Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of collaboration, communications and customer engagement software and cloud services, has announced financial results for the first quarter ended March 31, 2015.

“We hit our marks in the first quarter and expect to continue doing so for the year,” said Dr. Donald E. Brown, Interactive Intelligence founder and CEO. “In addition to steady growth in revenues from our cloud solutions, we saw improved efficiencies in our cloud delivery operations, increased sales to new customers, growth in the number of large transactions, healthy expansion sales, and an up-tick in orders for our on-premises technology.

“The launch in March of our new PureCloud Collaborate℠ offering was enthusiastically received. We are proceeding with additional rollouts that extend this new PureCloud” multitenant platform as capabilities for unified communications and customer engagement are set for release in the next ninety days. Based on the large and growing pipeline of opportunities globally, we are reaffirming our guidance for contracted annual recurring revenue growth of 40 percent for 2015.

“Our strategy is to meet the developing demand for integrated business collaboration, communications and customer engagement solutions. We’ve been successfully gaining share in the contact center market for years. Now we’re moving aggressively to also pursue adjacent opportunities that we believe will enable us to significantly expand our total addressable market. Our approach, however, will remain the same: develop superior innovative technology and continually build the capacity of a global sales and support network,” Brown concluded.

First-Quarter 2015 Financial Highlights:

  • Revenues: Total revenues were $89.5 million, an increase of 13 percent from the 2014 first quarter. Recurring revenues, which include cloud subscriptions and support fees from on-premises licenses, increased 25 percent to $54.2 million and accounted for 61 percent of total revenues, up from 55 percent last year. Revenues from cloud subscriptions were $21.0 million, an increase of 61 percent from $13.1 million in the first quarter of 2014. Licenses and hardware revenues were $21.6 million and services revenues $13.6 million, compared to $22.8 million and $13.2 million, respectively, in the same quarter last year.
  • Orders: During the first quarter of 2015, Interactive Intelligence added 61 new customers, including 26 new cloud customers, compared to 54 new customers during the first quarter of last year. Contracts signed over $250,000 increased to 40 in the first quarter of 2015 from 34 in the first quarter of last year. Contracted annual recurring revenue for cloud contracts was down year-over-year because of two very large orders received in the 2014 first quarter. Excluding these two contracts, growth in contracted annual recurring revenue was 44 percent year-over-year. Orders for on-premises licenses increased by 20 percent from the same quarter last year.
  • Operating Loss: GAAP operating loss was $4.8 million in the first quarters of 2015 and 2014. Non-GAAP* operating loss was $1.1 million, compared to a loss of $1.0 million in the same quarter last year.
  • Net Loss: GAAP net loss was $3.5 million, or $0.16 per diluted share based on 21.4 million weighted average diluted shares outstanding, compared to GAAP net loss of $2.6 million, or $0.12 per diluted share based on 20.7 million weighted average diluted shares outstanding in the same quarter of 2014. The first quarter 2015 GAAP results included certain non-recurring tax credits of $1.8 million.

    Non-GAAP net loss was $863,000, or $0.04 per diluted share for the first quarter, compared to a non-GAAP net loss of $393,000, or $0.02 per diluted share, in the same quarter last year. Pro forma income taxes are based on a long-term projected effective tax rate of 35 percent.
  • Balance sheet: As of March 31, 2015, the company had cash and cash equivalents and investments of $64.9 million, up from $61.7 million as of Dec. 31, 2014. Total deferred revenue increased to $111.6 million from $110.7 million at the end of last year.
  • Cash Flows: The company generated $13.3 million from operating activities in the first quarter, compared to $5.3 million in the 2014 quarter. Capital expenditures totaled $6.3 million, primarily for office space expansion, office equipment, and data center infrastructure, and $5.6 million of PureCloud℠ development costs were capitalized.

* 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.”

Additional First-Quarter 2015 and Recent Highlights:

  • The company launched PureCloud Collaborate℠, new collaboration cloud services designed to reduce costs, increase productivity and improve the user experience.
  • Interactive Intelligence featured in eWEEK, No Jitter and TheStreet.
  • Interactive Intelligence expanded its presence in Canada with the opening of an office in Toronto and a data center in Montreal.

The company will host a conference call today 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, 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 (Nasdaq: ININ) is a global provider of enterprise-grade collaboration, communications and customer engagement software and cloud services that help customers improve service, increase productivity and reduce costs. Backed by a 21-year history of industry firsts, 22 patents and more than 6,000 global customer deployments, Interactive offers customers a fast return on investment, along with robust reliability and security. The company gives even the largest organizations an alternative to unproven solutions from start-ups and inflexible solutions from legacy vendors. Interactive has been among Software Magazine’s Top 500 Global Software and Services Suppliers for 14 consecutive years, has received Frost & Sullivan’s Company of the Year Award for five consecutive years, and is one of Mashable’s 2014 Seven Best Tech Companies to Work For. 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, non-cash expense related to establishing the valuation allowance for our deferred tax assets, and adjustment 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 expenses related to the valuation allowance for our deferred tax assets 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 and amortization of intangibles related to acquisitions 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, expense related to the valuation allowance for our deferred tax assets 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 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 and sensitive customer information adequately; to improve the company’s brand and name recognition; 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.

Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
   
 
Three Months Ended
March 31,
2015 2014
 
Revenues:
Recurring $ 54,212 $ 43,409
Licenses and hardware 21,621 22,846
Services   13,642     13,193  
Total revenues   89,475     79,448  
Costs of revenues (1)(2):
Costs of recurring 18,744 14,058
Costs of licenses and hardware 6,529 6,833
Costs of services   11,251     10,517  
Total costs of revenues   36,524     31,408  
Gross profit   52,951     48,040  
Operating expenses (1)(2):
Sales and marketing 31,109 28,155
Research and development 13,837 13,799
General and administrative   12,776     10,899  
Total operating expenses   57,722     52,853  
Operating loss (4,771 ) (4,813 )
Other income (expense):
Interest income, net 148 282
Other expense   (327 )   (196 )
Total other income (expense)   (179 )   86  
Loss before income taxes (4,950 ) (4,727 )
Income tax benefit   1,491     2,163  
Net loss $ (3,459 ) $ (2,564 )
 
Net loss per share:
Basic $ (0.16 ) $ (0.12 )
Diluted (0.16 ) (0.12 )
 
Shares used to compute net loss per share:
Basic 21,447 20,689
Diluted 21,447 20,689
 
(1) Amounts include amortization of purchased intangibles from business combinations, as follows:
Costs of licenses and hardware $ 177 $ 49
General and administrative   449     472  
Total intangible amortization expense $ 626   $ 521  
 
(2) Amounts include stock-based compensation expense, as follows:
Costs of recurring revenues $ 454 $ 307
Costs of services revenues 129 106
Sales and marketing 561 1,096
Research and development 819 954
General and administrative   1,030     777  
Total stock-based compensation expense $ 2,993   $ 3,240  
 

Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
(unaudited)

 
Three Months Ended
March 31,
2015   2014
 
GAAP recurring revenue gross profit, as reported $ 35,468 $ 29,351
Purchase accounting adjustments 3 5
Non-cash stock-based compensation expense   454     307  
Non-GAAP recurring revenue gross profit $ 35,925   $ 29,663  
Non-GAAP recurring revenue gross margin 66.3 % 68.3 %
 
GAAP licenses and hardware revenue gross profit, as reported $ 15,092 $ 16,013
Acquired technology   177     49  
Non-GAAP licenses and hardware revenue gross profit $ 15,269   $ 16,062  
Non-GAAP licenses and hardware revenue gross margin 70.6 % 70.3 %
 
GAAP services revenue gross profit as reported $ 2,391 $ 2,676
Non-cash stock-based compensation expense   129     106  
Non-GAAP services revenue gross profit $ 2,520   $ 2,782  
Non-GAAP services revenue gross margin 18.5 % 21.1 %
 
GAAP Gross Profit, as reported $ 52,951 $ 48,040
Revenue adjustments 3 5
Acquired technology 177 49
Non-cash stock-based compensation expense   583     413  
Non-GAAP gross profit $ 53,714   $ 48,507  
Non-GAAP gross margin 60.0 % 61.1 %
 
GAAP Operating loss, as reported $ (4,771 ) $ (4,813 )
Purchase accounting adjustments 629 526
Non-cash stock-based compensation expense   2,993     3,240  
Non-GAAP operating loss $ (1,149 ) $ (1,047 )
Non-GAAP operating margin   -1.3 %   -1.3 %
 
GAAP Net loss, as reported (3,459 )

 

(2,564 )
Purchase accounting adjustments 629 526
Non-cash stock-based compensation expense 2,993 3,240
Non-GAAP income tax expense adjustment   (1,026 )   (1,595 )
Non-GAAP net loss $ (863 ) $ (393 )
 
GAAP Diluted loss per share, as reported $ (0.16 ) $ (0.12 )
Purchase accounting adjustments 0.03 0.02
Non-cash stock-based compensation expense 0.14 0.16
Non-GAAP income tax expense adjustment   (0.05 )   (0.08 )
Non-GAAP diluted loss per share $ (0.04 ) $ (0.02 )
 
Interactive Intelligence Group, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
   
Three Months Ended
March 31,
2015 2014
Reconciliation of Net Loss to Adjusted EBITDA
Net loss $ (3,459 )

 

$ (2,564 )
Depreciation 4,736 3,402
Amortization 626 521
Interest income, net (148 ) (282 )
Income tax benefit (1,491 )

 

(2,163 )
Stock-based compensation expense 2,993 3,240
Acquisition-related expenses 1 -
Other expense   327     196  
Adjusted EBITDA $ 3,585  

 

$ 2,350  
 
Interactive Intelligence Group, Inc.
Comprehensive Loss
(in thousands)
(unaudited)
   
Three Months Ended
March 31,
2015 2014
 
Net loss $ (3,459 ) $ (2,564 )
Other comprehensive loss:
Foreign currency translation adjustment (3,262 ) 559
Net unrealized investment gain (loss) - net of tax   59     (17 )

Comprehensive loss

 $ (6,662 )

 

$ (2,022 )
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
   
 
March 31, December 31,
2015 2014
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 54,277 $ 36,168
Short-term investments 6,169 20,041
Accounts receivable, net 74,988 87,413
Prepaid expenses 29,295 29,417
Other current assets   15,706     14,655  
Total current assets 180,435 187,694
Long-term investments 4,497 5,495
Property and equipment, net 45,755 44,785
Capitalized software, net 39,344 33,598
Goodwill 42,429 43,732
Intangible assets, net 15,615 16,517
Other assets, net   6,741     6,902  
Total assets $ 334,816   $ 338,723  
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 10,435 $ 10,236
Accrued liabilities 15,843 18,299
Accrued compensation and related expenses 17,078 19,211
Deferred licenses and hardware revenues 6,252 5,945
Deferred recurring revenues 75,584 76,647
Deferred services revenues   9,469     9,925  
Total current liabilities 134,661 140,263
Long-term deferred revenues 20,327 18,158
Deferred tax liabilities, net 2,277 2,437
Other long-term liabilities   7,760     7,135  
Total liabilities   165,025     167,993  
 
Shareholders' equity:
Common stock 215 213
Additional paid-in-capital 202,412 196,691
Accumulated other comprehensive loss (8,764 ) (5,561 )
Accumulated deficit   (24,072 )   (20,613 )
Total shareholders' equity   169,791     170,730  
Total liabilities and shareholders' equity $ 334,816   $ 338,723  
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
   
Three Months Ended
March 31,
2015 2014
 
Operating activities:
Net loss $ (3,459 ) $ (2,564 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 4,736 3,402
Amortization 626 521
Other non-cash items (1,352 ) (96 )
Stock-based compensation expense 2,993 3,240
Excess tax benefit from stock-based payment arrangements - (814 )
Deferred income taxes (160 ) (2,194 )
Amortization (accretion) of investment premium (discount) 124 (289 )
Loss on disposal of fixed assets 5 29
Changes in operating assets and liabilities:
Accounts receivable 12,425 9,655
Prepaid expenses 122 (5,680 )
Other current assets (1,051 ) 554
Accounts payable 199 2,444
Accrued liabilities (1,483 ) 2,309
Accrued compensation and related expenses (2,133 ) (4,185 )
Deferred licenses and hardware revenues 2,174 564
Deferred recurring revenues (1,199 ) (883 )
Deferred services revenues (18 ) (119 )
Other assets and liabilities   785     (610 )
Net cash provided by operating activities   13,334     5,284  
 
Investing activities:
Sales of available-for-sale investments 14,805 14,385
Purchases of available-for-sale investments - (25,135 )
Purchases of property and equipment (6,260 ) (8,144 )
Capitalized software (5,872 ) (2,466 )
Unrealized loss on investment   -     15  
Net cash provided by (used in) investing activities   2,673     (21,345 )
 
Financing activities:
Proceeds from stock options exercised 1,497 3,701
Proceeds from issuance of common stock 388 269
Tax withholding on restricted stock awards (2,306 ) (2,614 )
Issuance of retirement plan shares 2,523 -
Excess tax benefit from stock-based payment arrangements   -     814  
Net cash provided by financing activities   2,102     2,170  
Net increase (decrease) in cash and cash equivalents 18,109 (13,891 )
Cash and cash equivalents, beginning of period   36,168     65,881  
Cash and cash equivalents, end of period $ 54,277   $ 51,990  
 
Cash paid during the period for:
Interest $ - $ 7
Income taxes 120 363
 
Other non-cash item:
Purchases of property and equipment payable at end of period 746 640
 

ININ-G