Interactive Intelligence 8-K Interactive Intelligence Reports 2011 Second-Quarter Operating Results

Exhibit 99.1

Interactive Intelligence Reports 2011 Second-Quarter Operating Results

Revenues increase 34 percent; bookings increase 44 percent

INDIANAPOLIS, July 25, 2011 -- Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of unified IP business communications solutions, has announced operating results for the three and six months ended June 30, 2011.

The company reported revenues of $52.0 million, an increase of 34 percent over the second quarter of 2010. Product revenues were up 34 percent, recurring revenues increased by 35 percent, and services revenues increased 30 percent compared to the same quarter last year.

The company reported operating income on a generally accepted accounting principles (GAAP) basis of $5.5 million for the 2011 second quarter, up 18 percent from $4.7 million in the same quarter last year. Non-GAAP* operating income was $7.3 million for the second quarter of 2011, up 29 percent from $5.7 million in the second quarter of 2010.

"We are executing on our primary strategic initiatives," said Dr. Donald E. Brown, Interactive Intelligence founder and CEO. "We are moving up-market with more sales to larger customers, rapidly increasing revenues from our cloud-based solutions, successfully expanding our presence internationally, performing well in our targeted vertical markets, and seeing increased interest in our process automation capability. With the soon-to-be-released major enhancement to our flagship Customer Interaction Center™ product, we are well positioned to continue competing effectively in the second half of the year."

GAAP net income was $3.8 million, with diluted earnings per share (EPS) of $0.19, compared to $2.5 million, or EPS of $0.13, for the second quarter of 2010. Net income on a non-GAAP basis was $6.3 million, with EPS of $0.32, compared to $5.0 million, or EPS of $0.27, for the same quarter last year.

Non-GAAP net income and EPS for the 2011 second quarter exclude purchase accounting adjustments of $496,000, or EPS of $0.03, charges for stock-based compensation of $1.3 million, or EPS of $0.06, and non-cash income tax expense of approximately $727,000, or EPS of $0.04. For the second quarter of 2010, non-GAAP net income and EPS exclude charges for stock-based compensation of $964,000, or EPS of $0.06, and non-cash income tax expense of $1.5 million, or EPS of $0.08.

Cash and investment balances as of June 30, 2011 increased to $94.4 million. The company has no debt.

First-half 2011 results included the following:

-   Total revenues of $99.7 million, a 35 percent increase over revenues of $73.8 million in the first half of 2010.

-   GAAP operating income of $10.4 million, up from $8.6 million for the first half of 2010.

-   Non-GAAP operating income of $14.0 million, compared to $10.7 million for the first half of 2010.

-   GAAP net income of $6.9 million, or EPS of $0.35, compared to $4.3 million, or EPS of $0.23, for the first half of 2010.

-   Non-GAAP net income of $11.8 million, or EPS of $0.59, compared to $9.1 million, or EPS of $0.49, for the same period last year.

For the first six months of 2011, non-GAAP net income and EPS exclude charges for purchase accounting adjustment of $1.0 million, or EPS of $0.05, stock-based compensation of $2.6 million, or EPS of $0.13, and non-cash income tax expense of $1.3 million, or EPS of $0.06. For the first half of 2010, non-GAAP net income and EPS exclude charges for stock-based compensation of $2.0 million, or EPS of $0.11, and non-cash income tax expense of $2.8 million, or EPS of $0.15.

Additional highlights in the second quarter of 2011 include the following:

-   Certification by Joint Interoperability Test Command (JITC) for U.S. federal government deployments.

-   Announcement of the upcoming release of CIC 4.0.

-   Named by the Indiana Chamber of Commerce as a Best Place to Work.

-   Inclusion in Gartner’s Contact Center Infrastructure leaders quadrant.**

As previously announced on July 5, 2011, the company acquired CallTime Solutions, a partner in the Australia and New Zealand markets to expand sales, support and service capabilities for direct customers and resellers throughout the region.

Interactive Intelligence will host a conference call July 25 at 4:30 p.m. Eastern time (EDT) 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 second-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 unified business communications solutions for contact center automation, enterprise IP telephony, and business process automation. The company’s solutions, which can be deployed via an on-premise or hosted model, include vertical-specific applications for insurance and collections. Interactive Intelligence was founded in 1994 and has more than 4,000 customers worldwide. The company is among Software Magazine’s 2010 Top 500 Global Software and Services Suppliers, and Forbes Magazine’s 2010 Best Small Companies in America. It employs approximately 1,000 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 info@inin.com; 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 for stock options, 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 income tax expense is primarily 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.

**Gartner Inc., Magic Quadrant for Contact Center Infrastructure, Worldwide, Drew Kraus, Steve Blood, Geoff Johnson, June 27, 2011.

About Gartner’s Magic Quadrant

The Magic Quadrant is copyrighted 2011 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner's analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the "Leaders" quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

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.

ININ-G

Contacts:

Stephen R. Head

Chief Financial Officer

Interactive Intelligence

+1 317.715.8412

steve.head@inin.com

Christine Holley

Senior Director of Market Communications

Interactive Intelligence

+1 317.715.8220

christine.holley@inin.com

###

Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
Unaudited
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
Revenues:
Product	$	24,495	$	18,315		$	45,261	$	34,101
Recurring		22,043		16,322			42,789		32,247
Services		5,443		4,174			11,661		7,486
Total revenues		51,981		38,811			99,711		73,834
Costs of revenues:
Product		6,392		5,502			12,588		10,301
Recurring		5,813		4,043			11,095		7,466
Services		3,919		2,144			7,631		4,318
Amortization of intangible assets		35		16			70		32
Total cost of revenues		16,159		11,705			31,384		22,117
Gross profit		35,822		27,106			68,327		51,717
Operating expenses:
Sales and marketing		15,320		11,480			29,477		21,832
Research and development		8,714		6,945			16,861		13,370
General and administrative		6,024		4,013			11,119		7,849
Amortization of intangible assets		274		9			458		18
Total operating expenses		30,332		22,447			57,915		43,069
Operating income		5,490		4,659			10,412		8,648
Other income (expense):
Interest income, net		92		67			135		109
Other income (expense)		256		(590	)		90		(1,365	)
Total other income (expense)		348		(523	)		225		(1,256	)
Income before income taxes		5,838		4,136			10,637		7,392
Income tax expense		2,011		1,680			3,715		3,068
Net income	$	3,827	$	2,456		$	6,922	$	4,324
Net income per share:
Basic	$	0.20	$	0.14		$	0.37	$	0.25
Diluted		0.19		0.13			0.35		0.23
Shares used to compute net income per share:
Basic		18,707		17,445			18,563		17,383
Diluted		19,933		18,772			19,860		18,740

Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
Unaudited
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Net income, as reported	$	3,827	$	2,456	$	6,922	$	4,324
Purchase accounting adjustments:
Increase to revenues:
Recurring		39		1		98		8
Services		17		1		48		3
Reduction of operating expenses:
Customer Relationships		229		9		368		18
Technology		35		16		70		32
Non-compete agreements		45		-		90		-
Acquisition Costs		131		-		332		-
Total		496		27		1,006		61
Non-cash stock-based compensation expense:
Cost of recurring revenues		103		60		208		91
Cost of services revenues		11		3		36		51
Sales and marketing		433		318		825		642
Research and development		395		298		803		596
General and administrative		333		285		721		596
Total		1,275		964		2,593		1,976
Non-cash income tax expense		727		1,547		1,276		2,788
Non-GAAP net income	$	6,325	$	4,994	$	11,797	$	9,149
Operating income, as reported	$	5,490	$	4,659	$	10,412	$	8,648
Purchase accounting adjustments		496		27		1,006		61
Non-cash stock-based compensation expense		1,275		964		2,593		1,976
Non-GAAP operating income	$	7,261	$	5,650	$	14,011	$	10,685
Diluted EPS, as reported	$	0.19	$	0.13	$	0.35	$	0.23
Purchase accounting adjustments		0.03		0.00		0.05		0.00
Non-cash stock-based compensation expense		0.06		0.06		0.13		0.11
Non-cash income tax expense		0.04		0.08		0.06		0.15
Non-GAAP diluted EPS	$	0.32	$	0.27	$	0.59	$	0.49

Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
	June 30,			December 31,
	2011			2010
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	29,049		$	48,300
Short-term investments		40,668			37,582
Accounts receivable, net		44,716			36,130
Deferred tax assets, net		3,770			5,499
Prepaid expenses		9,389			7,456
Other current assets		3,849			4,989
Total current assets		131,441			139,956
Long-term investments		24,677			-
Property and equipment, net		13,314			10,336
Deferred tax assets, net		2,177			2,765
Goodwill		14,514			11,371
Intangible assets, net		13,169			11,001
Other assets, net		936			803
Total assets	$	200,228		$	176,232
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	16,557		$	16,364
Accrued compensation and related expenses		6,221			6,553
Deferred product revenues		5,446			3,350
Deferred services revenues		46,480			43,281
Total current liabilities		74,704			69,548
Long-term deferred revenues		10,212			7,420
Other long-term liabilities		370			-
Total liabilities		85,286			76,968
Shareholders' equity:
Preferred stock		-			-
Common stock		187			182
Additional paid-in-capital		112,631			103,837
Accumulated other comprehensive loss		(333	)		(290	)
Retained earnings (accumulated deficit)		2,457			(4,465	)
Total shareholders' equity		114,942			99,264
Total liabilities and shareholders' equity	$	200,228		$	176,232

Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
	Six Months Ended
	June 30,
	2011			2010
Operating activities:
Net income	$	6,922		$	4,324
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other non-cash items		3,080			2,133
Stock-based compensation expense		2,593			1,976
Tax benefits from stock-based payment arrangements		(1,240	)		(2,789	)
Deferred income tax		1,517			(282	)
Accretion of investment income		(1,660	)		(444	)
Changes in operating assets and liabilities:
Accounts receivable		(7,470	)		3,699
Prepaid expenses		(1,646	)		(558	)
Other current assets		1,296			(551	)
Other assets		(133	)		(8	)
Accounts payable and accrued liabilities		46			2,554
Accrued compensation and related expenses		(667	)		57
Deferred product revenues		2,128			(32	)
Deferred services revenues		5,659			(2,128	)
Net cash provided by operating activities		10,425			7,951
Investing activities:
Sales of available-for-sale investments		40,279			7,300
Purchases of available-for-sale investments		(66,465	)		(27,078	)
Purchases of property and equipment		(5,625	)		(2,042	)
Acquisition, net of cash		(4,111	)		-
Unrealized gain on investment		40			-
Net cash used in investing activities		(35,882	)		(21,820	)
Financing activities:
Proceeds from stock options exercised		4,708			1,343
Proceeds from issuance of common stock		258			164
Tax benefits from stock-based payment arrangements		1,240			2,789
Net cash provided by financing activities		6,206			4,296
Net decrease in cash and cash equivalents		(19,251	)		(9,573	)
Cash and cash equivalents, beginning of period		48,300			48,497
Cash and cash equivalents, end of period	$	29,049		$	38,924
Cash paid during the period for:
Interest	$	2		$	1
Income taxes		1,106			520
Other non-cash item:
Purchases of property and equipment payable at end of period	$	7		$	247

Condensed Consolidated Statements of Income - GAAP
(in thousands, except per share amounts)
(unaudited)
	2010														2011
		Q1			Q2			Q3		Q4		Total				Q1			Q2	Total
Revenues:
Product	$	15,786		$	18,315		$	20,671	$	25,045		$	79,817		$	20,766		$	24,495	$	45,261
Recurring		15,925			16,322			16,595		19,898			68,740			20,746			22,043		42,789
Services		3,312			4,174			4,565		5,707			17,758			6,218			5,443		11,661
Total revenues		35,023			38,811			41,831		50,650			166,315			47,730			51,981		99,711
Costs of revenues:
Product		4,799			5,502			6,198		7,369			23,868			6,196			6,392		12,588
Recurring		3,423			4,043			4,302		5,223			16,991			5,282			5,813		11,095
Services		2,174			2,144			2,465		3,005			9,788			3,712			3,919		7,631
Amortization of intangibles		16			16			16		35			83			35			35		70
Total cost of revenues		10,412			11,705			12,981		15,632			50,730			15,225			16,159		31,384
Gross profit		24,611			27,106			28,850		35,018			115,585			32,505			35,822		68,327
Operating expenses:
Sales and marketing		10,352			11,480			12,106		13,134			47,072			14,157			15,320		29,477
Research and development		6,425			6,945			7,193		7,786			28,349			8,147			8,714		16,861
General and administrative		3,836			4,013			3,935		4,800			16,584			5,095			6,024		11,119
Amortization of intangibles		9			9			9		184			211			184			274		458
Total operating expenses		20,622			22,447			23,243		25,904			92,216			27,583			30,332		57,915
Operating income		3,989			4,659			5,607		9,114			23,369			4,922			5,490		10,412
Other income (expense):
Interest income, net		42			67			120		111			340			43			92		135
Other income (expense)		(775	)		(590	)		337		(118	)		(1,146	)		(166	)		256		90
Total other income (expense)		(733	)		(523	)		457		(7	)		(806	)		(123	)		348		225
Income before income taxes		3,256			4,136			6,064		9,107			22,563			4,799			5,838		10,637
Income tax expense		1,388			1,680			2,561		2,033			7,662			1,704			2,011		3,715
Net income	$	1,868		$	2,456		$	3,503	$	7,074		$	14,901		$	3,095		$	3,827	$	6,922
Net income per share:
Basic	$	0.11		$	0.14		$	0.20	$	0.39		$	0.85		$	0.17		$	0.20	$	0.37
Diluted		0.10			0.13			0.19		0.37			0.79			0.16			0.19		0.35
Shares used to compute net income per share:
Basic		17,320			17,445			17,524		17,956			17,563			18,417			18,707		18,563
Diluted		18,708			18,772			18,695		19,302			18,894			19,780			19,933		19,860

Condensed Consolidated Statements of Income - Non-GAAP
(in thousands, except per share amounts)
(unaudited)
	2010														2011
		Q1			Q2			Q3		Q4		Total				Q1			Q2	Total
Revenues:
Product	$	15,786		$	18,315		$	20,671	$	25,045		$	79,817		$	20,766		$	24,495	$	45,261
Recurring		15,932			16,323			16,595		19,978			68,828			20,805			22,082		42,887
Services		3,314			4,175			4,566		5,707			17,762			6,249			5,460		11,709
Total revenues		35,032			38,813			41,832		50,730			166,407			47,820			52,037		99,857
Costs of revenues:
Product		4,799			5,502			6,198		7,369			23,868			6,196			6,392		12,588
Recurring		3,392			3,983			4,234		5,155			16,764			5,177			5,710		10,887
Services		2,126			2,141			2,447		2,980			9,694			3,687			3,908		7,595
Total cost of revenues		10,317			11,626			12,879		15,504			50,326			15,060			16,010		31,070
Gross profit		24,715			27,187			28,953		35,226			116,081			32,760			36,027		68,787
Operating expenses:
Sales and marketing		10,028			11,162			11,774		12,878			45,842			13,765			14,887		28,652
Research and development		6,127			6,647			6,908		7,489			27,171			7,739			8,319		16,058
General and administrative		3,525			3,728			3,609		4,383			15,245			4,506			5,560		10,066
Total operating expenses		19,680			21,537			22,291		24,750			88,258			26,010			28,766		54,776
Operating income		5,035			5,650			6,662		10,476			27,823			6,750			7,261		14,011
Other income (expense):
Interest income, net		42			67			120		111			340			43			92		135
Other income (expense)		(775	)		(590	)		337		(118	)		(1,146	)		(166	)		256		90
Total other income (expense)		(733	)		(523	)		457		(7	)		(806	)		(123	)		348		225
Income before income taxes		4,302			5,127			7,119		10,469			27,017			6,627			7,609		14,236
Income tax expense		147			133			151		55			486			1,155			1,284		2,439
Net income	$	4,155		$	4,994		$	6,968	$	10,414		$	26,531		$	5,472		$	6,325	$	11,797
Net income per share:
Basic	$	0.24		$	0.29		$	0.40	$	0.58		$	1.51		$	0.30		$	0.34	$	0.64
Diluted		0.22			0.27			0.37		0.54			1.40			0.28			0.32		0.59
Shares used to compute net income per share:
Basic		17,320			17,445			17,524		17,956			17,563			18,417			18,707		18,563
Diluted		18,708			18,772			18,695		19,302			18,894			19,780			19,933		19,860

Supplemental Data
(Dollars in thousands)
	2010															2011
		Q1			Q2			Q3			Q4		Total				Q1			Q2		Total
Non-GAAP Adjustments:
Purchase accounting adjustments:
Increase to revenues:
Recurring	$	7		$	1		$	-		$	80		$	88		$	59		$	39		$	98
Services		2			1			1			-			4			31			17			48
Reduction of operating expenses:
Customer relationships		9			9			9			139			166			139			229			368
Technology		16			16			16			35			83			35			35			70
Non-compete agreements		-			-			-			45			45			45			45			90
Acquisition costs		-			-			-			89			89			201			131			332
Total purchase accounting adjustments	$	34		$	27		$	26		$	388		$	475		$	510		$	496		$	1,006
Stock-based compensation expense:
Costs of recurring revenues	$	31		$	60		$	68		$	68		$	227		$	105		$	103		$	208
Costs of services revenues		48			3			18			25			94			25			11			36
Sales and marketing		324			318			332			256			1,230			392			433			825
Research and development		298			298			285			297			1,178			408			395			803
General and administrative		311			285			326			328			1,250			388			333			721
Total	$	1,012		$	964		$	1,029		$	974		$	3,979		$	1,318		$	1,275		$	2,593
Non-cash income tax expense	$	1,241		$	1,547		$	2,410		$	1,978		$	7,176		$	549		$	727		$	1,276
Other Information:
Margins (GAAP):
Product		69.6	%		70.0	%		70.0	%		70.6	%		70.1	%		70.2	%		73.9	%		72.2	%
Recurring		78.5	%		75.2	%		74.1	%		73.8	%		75.3	%		74.5	%		73.6	%		74.1	%
Services		34.4	%		48.6	%		46.0	%		47.3	%		44.9	%		40.3	%		28.0	%		34.6	%
Overall		70.3	%		69.8	%		69.0	%		69.1	%		69.5	%		68.1	%		68.9	%		68.5	%
Year-over-year Revenue Growth (GAAP):
Product		20.7	%		10.6	%		32.5	%		38.5	%		26.0	%		31.5	%		33.7	%		32.7	%
Recurring		18.8	%		23.2	%		15.7	%		34.4	%		23.2	%		30.3	%		35.1	%		32.7	%
Services		10.7	%		35.0	%		41.6	%		91.3	%		44.5	%		87.7	%		30.4	%		55.8	%
Overall		18.8	%		18.0	%		26.1	%		41.2	%		26.6	%		36.3	%		33.9	%		35.0	%
Orders:
Over $1 million		3			2			9			5			19			3			5			8
Between $250,000 and $1 million		11			18			16			26			71			24			27			51
Number of new customers		71			62			48			77			258			65			81			146
Average new customer order:
Overall	$	135		$	178		$	318		$	225		$	206		$	275		$	245		$	256
Cloud-based		535			446			617			139			401			488			282			404