Interactive Intelligence Group Inc. (Nasdaq: ININ), a global leader of cloud services for customer engagement, communications and collaboration, has announced financial results for its fourth quarter and fiscal year ended December 31, 2015.

“The fourth quarter marked the start of the next chapter in our company’s history, as two dozen organizations are now paying PureCloud℠ customers,” said Dr. Donald Brown, Interactive Intelligence founder and CEO. “Demand for PureCloud℠ services grew rapidly during the quarter, and this new cloud platform will now be our primary offering in the customer engagement market.”

Brown added, “We moved to the cloud with our single-tenant CaaS solution, which we’ll continue selling to high-end customers with particularly complex requirements through multi-year agreements. With PureCloud℠, we’re taking a different approach. This innovative cloud platform was designed as a set of stateless, independently load-balanced microservices running atop Amazon Web Services. PureCloud℠ has a comprehensive feature-set capable of delivering successful business outcomes for organizations of all types and sizes. Our sales efforts will encourage the use of monthly contracts that enable organizations to quickly and easily license, configure and expand their implementations over time.”

Brown concluded, “Looking forward, we’re focused on becoming a high-velocity cloud company, not only developing new technology at a faster pace, but also accelerating every aspect of our go-to-market and delivery processes to optimize the opportunity in front of us. We’ll continue to work to strengthen our position as the only provider of world-class customer engagement technology for multi-tenant cloud, private cloud, and on-premises implementations.”

Fourth-Quarter 2015 Financial Highlights:

  • Revenues: Total revenues were $107.7 million, an increase of 16% from $92.6 million in the fourth quarter of 2014. Recurring revenues, which include cloud subscriptions and support fees from on-premises licenses, increased 24% to $63.4 million and accounted for 59% of total revenues. Revenues from cloud subscriptions grew 53% to $29.0 million, from $18.9 million in the same quarter of 2014. License and hardware revenues were $27.7 million and services revenues were $16.6 million, compared to $27.0 million and $14.3 million, respectively, in the 2014 fourth quarter.
  • Operating Income/(Loss): GAAP operating loss was $(0.7) million, compared to operating income of $2.0 million in the fourth quarter of 2014. Non-GAAP* operating income was $4.5 million, compared to $5.6 million in the same quarter of 2014.
  • Net Income/(Loss): GAAP net loss was $(3.5) million, or $(0.16) per diluted share based on 21.7 million weighted average diluted shares outstanding, compared to GAAP net loss of $(29.9) million, or $(1.42) per diluted share based on 21.0 million weighted average diluted shares outstanding in the same quarter of 2014. The GAAP net loss during the fourth quarter of 2014 included a non-cash income tax expense of $33.4 million related to the establishment of a valuation allowance for deferred tax assets.

    Non-GAAP net income was $2.6 million, or $0.12 per diluted share, compared to $5.5 million, or $0.26 per diluted share in the same quarter of 2014.
  • Balance sheet: Cash, cash equivalents and investments were $189.5 million as of December 31, 2015, compared to $179.7 million at the end of the 2015 third quarter, and $61.7 million as of December 31, 2014. Total deferred revenues were $135.4 million as of December 31, 2015, up 12% from $121.2 million at the end of the 2015 third quarter, and up 22% from $110.7 million at the end of 2014.
  • Cash Flows: The company generated $13.0 million of cash from operating activities during the fourth quarter of 2015, compared to $1.3 million in the 2014 fourth quarter. Capital expenditures totaled $3.1 million, primarily for IT infrastructure to support the company’s product offerings.

Fiscal Year 2015 Financial Highlights:

  • Revenues: Total revenues were $390.9 million, an increase of 15% from $341.3 million in 2014. Recurring revenues, which include cloud subscriptions and support fees from on-premises licenses, increased 23% to $230.7 million and accounted for 59% of total revenues. Revenues from cloud subscriptions grew 62% to $97.9 million, from $60.5 million in 2014. License and hardware revenues were $99.0 million and services revenues were $61.2 million, compared to $99.2 million and $54.7 million, respectively, in 2014.
  • Operating Income/(Loss): GAAP operating loss was $(15.4) million, compared to an operating loss of $(17.8) million in 2014. Non-GAAP operating income was $3.3 million, compared to a non-GAAP operating loss of $(1.5) million in 2014.
  • Net Income/(Loss): GAAP net loss was $(21.8) million, or $(1.01) per diluted share based on 21.6 million weighted average diluted shares outstanding, compared to GAAP net loss of $(41.4) million, or $(1.98) per diluted share based on 20.9 million weighted average diluted shares outstanding in 2014. The GAAP net loss in 2014 included a non-cash income tax expense of $33.4 million related to the establishment of a valuation allowance for deferred tax assets.

    Non-GAAP net income was $1.1 million, or $0.06 per diluted share, compared to $1.7 million, or $0.09 per diluted share in 2014.
  • Cash Flows: The company generated $25.6 million of cash from operating activities during 2015, compared to using $1.7 million in 2014. Capital expenditures totaled $17.6 million in 2015, primarily for IT infrastructure to support the company’s product offerings.

* 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.”

The company will host a conference call today at 4:30 p.m. Eastern time (EST) featuring Dr. Brown and the company's CFO, Ashley Vukovits. 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 fourth-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 leader of cloud services for customer engagement, communications and collaboration designed to help businesses worldwide improve service, increase productivity and reduce costs. Backed by a 20-plus year history of industry firsts, 100-plus patent applications, and more than 6,000 global customer deployments, Interactive offers customers fast return on investment, along with robust reliability, scalability and security. It's also the only company recognized by the top global industry analyst firm as a leader in both the cloud and on-premises customer engagement markets. 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 the amortization of debt discounts and issuance costs, and adjust 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, expense related to the valuation allowance for our deferred tax assets and amortization of debt discounts and issuance costs 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, amortization of intangibles related to acquisitions and amortization of debt discounts and issuance costs 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, amortization of debt discounts and issuance costs, 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 Year Ended
December 31, December 31,
2015   2014 2015   2014
Revenues:
Recurring $ 63,411 $ 51,252 $ 230,697 $ 187,373
License and hardware 27,702 27,042 99,001 99,200
Services   16,574     14,262     61,164     54,723  
Total revenues   107,687     92,556     390,862     341,296  
Costs of revenues (1)(2):
Costs of recurring 22,524 17,721 82,147 63,917
Costs of license and hardware 8,141 7,457 26,999 28,089
Costs of services   10,391     10,691     44,474     44,056  
Total costs of revenues   41,056     35,869     153,620     136,062  
Gross profit   66,631     56,687     237,242     205,234  
Operating expenses (1)(2):
Sales and marketing 32,853 29,584 130,237 119,143
Research and development 22,131 14,249 73,198 59,482
General and administrative   12,345     10,844     49,219     44,388  
Total operating expenses   67,329     54,677     252,654     223,013  
Operating (loss) income   (698 )   2,010     (15,412 )   (17,779 )
Other (expense) income:
Interest (expense) income, net (1,704 ) 180 (4,109 ) 1,011
Other income (expense)   51     (62 )   (932 )   (727 )
Total other (expense) income   (1,653 )   118     (5,041 )   284  
(Loss) Income before income taxes (2,351 ) 2,128 (20,453 ) (17,495 )
Income tax expense   (1,181 )   (31,991 )   (1,374 )   (23,872 )
Net loss $ (3,532 ) $ (29,863 ) $ (21,827 ) $ (41,367 )
Net loss per share:
Basic $ (0.16 ) $ (1.42 ) $ (1.01 ) $ (1.98 )
Diluted (0.16 ) (1.42 ) (1.01 ) (1.98 )
Shares used to compute net loss per share:
Basic 21,732 21,015 21,609 20,930
Diluted     21,732       21,015       21,609       20,930  
(1) Amounts include amortization of purchased intangibles from business combinations, as follows:
Costs of license and hardware $ 183 $ 177 $ 715 $ 540
General and administrative   423     461     1,753     1,881  
Total intangible amortization expense $ 606   $ 638   $ 2,468   $ 2,421  
(2) Amounts include stock-based compensation expense, as follows:
Costs of recurring revenues $ 358 $ 286 $ 1,828 $ 1,345
Costs of services revenues 241 94 717 432
Sales and marketing 1,045 696 3,959 4,077
Research and development 1,828 980 5,273 4,027
General and administrative   1,075     925     4,386     3,378  
Total stock-based compensation expense $ 4,547   $ 2,981   $ 16,163   $ 13,259  
 
Interactive Intelligence Group, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
(unaudited)
   
Three Months Ended Year Ended
December 31, December 31,
2015   2014 2015   2014
GAAP recurring revenue gross profit, as reported $ 40,887 $ 33,531 $ 148,550 $ 123,456
Purchase accounting adjustments 2 3 10 17
Non-cash stock-based compensation expense   358     286     1,828     1,345  
Non-GAAP recurring revenue gross profit $ 41,247   $ 33,820   $ 150,388   $ 124,818  
Non-GAAP recurring revenue gross margin 65.0 % 66.0 % 65.2 % 66.6 %
 
GAAP license and hardware revenue gross profit, as reported $ 19,561 $ 19,585 $ 72,002 $ 71,111
Acquired technology   183     177     715     540  
Non-GAAP license and hardware revenue gross profit $ 19,744   $ 19,762   $ 72,717   $ 71,651  
Non-GAAP license and hardware revenue gross margin 71.3 % 73.1 % 73.5 % 72.2 %
 
GAAP services revenue gross profit, as reported $ 6,183 $ 3,571 $ 16,690 $ 10,667
Non-cash stock-based compensation expense   241     94     717     432  
Non-GAAP services revenue gross profit $ 6,424   $ 3,665   $ 17,407   $ 11,099  
Non-GAAP services revenue gross margin 38.8 % 25.7 % 28.5 % 20.3 %
 
GAAP gross profit, as reported $ 66,631 $ 56,687 $ 237,242 $ 205,234
Purchase accounting adjustments 2 3 10 17
Acquired technology 183 177 715 540
Non-cash stock-based compensation expense   599     380     2,545     1,777  
Non-GAAP gross profit $ 67,415   $ 57,247   $ 240,512   $ 207,568  
Non-GAAP gross margin 62.6 % 61.8 % 61.5 % 60.8 %
 
GAAP operating (loss) income, as reported $ (698 ) $ 2,010 $ (15,412 ) $ (17,779 )
Purchase accounting adjustments 631 643 2,502 3,050
Non-cash stock-based compensation expense   4,547     2,981     16,163     13,259  
Non-GAAP operating income (loss) $ 4,480   $ 5,634   $ 3,253   $ (1,470 )
Non-GAAP operating margin   4.2 %   6.1 %   0.8 %   (0.4 )%
 
GAAP net loss, as reported $ (3,532 ) $ (29,863 ) $ (21,827 ) $ (41,367 )
Purchase accounting adjustments 631 643 2,502 3,050
Non-cash stock-based compensation expense 4,547 2,981 16,163 13,259
Amortization of debt discount and issuance costs 1,556 — 3,603 —
Deferred tax asset valuation allowance — 33,420 — 33,420
Non-GAAP income tax expense adjustment   (606 )   (1,649 )   648     (6,665 )
Non-GAAP net income $ 2,596   $ 5,532   $ 1,089   $ 1,697  
 
GAAP diluted loss per share, as reported $ (0.16 ) $ (1.42 ) $ (1.01 ) $ (1.98 )
Purchase accounting adjustments 0.03 0.03 0.12 0.15
Non-cash stock-based compensation expense 0.21 0.14 0.75 0.63
Amortization of debt discount and issuance costs 0.07 — 0.17 —
Deferred tax asset valuation allowance — 1.59 — 1.60
Non-GAAP income tax expense adjustment   (0.03 )   (0.08 )   0.03     (0.31 )
Non-GAAP diluted income per share $ 0.12   $ 0.26   $ 0.06   $ 0.09  
 
Interactive Intelligence Group, Inc.
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
(unaudited)
     
Three Months Ended Year Ended
December 31, December 31,
2015   2014 2015 2014
Reconciliation of Net Loss to Adjusted EBITDA
Net loss $ (3,532 ) $ (29,863 ) $ (21,827 ) $ (41,367 )
Depreciation 4,323 4,411 16,909 15,787
Amortization 2,989 638 8,653 2,421
Interest expense (income), net 1,704 (180 ) 4,109 (1,011 )
Income tax expense 1,181 31,991 1,374 23,872
Stock-based compensation expense 4,547 2,981 16,163 13,259
Acquisition-related expenses 23 2 24 612
Other (income) expense   (51 )   62     932     727  
Adjusted EBITDA $ 11,184   $ 10,042   $ 26,337   $ 14,300  
 
Interactive Intelligence Group, Inc.
Comprehensive Loss
(in thousands)
(unaudited)
     
Three Months Ended Year Ended
December 31, December 31,
2015   2014 2015 2014
Net loss $ (3,532 ) $ (29,863 ) $ (21,827 ) $ (41,367 )
Other comprehensive loss:
Foreign currency translation adjustment (587 ) (1,760 ) (5,611 ) (3,745 )
Net unrealized investment loss - net of tax   (175 )   (19 )   (72 )   (140 )
Comprehensive loss $ (4,294 ) $ (31,642 ) $ (27,510 ) $ (45,252 )
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
   
December 31, December 31,
2015 2014
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 94,808 $ 36,168
Short-term investments 64,182 20,041
Accounts receivable, net 106,950 87,413
Prepaid expenses 32,709 29,417
Other current assets   13,264     14,655  
Total current assets 311,913 187,694
Long-term investments 30,503 5,495
Property and equipment, net 44,837 44,785
Capitalized software, net 43,783 33,598
Goodwill 41,848 43,732
Intangible assets, net 14,427 16,517
Other assets, net   6,222     6,902  
Total assets $ 493,533   $ 338,723  
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 10,571 $ 10,236
Accrued liabilities 17,157 18,299
Accrued compensation and related expenses 18,910 19,211
Deferred license and hardware revenues 7,823 5,945
Deferred recurring revenues 92,773 76,647
Deferred services revenues   14,979     9,925  
Total current liabilities 162,213 140,263
Convertible notes 118,022 —
Long-term deferred revenues 19,834 18,158
Deferred tax liabilities, net 2,143 2,437
Other long-term liabilities   7,291     7,135  
Total liabilities   309,503     167,993  
Shareholders' equity:
Common stock 218 213
Additional paid-in-capital 237,496 196,691
Accumulated other comprehensive loss (11,244 ) (5,561 )
Accumulated deficit   (42,440 )   (20,613 )
Total shareholders' equity   184,030     170,730  
Total liabilities and shareholders' equity $ 493,533   $ 338,723  
 
Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Year Ended
December 31,
2015   2014
(unaudited)
Operating activities:
Net loss $ (21,827 ) $ (41,367 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 16,909 15,787
Amortization 8,653 2,421
Other non-cash items (2,221 ) (1,033 )
Stock-based compensation expense 16,163 13,259
Deferred income taxes (294 ) 23,550
Amortization (accretion) of investment premium (discount) (750 ) 523
Loss on disposal of fixed assets 62 76
Amortization of debt issuance costs 401 —
Amortization of debt discount 3,203 —
Changes in operating assets and liabilities:
Accounts receivable (19,537 ) (6,999 )
Prepaid expenses (3,261 ) (7,374 )
Other current assets 1,472 (1,257 )
Accounts payable 335 1,509
Accrued liabilities 1,601 1,371
Accrued compensation and related expenses (301 ) 1,717
Deferred licenses and hardware revenues 1,999 (4,355 )
Deferred recurring revenues 15,878 17
Deferred services revenues 6,857 (943 )
Other assets and liabilities   290     1,382  
Net cash provided by (used in) operating activities   25,632     (1,716 )
Investing activities:
Sales of available-for-sale investments 26,659 48,750
Purchases of available-for-sale investments (95,131 ) (32,967 )
Purchases of property and equipment (17,579 ) (21,363 )
Capitalized software (15,284 ) (20,417 )
Acquisitions, net of cash acquired (733 ) (9,173 )
Unrealized loss (gain) on investment   1     (33 )
Net cash used in investing activities   (102,067 )   (35,203 )
Financing activities:
Proceeds from issuance of convertible debt 150,000 —
Payment for debt issuance costs (4,854 ) —
Payment for capped call premiums (12,750 ) —
Principal payments on capital lease obligations (89 ) —
Proceeds from stock options exercised 4,704 8,610
Proceeds from issuance of common stock 1,595 1,320
Tax withholding on restricted stock awards   (3,531 )   (2,724 )
Net cash provided by financing activities   135,075     7,206  
Net increase (decrease) in cash and cash equivalents 58,640 (29,713 )
Cash and cash equivalents, beginning of period   36,168     65,881  
Cash and cash equivalents, end of period $ 94,808   $ 36,168  
Cash paid during the period for:
Interest $ 979 $ —
Income taxes 1,312 2,410
Other non-cash item:
Purchases of property and equipment payable at end of period 116 1,761

ININ-G