government sales cycles and reduced deployment time.

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Interactive Intelligence was named by Collection Advisor Magazine among its 2014 top collection and dialer solutions.

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Interactive Intelligence announced availability of its contact center and dialer software integrated with the new CallScripter™ application for improved customer service, increased agent productivity, and enhanced compliance.

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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.

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2014

2013

2014

2013

Revenues:

Product

$        27,764

$        26,913

$     72,158

$    82,813

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 benefit (expense)

Net income (loss)

$         (2,143)

$          1,627

$    (11,504)

$      5,985

Other comprehensive income (loss):

Foreign currency translation adjustment

$         (2,641)

$            (461)

$      (1,985)

$       (340)

Unrealized investment gain (loss) - net of tax

Comprehensive income (loss)

$         (4,879)

$          1,244

$    (13,610)

$      5,495

Net income (loss) per share:

Basic

Diluted

$           (0.10)

$            0.08

$        (0.55)

$        0.30

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

Nine Months Ended

September 30,

September 30,

2014

2013

2014

2013

Recurring revenue, as reported

$      48,095

$      37,537

$    136,121

$      106,470

Purchase accounting adjustments

Non-GAAP recurring revenue

$      48,099

$      37,581

$    136,135

$      106,662

Recurring revenue gross profit as reported

$      31,279

$      26,489

$      89,925

$        75,047

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP recurring revenue gross profit

$      31,668

$      26,746

$      90,998

$        75,827

Non-GAAP recurring revenue gross margin

Services revenue gross profit as reported

$        2,053

$        3,910

$        7,096

$        10,850

Non-cash stock-based compensation expense

Non-GAAP services revenue gross profit

$        2,170

$        3,979

$        7,434

$        11,035

Non-GAAP services revenue gross margin

Total revenue, as reported

$      89,462

$      77,969

$    248,740

$      227,449

Purchase accounting adjustments

Non-GAAP total revenue

$      89,466

$      78,013

$    248,754

$      227,641

Gross Profit, as reported

$      53,987

$      50,664

$    148,547

$      146,872

Revenue adjustments

Acquired technology

Non-cash stock-based compensation expense

Non-GAAP gross profit

$      54,670

$      51,039

$    150,321

$      147,984

Non-GAAP gross margin

Operating income (loss), as reported

$       (3,464)

$        3,675

$     (19,789)

$          7,939

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP operating (loss) income

$           541

$        6,660

$       (7,104)

$        16,677

Non-GAAP operating margin

-2.9%

Three Months Ended

Nine Months Ended

September 30,

September 30,

2014

2013

2014

2013

Net income (loss), as reported

$       (2,143)

$        1,627

$     (11,504)

$          5,985

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) 

$           256

$        4,141

$       (3,835)

$        11,100

Diluted EPS, as reported

$         (0.10)

$          0.08

$         (0.55)

$            0.29

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP income tax expense adjustment

Non-GAAP diluted EPS

$          0.01

$          0.20

$         (0.18)

$            0.53

Interactive Intelligence Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

September 30,

December 31,

2014

2013

Assets

(unaudited)

Current assets:

Cash and cash equivalents

$           30,263

$           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

$         355,770

$         353,222

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$             9,297

$             8,727

Accrued liabilities

Accrued compensation and related expenses

Deferred product revenues

Deferred recurring 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

$         355,770

$         353,222

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended

September 30,

2014

2013

(unaudited)

Operating activities:

Net income (loss)

$     (11,504)

$        5,985

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

Depreciation

Amortization

Other non-cash items

Stock-based compensation expense

Excess tax benefit from stock-based payment arrangements

 -

Deferred income tax

Amortization (accretion) of investment premium (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 recurring revenues

Deferred services revenues

Other assets and liabilities

Net cash (used in) provided by 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

Acquisitions, net of cash

Unrealized gain 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

Excess tax benefit 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

$       30,263

$      50,085

Cash paid during the period for:

Interest

$               -

$               4

Income taxes

Other non-cash item:

Purchases of property and equipment payable at end of period

$         2,944

$        3,271

Supplemental Data

(Dollars in thousands)

(unaudited)

2013

2014

Q1

Q2

Q3

Q4

Total

Q1

Q2

Q3

Total

Margins (GAAP):

Product

Recurring

Services

Overall

Year-over-year Revenue Growth (GAAP):

Product

-18.4%

-22.8%

-12.9%

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

$        352

$        887

$         593

Cloud-based