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TMCNet:  Interactive Intelligence Reports Fourth-Quarter and Full Year 2013 Financial Results

[January 29, 2014]

Interactive Intelligence Reports Fourth-Quarter and Full Year 2013 Financial Results

INDIANAPOLIS --(Business Wire)--

Interactive Intelligence Group Inc. (Nasdaq: ININ), a global provider of software and services designed to improve the customer experience, has announced financial results for the fourth quarter and full year ended Dec. 31, 2013.

"2013 was an excellent year for Interactive intelligence," said Interactive Intelligence founder and CEO, Dr. Donald Brown. "We significantly increased orders, revenues, earnings and cash, while continuing to gain share and recognition in the contact center market. More than ever, many of the world's largest companies are turning to us to deliver solutions that optimize the customer experience."

Brown added, "Looking forward, we are very optimistic about our position in the marketplace based on the breadth and strength of our offering. We remain committed to innovation, and plan to continue investing in research and development, as well as in our sales infrastructure. Based on our strong global pipeline of opportunities, we're expecting 2014 total order growth of 20 percent or more, which is on top of our better-than-expected 2013 order growth of 30 percent. In addition, we anticipate cloud-based total order growth to outpace that number, and to represent approximately 55 to 60 percent of total 2014 orders."

Fourth-Quarter 2013 Financial Highlights:

  • Revenues: Total revenues for the fourth quarter were $90.8 million, up 29 percent from the 2012 fourth quarter. Recurring revenues, including support fees from on-premises license agreements and fees from cloud-based customers increased 25 percent to $41.5 million and accounted for 46 percent of total revenues. Cloud-based revenues increased 61 percent to $10.6 million. Product revenues were $34.9 million, and services revenues were $14.4 million, compared to $27.2 million and $10.2 million, respectively, in the fourth quarter of 2012.
  • Orders: Cloud-based orders comprised 47 percent of total orders in the fourth quarter, up from 39 percent of total orders during the same period last year. Total orders for the fourth quarter decreased by 15 percent year-over-year due to the comparison to an exceptionally strong 2012 fourth quarter. The company signed 63 contracts over $250,000, including 15 over $1.0 million, compared to 68 orders over $250,000, including 19 over $1.0 million in the same quarter last year.
  • Total Deferred Revenues: Deferred revenues increased to $116.0 million, up from $91.9 million as of Dec. 31, 2012. In addition, the amount of unbilled future cloud-based revenues increased to $184.2 million from $89.6 million at the end of the fourth quarter of 2012. The combination of deferred revenues and future cloud-based revenues was $300.0 million, up 65 percent from $181.5 million as of Dec. 31, 2012.
  • Operating Income: GAAP operating income was $6.5 million for the fourth quarter, compared to $3.5 million in the fourth quarter of 2012. Non-GAAP* operating income was $9.3 million for the fourth quarter of 2013, with a non-GAAP operating margin of 10.2 percent, compared to $5.9 million and a non-GAAP operating margin of 8.4 percent in the fourth quarter of 2012. Both GAAP and non-GAAP operating income during the fourth quarter of 2013 include a $1.8 million reduction of expense related to the capitalization of development costs for internal use software as Interactive Intelligence continues to develop its cloud offering.
  • Income Taxes: Income tax expense for the fourth quarter was $2.9 million and resulted in an annual effective rate of 27 percent.
  • Net Income: GAAP net income for the fourth quarter was $3.5 million, or $0.17 per diluted share based on 21.4 million weighted average diluted shares outstanding. This compares to GAAP net income for the same quarter in 2012 of $2.3 million, or $0.11 per diluted share based on 20.3 million weighted average diluted shares outstanding.

    Non-GAAP net income for the fourth quarter was $5.6 million, or $0.26 per diluted share. This compares to non-GAAP net income of $5.7 million, or $0.28 per diluted share for the same quarter in 2012.
  • Cash, Cash Equivalents and Investments: Cash, cash equivalents and investments totaled $107.8 million as of Dec. 31, 2013, up from $80.6 at the end of 2012.

Full Year 2013 Financial Highlights:

  • Revenues: Total revenues were $318.2 million, an increase of 34 percent over 2012. Recurring revenues increased 25 percent to $148.0 million, including cloud-based revenues, which increased 55 percent year-over-year to $34.2 million. In 2013, product revenues were $117.7 million, and services revenues were $52.6 million, compared to $88.6 million and $30.4 million, respectively, in 2012.
  • Orders: Total orders increased 30 percent in 2013 compared to 2012, with cloud-based orders up 87 percent year-over-year. The company signed 192 contracts over $250,000, which included 48 orders over $1.0 million, up from 158 and 42, respectively, in 2012. Cloud-based orders were 50 percent of total orders, up from 35 percent in 2012.
  • Operating Income: GAAP operating income in 2013 was $14.4 million, compared to $1.1 million in 2012. Non-GAAP operating income in 2013 was $26.0 million, with a non-GAAP operating margin of 8.1 percent, compared to $10.2 million and a margin of 4.3 percent in 2012. Both GAAP and non-GAAP operating income during 2013 include a $3.6 million reduction of expense related to the capitalization of development costs for internal use software as Interactive continues to develop its cloud offering.
  • Income Taxes: Income tax expense for the full year of 2013 was $3.6 million. The annual effective rate of 27 percent is lower than the expected rate, primarily as a result of research and development tax credits.
  • Net Income: GAAP net income was $9.5 million, or $0.45 per diluted share based on 21.1 million weighted average diluted shares outstanding. This compares to GAAP net income in 2012 of $906,000, or $0.04 per diluted share based on 20.2 million weighted average diluted shares outstanding.

    Non-GAAP net income was $16.7 million, or $0.79 per diluted share, compared to non-GAAP net income in 2012 of $10.1 million, or $0.50 per diluted share.
  • Cash Flows: During the full year of 2013, the company generated $27.4 million in cash flow from operations, and used $20.8 million for capital expenditures and $6.1 million for internal use software.

* 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 Fourth-Quarter 2013 and Recent Highlights:

  • Interactive Intelligence's cloud offering achieved the highest PCI (Payment Card Industry) Data Security Standard level of validation.
  • Interactive Intelligence's all-in-one IP communications software suite achieved Lync 2013 qualification for interoperability with Microsoft® Lync Server.
  • Interactive Intelligence received Miercom's Performance Verified Certification of its contact center�and�unified communications�software.
  • TMC's Cloud Computing Magazine honored Interactive Intelligence with its 2013 Cloud Computing Excellence Award.

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.

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 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 provider of contact center, unified communications, and business process automation software and services designed to improve the customer experience. The company's solutions, which can be deployed via the cloud or on-premises, are ideal for industries such as financial services, insurance, outsourcers, collections and utilities. Interactive Intelligence was founded in 1994 and has more than 5,000 customers worldwide. The company is among Software Magazine's 2013 Top 500 Global Software and Service Providers, and has received a Frost & Sullivan Company of the Year Award for the last four consecutive years. In addition, Glassdoor honored Interactive Intelligence with its 2014 Employees' Choice Award as one of the Best Places to Work in the U.S., and Mashable ranked Interactive Intelligence second on its 2014 list of the Seven Best Tech Companies to Work For. Interactive Intelligence employs more than 1,800 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. Visit the company on the Web at www.inin.com; on Twitter at www.inin.com/twitter; on Facebook at www.inin.com/facebook; or on LinkedIn at www.inin.com/linkedin.

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 and the amortization of certain intangible assets related to acquisitions by the company, 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 and amortization of intangibles related to acquisitions 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 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 and amortization of intangibles amounts related to acquisitions 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 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.



Interactive Intelligence Group, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
Revenues:
Product $ 34,895 $ 27,207 $ 117,708 $ 88,626
Recurring 41,471 33,120 147,941 118,343
Services 14,419 10,215 52,585 30,396
Total revenues 90,785 70,542 318,234 237,365
Costs of revenues:
Costs of product 7,542 6,742 29,233 24,329
Costs of recurring 13,781 9,053 45,865 32,227
Costs of services 11,444 6,251 38,760 21,099
Amortization of intangible assets 49 58 196 163
Total costs of revenues 32,816 22,104 114,054 77,818
Gross profit 57,969 48,438 204,180 159,547
Operating expenses:
Sales and marketing 29,228 23,717 102,873 81,539
Research and development 12,357 12,386 50,397 45,682
General and administrative 9,459 8,312 34,651 29,722
Amortization of intangible assets 467 494 1,862 1,521
Total operating expenses 51,511 44,909 189,783 158,464
Operating income 6,458 3,529 14,397 1,083
Other income (expense):
Interest income, net 215 207 833 772
Other expense (291 ) (123 ) (2,142 ) (189 )
Total other income (expense) (76 ) 84 (1,309 ) 583
Income before income taxes 6,382 3,613 13,088 1,666
Income tax expense 2,852 1,343 3,573 760
Net income $ 3,530 $ 2,270 $ 9,515 $ 906
Other comprehensive income:
Foreign currency translation adjustment $ (567 ) $ 129 $ (907 ) $ (645 )
Net unrealized investment gain (loss) - net of tax 56 (191 ) (94 ) 163
Comprehensive income $ 3,019 $ 2,208 $ 8,514 $ 424
Net income per share:

Basic

$ 0.17 $ 0.12 $ 0.47 $ 0.05

Diluted

0.17 0.11 0.45 0.04
Shares used to compute net income per share:
Basic 20,360 19,367 20,033 19,241
Diluted 21,377 20,308 21,088 20,162
� � � � � � � � � 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, 2013 2012 2013 2012Recurring revenue, as reported $ 41,471 $ 33,120 $ 147,941 $ 118,343 Purchase accounting adjustments � 10 � � 178 � � 202 � � 522 � Non-GAAP recurring revenue $ 41,481 � $ 33,298 � $ 148,143 � $ 118,865 � � Recurring revenue gross profit as reported $ 27,690 $ 24,067 $ 102,076 $ 86,116 Purchase accounting adjustments 10 178 202 522 Non-cash stock-based compensation expense � 218 � � 135 � � 806 � � 523 � Non-GAAP recurring revenue gross profit $ 27,918 � $ 24,380 � $ 103,084 � $ 87,161 � Non-GAAP recurring revenue gross margin 67.3 % 73.2 % 69.6 % 73.3 % � Services revenue gross profit as reported $ 2,975 $ 3,964 $ 13,825 $ 9,297 Non-cash stock-based compensation expense � 60 � � 27 � � 245 � � 147 � Non-GAAP services revenue gross profit $ 3,035 � $ 3,991 � $ 14,070 � $ 9,444 � Non-GAAP services revenue gross margin 21.0 % 39.1 % 26.8 % 31.1 % � Total revenue, as reported $ 90,785 $ 70,542 $ 318,234 $ 237,365 Purchase accounting adjustments � 10 � � 178 � � 202 � � 522 � Non-GAAP total revenue $ 90,795 � $ 70,720 � $ 318,436 � $ 237,887 � � Gross Profit $ 57,969 $ 48,438 $ 204,180 $ 159,547 Revenue adjustments 10 178 202 522 Acquired technology 49 58 196 163 Non-cash stock-based compensation expense � 278 � � 162 � � 1,051 � � 670 � Non-GAAP gross profit $ 58,306 � $ 48,836 � $ 205,629 � $ 160,902 � Non-GAAP gross margin 64.2 % 69.1 % 64.6 % 67.6 % � Operating income, as reported $ 6,458 $ 3,529 $ 14,397 $ 1,083 Purchase accounting adjustments 526 769 2,308 2,487 Non-cash stock-based compensation expense � 2,291 � � 1,650 � � 9,247 � � 6,677 � Non-GAAP operating income $ 9,275 � $ 5,948 � $ 25,952 � $ 10,247 � Non-GAAP operating margin � 10.2 % � 8.4 % � 8.1 % � 4.3 % � � Three Months Ended Year Ended December 31, December 31, 2013 2012 2013 2012 Net income, as reported $ 3,530 � $ 2,270 � $ 9,515 � $ 906 � Purchase accounting adjustments: � Increase to revenues 10 178 202 522 Reduction of operating expenses: Customer Relationships 422 449 1,682 1,341 Technology 49 58 196 163 Non-compete agreements 45 46 180 180 Acquisition Costs � - � � 38 � � 48 � � 281 � Total � 526 � � 769 � � 2,308 � � 2,487 � Non-cash stock-based compensation expense: Cost of recurring revenues 218 135 806 523 Cost of services revenues 60 27 245 147 Sales and marketing 663 543 3,109 2,250 Research and development 735 510 2,733 1,886 General and administrative � 615 � � 435 � � 2,354 � � 1,871 � Total � 2,291 � � 1,650 � � 9,247 � � 6,677 � Non-GAAP income tax expense adjustment � (765 ) � 1,039 � � (4,388 ) � - � Non-GAAP net income $ 5,582 � $ 5,728 � $ 16,682 � $ 10,070 � � Diluted EPS, as reported $ 0.17 $ 0.11 $ 0.45 $ 0.04 Purchase accounting adjustments 0.02 0.04 0.11 0.12 Non-cash stock-based compensation expense 0.11 0.08 0.44 0.34 Non-GAAP income tax expense adjustment � (0.04 ) � 0.05 � � (0.21 ) � - � Non-GAAP diluted EPS $ 0.26 � $ 0.28 � $ 0.79 � $ 0.50 � �
� � � � � � � Interactive Intelligence Group, Inc. Condensed Consolidated Balance Sheets (in thousands) � � December 31 December 31 2013 2012 Assets (unaudited) Current assets: Cash and cash equivalents $ 65,881 $ 45,057 Short-term investments 32,162 23,816 Accounts receivable, net 80,414 68,409 Deferred tax assets, net 23,684 16,600 Prepaid expenses 21,989 15,565 Other current assets � 13,566 � � 5,958 � Total current assets 237,696 175,405 Long-term investments 9,787 11,757 Property and equipment, net 36,919 26,816 Goodwill 37,298 38,723 Intangible assets, net 20,613 22,676 Other assets, net � 10,912 � � 6,419 � Total assets $ 353,225 � $ 281,796 � � Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 8,727 $ 8,796 Accrued liabilities 15,162 19,608 Accrued compensation and related expenses 17,494 13,640 Deferred product revenues 10,412 5,999 Deferred services revenues � 81,630 � � 67,893 � Total current liabilities 133,425 115,936 Long-term deferred revenues 23,914 18,000 Deferred tax liabilities, net 2,388 99 Other long-term liabilities � 4,140 � � 3,644 � Total liabilities � 163,867 � � 137,679 � � Shareholders' equity: Preferred stock - - Common stock 205 194 Additional paid-in-capital 170,075 133,359 Accumulated other comprehensive loss (1,676 ) (675 ) Retained earnings � 20,754 � � 11,239 � Total shareholders' equity � 189,358 � � 144,117 � Total liabilities and shareholders' equity $ 353,225 � $ 281,796 � �
� � � � � � � Interactive Intelligence Group, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) � � Years Ended December 31, 2013 2012 (unaudited) Operating activities: Net income $ 9,515 $ 906 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 11,664 8,547 Amortization 2,058 1,776 Other non-cash items 1,442 (906 ) Stock-based compensation expense 9,247 6,677 Tax benefits from stock-based payment arrangements (13,479 ) (1,586 ) Deferred income tax (4,795 ) (12,311 ) Amortization (accretion) of investment premium (discount) (37 ) 846 Loss on disposal of fixed assets - 74 Changes in operating assets and liabilities: Accounts receivable (12,005 ) (10,166 ) Prepaid expenses (6,178 ) (4,490 ) Other current assets 737 (975 ) Accounts payable (69 ) 5,072 Accrued liabilities 1,233 11,940 Accrued compensation and related expenses 3,854 4,400 Deferred product revenues 4,284 1,190 Deferred services revenues 19,645 12,850 Other assets and liabilities � 259 � � (2,976 ) Net cash provided by operating activities � 27,375 � � 20,868 � � Investing activities: Sales of available-for-sale investments 26,803 58,235 Purchases of available-for-sale investments (33,270 ) (30,348 ) Purchases of property and equipment (20,758 ) (15,554 ) Capitalized internal use software cost (6,112 ) (862 ) Acquisitions, net of cash (725 ) (22,651 ) Unrealized gain on investment � 34 � � (138 ) Net cash used in investing activities � (34,028 ) � (11,318 ) � Financing activities: Proceeds from stock options exercised 14,122 5,029 Proceeds from issuance of common stock 837 680 Tax withholding on restricted stock awards (961 ) (253 ) Tax benefits from stock-based payment arrangements � 13,479 � � 1,586 � Net cash provided by financing activities � 27,477 � � 7,042 � Net increase in cash and cash equivalents 20,824 16,592 Cash and cash equivalents, beginning of period � 45,057 � � 28,465 � Cash and cash equivalents, end of period $ 65,881 � $ 45,057 � � Cash paid during the period for: Interest $ 6 $ 5 Income taxes 882 3,213 � Other non-cash item: Purchases of property and equipment payable at end of period 413 173 �
� � � � � � � � � � � � � � � Supplemental Data (Dollars in thousands) (unaudited) � � 2012 2013 Q1Q2Q3Q4Total Q1Q2Q3Q4Total Margins (GAAP): Product 70.9 % 69.5 % 73.4 % 75.2 % 72.5 % 71.9 % 74.2 % 75.5 % 78.4 % 75.2 % Recurring 73.8 % 72.4 % 72.3 % 72.7 % 72.8 % 70.0 % 70.9 % 68.8 % 66.8 % 69.0 % Services 19.7 % 22.6 % 18.9 % 33.5 % 24.8 % 31.2 % 25.6 % 28.9 % 20.6 % 26.3 % Overall 66.8 % 65.2 % 65.6 % 67.9 % 66.5 % 64.6 % 64.1 % 64.1 % 63.9 % 64.2 % � Year-over-year Revenue Growth (GAAP): Product -4.8 % -18.8 % 3.3 % 2.5 % -4.5 % 44.0 % 41.9 % 20.6 % 28.3 % 32.8 % Recurring 31.1 % 27.2 % 17.9 % 31.5 % 26.8 % 22.4 % 23.6 % 28.6 % 25.2 % 25.0 % Services -8.4 % 23.5 % 34.7 % 71.7 % 30.0 % 100.6 % 96.8 % 74.1 % 41.2 % 73.0 % Overall 10.6 % 5.4 % 13.7 % 22.3 % 13.3 % 38.8 % 39.2 % 31.5 % 28.7 % 34.1 % � Orders: Over $1 million 6 8 9 19 42 8 13 12 15 48 Between $250,000 and $1 million 11 28 28 49 116 31 30 35 48 144 � Number of new customers 60 67 65 110 302 74 89 67 86 316 � Average new customer order: Overall $ 240 $ 349 $ 409 $ 623 $ 440 $ 335 $ 272 $ 503 $ 485 $ 394 Cloud-based 761 557 822 1,134 866 788 427 796 836 717 �

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