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

EXHIBIT 99.1

Interactive Intelligence Reports 2011 Third-Quarter Operating Results

Revenues increase 25 percent and cloud-based contracts more than double

INDIANAPOLIS, Oct. 24, 2011 -- Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of unified IP business communications solutions, has announced operating results for the three and nine months ended Sept. 30, 2011.

The company reported revenues of $52.1 million, an increase of 25 percent over the third quarter of 2010. On a generally accepted accounting principles (GAAP) basis, 2011 third-quarter operating income was $4.7 million, net income was $3.3 million, and diluted earnings per share (EPS) was $0.16, compared to operating income of $5.6 million, net income of $3.5 million, and EPS of $0.19 in the same quarter last year.

On a non-GAAP* basis, operating income was $6.6 million, net income was $5.8 million, and EPS was $0.29 in the third quarter of 2011, compared to operating income of $6.7 million, net income of $7.0 million, and EPS of $0.37 in the third quarter of 2010.

Non-GAAP operating income, net income, and EPS in the 2011 third quarter excluded purchase accounting adjustments of $476,000, or EPS of $0.02; charges for stock-based compensation of $1.4 million, or EPS of $0.07; and non-cash income tax expense of $636,000, or EPS of $0.04. For the third quarter of 2010 these results excluded: charges for stock-based compensation of $1.0 million, or EPS of $0.06; and non-cash income tax expense of $2.4 million, or EPS of $0.12.

Cloud-based orders received during the quarter more than doubled from the 2010 third quarter, increasing to 31 percent of total orders from 18 percent in the same quarter last year. Cloud-based transactions were entered into with 23 customers, up from nine in the 2010 third quarter. If the mix of premise- and cloud-based contracts had been the same in the third quarter of 2011 as they were in the third quarter of 2010, financial results for the third quarter of 2011 would have shown increases in reported results of approximately $4 million in revenues, $3 million in operating income, and $0.15 in EPS.

"There is clearly a market shift toward cloud-based contact centers and we are focused on extending our leadership position in the high end of this segment,” said Interactive Intelligence founder and CEO, Dr. Donald E. Brown. “We manage our business based on winning a customer and the long-term value of that customer. We look beyond the short-term revenue recognition effects of these transactions as we continue the strategy of building an increasing recurring revenue stream.

“We signed the largest deal in the company’s history during this third quarter, a $10 million five-year cloud contract with a peak of 4,200 agent seats and additional opportunities for expansion. We view this transaction with a recognized world-class vendor as yet another demonstration of both the breadth and architectural strength of our offering, particularly at the upper end of the market.”

Cash and investment balances as of Sept. 30, 2011 were $91.0 million. The company has no debt. During the quarter, the company used cash of $9.3 million to acquire CallTime Solutions, a reseller of the Interactive Intelligence solutions throughout Australia and New Zealand.

Deferred revenues increased to $65.7 million and unrecognized future cloud contracts increased to over $29.5 million at Sept. 30, 2011 from $62.1 million in recorded deferred revenues and $22.0 million in future cloud revenues at June 30, 2011.

Results for the first nine months of 2011 included:

-   Total revenues of $151.9 million, a 31 percent increase from $115.7 million in 2010.

-   GAAP operating income of $15.1 million, up from $14.3 million in 2010.

-   Non-GAAP operating income of $20.6 million, compared to $17.3 million in 2010.

-   GAAP net income of $10.2 million or EPS of $0.51, compared to $7.8 million, or EPS of $0.42 in 2010.

-   Non-GAAP net income of $17.6 million, or EPS of $0.88, compared to $16.1 million, or EPS of $0.86 in 2010.

For the first nine months of 2011, non-GAAP net income and EPS excluded charges for purchase accounting adjustment of $1.5 million, or EPS of $0.07; stock-based compensation of $4.0 million, or EPS of $0.20; and non-cash income tax expense of $1.9 million, or EPS of $0.10. For the first nine months of 2010, non-GAAP net income and EPS excluded charges for stock-based compensation of $3.0 million, or EPS of $0.16; and non-cash income tax expense of $5.2 million, or EPS of $0.28.

In the third quarter of 2011 research firm, Frost & Sullivan, honored Interactive Intelligence with its “Company of the Year, Contact Center Systems, North America, 2011” award.

Interactive Intelligence will host a conference call Oct. 24, 2011 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 third-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 Forbes Magazine’s 2011 Best Small Companies in America, and Software Magazine’s 2011 Top 500 Global Software and Services Suppliers. 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.

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				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenues:
Product	$	22,190	$	20,671	$	67,451	$	54,772
Recurring		24,185		16,595		66,974		48,842
Services		5,765		4,565		17,426		12,051
Total revenues		52,140		41,831		151,851		115,665
Costs of revenues:
Product		6,689		6,198		19,277		16,499
Recurring		6,479		4,302		17,574		11,768
Services		4,158		2,465		11,789		6,783
Amortization of intangible assets		35		16		105		48
Total cost of revenues		17,361		12,981		48,745		35,098
Gross profit		34,779		28,850		103,106		80,567
Operating expenses:
Sales and marketing		15,223		12,106		44,700		33,938
Research and development		9,243		7,193		26,104		20,563
General and administrative		5,326		3,935		16,445		11,784
Amortization of intangible assets		302		9		760		28
Total operating expenses		30,094		23,243		88,009		66,313
Operating income		4,685		5,607		15,097		14,254
Other income (expense):
Interest income, net		165		120		300		229
Other income (expense)		172		337		262		(1,028	)
Total other income (expense)		337		457		562		(799	)
Income before income taxes		5,022		6,064		15,659		13,455
Income tax expense		1,741		2,561		5,456		5,629
Net income	$	3,281	$	3,503	$	10,203	$	7,826
Net income per share:
Basic	$	0.17	$	0.20	$	0.55	$	0.45
Diluted		0.16		0.19		0.51		0.42
Shares used to compute net income per share:
Basic		18,816		17,524		18,648		17,431
Diluted		19,946		18,695		19,890		18,731

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,
	2011		2010		2011		2010
Net income, as reported	$	3,281	$	3,503	$	10,203	$	7,826
Purchase accounting adjustments:
Increase to revenues:
Recurring		64		-		162		8
Services		-		1		48		4
Reduction of operating expenses:
Customer Relationships		257		9		625		27
Technology		35		16		105		48
Non-compete agreements		45		-		135		-
Acquisition Costs		75		-		407		-
Total		476		26		1,482		87
Non-cash stock-based compensation expense:
Cost of recurring revenues		119		68		328		159
Cost of services revenues		36		18		71		69
Sales and marketing		458		332		1,283		974
Research and development		392		285		1,196		881
General and administrative		406		326		1,126		922
Total		1,411		1,029		4,004		3,005
Non-cash income tax expense		636		2,410		1,912		5,198
Non-GAAP net income	$	5,804	$	6,968	$	17,601	$	16,116
Operating income, as reported	$	4,685	$	5,607	$	15,097	$	14,254
Purchase accounting adjustments		476		26		1,482		87
Non-cash stock-based compensation expense		1,411		1,029		4,004		3,005
Non-GAAP operating income	$	6,572	$	6,662	$	20,583	$	17,346
Diluted EPS, as reported	$	0.16	$	0.19	$	0.51	$	0.42
Purchase accounting adjustments		0.02		0.00		0.07		0.00
Non-cash stock-based compensation expense		0.07		0.06		0.20		0.16
Non-cash income tax expense		0.04		0.12		0.10		0.28
Non-GAAP diluted EPS	$	0.29	$	0.37	$	0.88	$	0.86

Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
	September 30,			December 31,
	2011			2010
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,629		$	48,300
Short-term investments		44,162			37,582
Accounts receivable, net		43,020			36,130
Deferred tax assets, net		4,333			5,499
Prepaid expenses		12,292			7,456
Other current assets		4,258			4,989
Total current assets		132,694			139,956
Long-term investments		22,230			-
Property and equipment, net		13,898			10,336
Deferred tax assets, net		1,580			2,765
Goodwill		23,914			11,371
Intangible assets, net		15,171			11,001
Other assets, net		1,091			803
Total assets	$	210,578		$	176,232
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	16,017		$	16,364
Accrued compensation and related expenses		7,191			6,553
Deferred product revenues		5,826			3,350
Deferred services revenues		49,867			43,281
Total current liabilities		78,901			69,548
Long-term deferred revenues		9,963			7,420
Other long-term liabilities		350			-
Total liabilities		89,214			76,968
Shareholders' equity:
Preferred stock		-			-
Common stock		189			182
Additional paid-in-capital		115,841			103,837
Accumulated other comprehensive loss		(404	)		(290	)
Retained earnings (accumulated deficit)		5,738			(4,465	)
Total shareholders' equity		121,364			99,264
Total liabilities and shareholders' equity	$	210,578		$	176,232

Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
	Nine Months Ended
	September 30,
	2011			2010
Operating activities:
Net income	$	10,203		$	7,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other non-cash items		4,968			3,219
Stock-based compensation expense		4,004			3,002
Tax benefits from stock-based payment arrangements		(1,658	)		(4,528	)
Deferred income tax		828			(56	)
Accretion of investment income		(1,261	)		(407	)
Changes in operating assets and liabilities:		-			-
Accounts receivable		(4,011	)		(325	)
Prepaid expenses		(4,802	)		(1,778	)
Other current assets		623			(1,104	)
Other assets		(288	)		(82	)
Accounts payable and accrued liabilities		760			7,143
Accrued compensation and related expenses		(2,597	)		723
Deferred product revenues		2,445			(717	)
Deferred services revenues		7,410			4,309
Net cash provided by operating activities		16,624			17,225
Investing activities:
Sales of available-for-sale investments		55,596			15,565
Purchases of available-for-sale investments		(83,083	)		(34,678	)
Purchases of property and equipment		(7,439	)		(3,540	)
Acquisition, net of cash		(13,376	)		-
Net cash used in investing activities		(48,302	)		(22,653	)
Financing activities:
Proceeds from stock options exercised		5,962			1,830
Proceeds from issuance of common stock		387			261
Tax benefits from stock-based payment arrangements		1,658			4,528
Net cash provided by financing activities		8,007			6,619
Net increase (decrease) in cash and cash equivalents		(23,671	)		1,191
Cash and cash equivalents, beginning of period		48,300			48,497
Cash and cash equivalents, end of period	$	24,629		$	49,688
Cash paid during the period for:
Interest	$	2		$	1
Income taxes		2,539			716
Other non-cash item:
Purchases of property and equipment payable at end of period	$	14		$	22

Condensed Consolidated Statements of Income - GAAP
(in thousands, except per share amounts)
(unaudited)
	2010														2011
		Q1			Q2			Q3		Q4		Total				Q1			Q2		Q3	Total
Revenues:
Product	$	15,786		$	18,315		$	20,671	$	25,045		$	79,817		$	20,766		$	24,495	$	22,190	$	67,451
Recurring		15,925			16,322			16,595		19,898			68,740			20,746			22,043		24,185		66,974
Services		3,312			4,174			4,565		5,707			17,758			6,218			5,443		5,765		17,426
Total revenues		35,023			38,811			41,831		50,650			166,315			47,730			51,981		52,140		151,851
Costs of revenues:
Product		4,799			5,502			6,198		7,369			23,868			6,196			6,392		6,689		19,277
Recurring		3,423			4,043			4,302		5,223			16,991			5,282			5,813		6,479		17,574
Services		2,174			2,144			2,465		3,005			9,788			3,712			3,919		4,158		11,789
Amortization of intangibles		16			16			16		35			83			35			35		35		105
Total cost of revenues		10,412			11,705			12,981		15,632			50,730			15,225			16,159		17,361		48,745
Gross profit		24,611			27,106			28,850		35,018			115,585			32,505			35,822		34,779		103,106
Operating expenses:
Sales and marketing		10,352			11,480			12,106		13,134			47,072			14,157			15,320		15,223		44,700
Research and development		6,425			6,945			7,193		7,786			28,349			8,147			8,714		9,243		26,104
General and administrative		3,836			4,013			3,935		4,800			16,584			5,095			6,024		5,326		16,445
Amortization of intangibles		9			9			9		184			211			184			274		302		760
Total operating expenses		20,622			22,447			23,243		25,904			92,216			27,583			30,332		30,094		88,009
Operating income		3,989			4,659			5,607		9,114			23,369			4,922			5,490		4,685		15,097
Other income (expense):
Interest income, net		42			67			120		111			340			43			92		165		300
Other income (expense)		(775	)		(590	)		337		(118	)		(1,146	)		(166	)		256		172		262
Total other income (expense)		(733	)		(523	)		457		(7	)		(806	)		(123	)		348		337		562
Income before income taxes		3,256			4,136			6,064		9,107			22,563			4,799			5,838		5,022		15,659
Income tax expense		1,388			1,680			2,561		2,033			7,662			1,704			2,011		1,741		5,456
Net income	$	1,868		$	2,456		$	3,503	$	7,074		$	14,901		$	3,095		$	3,827	$	3,281	$	10,203
Net income per share:
Basic	$	0.11		$	0.14		$	0.20	$	0.39		$	0.85		$	0.17		$	0.20	$	0.17	$	0.55
Diluted		0.10			0.13			0.19		0.37			0.79			0.16			0.19		0.16		0.51
Shares used to compute net income per share:
Basic		17,320			17,445			17,524		17,956			17,563			18,417			18,707		18,816		18,563
Diluted		18,708			18,772			18,695		19,302			18,894			19,780			19,933		19,946		19,860

Supplemental Data
(Dollars in thousands)
Margins (GAAP):
Product		69.6	%		70.0	%		70.0	%		70.6	%		70.1	%		70.2	%		73.9	%		69.9	%		71.4	%
Recurring		78.5	%		75.2	%		74.1	%		73.8	%		75.3	%		74.5	%		73.6	%		73.2	%		73.8	%
Services		34.4	%		48.6	%		46.0	%		47.3	%		44.9	%		40.3	%		28.0	%		27.9	%		32.3	%
Overall		70.3	%		69.8	%		69.0	%		69.1	%		69.5	%		68.1	%		68.9	%		66.7	%		67.9	%
Year-over-year Revenue Growth (GAAP):
Product		20.7	%		10.6	%		32.5	%		38.5	%		26.0	%		31.5	%		33.7	%		7.3	%		97.8	%
Recurring		18.8	%		23.2	%		15.7	%		34.4	%		23.2	%		30.3	%		35.1	%		45.7	%		107.7	%
Services		10.7	%		35.0	%		41.6	%		91.3	%		44.5	%		87.7	%		30.4	%		26.3	%		132.8	%
Overall		18.8	%		18.0	%		26.1	%		41.2	%		26.6	%		36.3	%		33.9	%		24.6	%		105.7	%
Orders:
Over $1 million		3			2			9			5			19			3			5			3			11
Between $250,000 and $1 million		11			18			16			26			71			24			27			14			65
Number of new customers		71			62			48			77			258			65			81			54			200
Average new customer order:
Overall	$	135		$	178		$	318		$	225		$	206		$	275		$	245		$	316		$	272
Cloud-based		535			446			617			139			401			488			282			3,691			733

GAAP to Non-GAAP Reconciliation
(in thousands, except per share amounts)
(unaudited)
	2010										2011
		Q1		Q2		Q3		Q4	Total			Q1		Q2		Q3	Total
Net income, as reported	$	1,868	$	2,456	$	3,503	$	7,074	$	14,901	$	3,095	$	3,827	$	3,281	$	10,203
Purchase accounting adjustments:
Increase to revenues:
Recurring		7		1		-		80		88		59		39		64		162
Services		2		1		1		-		4		31		17		-		48
Reduction of operating expenses:
Customer Relationships		9		9		9		139		166		139		229		257		625
Technology		16		16		16		35		83		35		35		35		105
Non-compete agreements		-		-		-		45		45		45		45		45		135
Acquisition Costs		-		-		-		89		89		201		131		75		407
Total		34		27		26		388		475		510		496		476		1,482
Non-cash stock-based compensation expense:
Cost of recurring revenues		31		60		68		68		227		105		103		119		327
Cost of services revenues		48		3		18		25		94		25		11		36		72
Sales and marketing		324		318		332		256		1,230		392		433		458		1,283
Research and development		298		298		285		297		1,178		408		395		392		1,195
General and administrative		311		285		326		328		1,250		388		333		406		1,127
Total		1,012		964		1,029		974		3,979		1,318		1,275		1,411		4,004
Non-cash income tax expense		1,241		1,547		2,410		1,978		7,176		549		727		636		1,912
Non-GAAP net income	$	4,155	$	4,994	$	6,968	$	10,414	$	26,531	$	5,472	$	6,325	$	5,804	$	17,601
Operating income, as reported	$	3,989	$	4,659	$	5,607	$	9,114	$	23,369	$	4,922	$	5,490	$	4,685	$	15,097
Purchase accounting adjustments		34		27		26		388		475		510		496		476		1,482
Non-cash stock-based compensation expense		1,012		964		1,029		974		3,979		1,318		1,275		1,411		4,004
Non-GAAP operating income	$	5,035	$	5,650	$	6,662	$	10,476	$	27,823	$	6,750	$	7,261	$	6,572	$	20,583
Diluted EPS, as reported	$	0.10	$	0.13	$	0.19	$	0.37	$	0.79	$	0.16	$	0.19	$	0.16	$	0.51
Purchase accounting adjustments		0.00		0.00		0.00		0.03		0.03		0.03		0.02		0.02		0.07
Non-cash stock-based compensation expense		0.05		0.05		0.06		0.05		0.21		0.07		0.06		0.07		0.20
Non-cash income tax expense		0.07		0.08		0.12		0.10		0.37		0.02		0.04		0.04		0.10
Non-GAAP diluted EPS	$	0.22	$	0.26	$	0.37	$	0.55	$	1.40	$	0.28	$	0.31	$	0.29	$	0.88

Currency Component
(dollars in thousands)
Revenue:
Currency	Currency Component for the Quarter Ended September 30, 2011			Currency Exchange Rate into USD as of  September 30, 2011		Impact of 1% Change in Exchang Rate per  $100 million in Revenue
USD		79	%		-	$	-
Euro		11	%		1.3598		149,578
GBP		4	%		1.5628		62,512
AUD		3	%		0.9793		29,379
CAD		2	%		0.9684		19,368
Other		1	%	Insignificant			-
		100	%			$	260,837
Expense:
Currency	Currency Component for the Quarter Ended September 30, 2011			Currency Exchange Rate into USD as of  September 30, 2011		Impact of 1% Change in Exchange Rate per  $100 million in Revenue
USD		83	%		-	$	-
Euro		5	%		1.3598		67,990
GBP		4	%		1.5628		62,512
AUD		3	%		0.9793		29,379
CAD		2	%		0.9684		19,368
Other		3	%	Insignificant			-
		100	%			$	179,249