-

Total orders for the fourth quarter up 119 percent from 2011 fourth quarter; 2012 total orders up 48 percent year-over-year.

-

Cloud-based orders for the fourth quarter up 311 percent year-over-year; 2012 cloud-based orders up 123 percent year-over-year.

-

Cloud-based orders in 2012 were 35 percent of total orders, up from 23 percent in 2011.

-

Recurring revenues in 2012 increased 27 percent year-over-year to 50 percent of total revenue.

-

Orders: Total orders grew by 119 percent from the fourth quarter of 2011, while cloud-based orders were up 311 percent over the fourth quarter of 2011 and comprised 39 percent of total orders. The company signed 68 contracts over $250,000, which included 19 orders over $1.0 million, up from 37 and six, respectively, in the fourth quarter of 2011.

-

Revenues:  Total revenues were $70.5 million, an increase of 22 percent over the fourth quarter of 2011. Recurring revenues, which include both maintenance and support from perpetual license agreements and cloud-based revenues, increased 31 percent to $33.1 million and accounted for 47 percent of total revenues. Cloud-based revenues increased 47 percent to $6.6 million. Product revenues were $27.2 million and services revenues were $10.2 million, compared to $26.5 million and $6.0 million, respectively, in the fourth quarter of 2011.

-

Total Deferred Revenues: Deferred revenues increased to $91.9 million as of Dec. 31, 2012, from $75.4 million as of Dec. 31, 2011. In addition, the amount of unbilled future cloud-based revenues as of Dec. 31, 2012 increased to $89.5 million from $34.6 million as of Dec. 31, 2011. The combination of deferred revenues and unbilled future cloud-based revenues was $181.4 million, up 65 percent from $110.0 million as of Dec. 31, 2011.

-

Net Income: GAAP net income for the fourth quarter of 2012 was $2.3 million, or $0.11 per diluted share based on 20.3 million weighted average diluted shares outstanding. This compares to GAAP net income for the same quarter in 2011 of $4.6 million, or $0.23 per diluted share based on 19.9 million weighted average diluted shares outstanding.

-

Cash, Cash Equivalents and Investments:  As of Dec. 31, 2012, we had cash, cash equivalents and investments of $80.6 million.

-

Cash Flows: During the fourth quarter of 2012, the company generated $3.6 million in cash flow from operations and used $2.9 million for capital expenditures, which included expansion of its cloud infrastructure. 

-

Orders: Total orders increased 48 percent in 2012 compared to 2011, while cloud-based orders were up 123 percent year-over-year. The company signed 158 contracts over $250,000, which included 42 orders over $1.0 million, up from 113 and 17, respectively, in 2011. Cloud-based orders were 35 percent of total orders, up from 23 percent in 2011.

-

Revenues:  Total revenues were $237.4 million in 2012, an increase of 13 percent over 2011. Recurring revenues increased 27 percent to $118.3 million. Cloud-based revenues increased 54 percent year-over-year to $22.0 million. Product revenues were $88.6 million and services revenues were $30.4 million in 2012, compared to $92.8 million and $23.4 million, respectively, in 2011.

-

Operating Income: GAAP operating income in 2012 was $1.1 million, compared to $21.6 million in 2011. Non-GAAP operating income in 2012 was $10.2 million, with a non-GAAP operating margin of 4.3 percent, compared to $29.3 million and a non-GAAP operating margin of 13.9 percent in 2011. The year-over-year decline in operating income resulted from deferral of revenues due to an increase in cloud-based orders, certain premises-based orders received in 2012 for which revenues were deferred to future periods, and the increased investment in sales, marketing, and research and development to expand the company’s product leadership and share in the cloud-based market.

-

Net Income: GAAP net income was $906,000, or $0.04 per diluted share based on 20.2 million weighted average diluted shares outstanding. This compares to GAAP net income in 2011 of $14.8 million, or $0.74 per diluted share based on 19.9 million weighted average diluted shares outstanding. The annual effective tax rate was 46 percent and includes a tax reserve on certain tax positions of the company, offset by one-time benefits recorded in 2012 principally related to a change in the company’s treatment of its officer compensation.

-

Cash Flows: During the full year of 2012, the company generated $20.0 million in cash flow from operations, used $22.7 million for acquisitions, and used $15.6 million for capital expenditures, which included expansion of its cloud infrastructure. 

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Interactive Intelligence was honored with a 2012 Cloud Computing Excellence Award from TMC’s Cloud Computing Magazine.

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Interactive Intelligence launched Interaction Mobilizer^™ for Windows 8, a software platform that enables mid-size to large contact centers and enterprises to rapidly deploy customer service applications for tablets and other mobile devices.

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Interactive Intelligence released Interaction Dialer^® version 4.0, a major predictive dialer software upgrade which was designed to improve ease-of-use, simplify management, and help contact centers more effectively execute dialing campaigns.

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The company launched an e-commerce website, the Interactive Intelligence Marketplace^℠, giving customers and resellers fast and easy access to products that complement the vendor’s all-in-one IP communications software suite.

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

Three Months Ended

Year Ended

December 31,

December 31,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

Revenues:

Product

$

$

$

$

Recurring

Services

Total revenues

Costs of revenues:

Product

Recurring

Services

Amortization of intangible assets

Total cost of revenues

Gross profit

Operating expenses:

Sales and marketing

Research and development

General and administrative

Amortization of intangible assets

Total operating expenses

Operating income

Other income:

Interest income, net

Other income (expense)

Total other income

Income before income taxes

Income tax expense

Net income

$

$

$

$

Other comprehensive income:

Foreign currency translation adjustment

$

$

$

$

Net unrealized investment gain (loss)

Comprehensive income

$

$

$

$

Net income per share:

Basic

$

$

$

$

Diluted

Shares used to compute net income per share:

Basic

Diluted

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,

2012

2011

2012

2011

Recurring revenue, as reported

$      33,120

$      25,186

$    118,343

$       93,363

Purchase accounting adjustments

Non-GAAP recurring revenue

$      33,298

$      25,495

$    118,865

$       93,834

Recurring revenue gross profit as reported

$      24,067

$      18,959

$      86,116

$       69,562

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP recurring revenue gross profit

$      24,380

$      19,357

$      87,161

$       70,455

Non-GAAP recurring revenue gross margin

.

Services revenue, as reported

$      10,215

$        5,951

$      30,396

$       23,377

Purchase accounting adjustments

 -

 -

Non-GAAP services revenue

$      10,215

$        5,957

$      30,396

$       23,431

Services revenue gross profit as reported

$        3,419

$        1,351

$        7,528

$         6,988

Purchase accounting adjustments

 -

 -

Non-cash stock-based compensation expense

Non-GAAP services revenue gross profit

$        3,446

$        1,392

$        7,675

$         7,143

Non-GAAP services revenue gross margin

Total revenue, as reported

$      70,542

$      57,675

$    237,365

$     209,526

Purchase accounting adjustments

Non-GAAP total revenue

$      70,720

$      57,990

$    237,887

$     210,051

Gross Profit

$      47,893

$      40,995

$    157,778

$     144,101

Purchase accounting adjustments

Operating expenses

Non-cash stock-based compensation expense

Non-GAAP gross profit

$      48,291

$      41,469

$    159,133

$     145,289

Non-GAAP gross margin

Operating income, as reported

$        3,529

$        6,544

$        1,083

$       21,641

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-GAAP operating income

$        5,948

$        8,687

$      10,247

$       29,270

Non-GAAP operating margin

Three Months Ended

Year Ended

December 31,

December 31,

2012

2011

2012

2011

Net income, as reported

$        2,270

$        4,595

$           906

$       14,798

Purchase accounting adjustments:

Increase to revenues:

Recurring

Services

 -

 -

Reduction of operating expenses:

Customer Relationships

Technology

Non-compete agreements

Acquisition Costs

Total

Non-cash stock-based compensation expense:

Cost of recurring revenues

Cost of services revenues

Sales and marketing

Research and development

General and administrative

Total

Non-cash income tax expense

 -

Non-GAAP net income

$        5,728

$        7,260

$      10,070

$       24,861

Diluted EPS, as reported

$          0.11

$          0.23

$          0.04

$           0.74

Purchase accounting adjustments

Non-cash stock-based compensation expense

Non-cash income tax expense

 -

Non-GAAP diluted EPS

$          0.28

$          0.37

$          0.50

$           1.25

Interactive Intelligence Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

Year Ended

December 31,

2012

2011

Assets

(unaudited)

Current assets:

Cash and cash equivalents

$           45,057

$           28,465

Short-term investments

Accounts receivable, net

Deferred tax assets, net

Prepaid expenses

Other current assets

Total current assets

Long-term investments

Property and equipment, net

Goodwill

Intangible assets, net

Other assets, net

Total assets

$         281,796

$         232,802

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$             8,795

$             5,434

Accrued liabilities

Accrued compensation and related expenses

Deferred product revenues

Deferred services revenues

Total current liabilities

Long-term deferred revenues

Deferred tax liabilities, net

Other long-term liabilities

Total liabilities

$         137,679

$         102,828

Shareholders' equity:

Preferred stock

 -

 -

Common stock

Additional paid-in-capital

Accumulated other comprehensive loss

Retained earnings

Total shareholders' equity

Total liabilities and shareholders' equity

$         281,796

$         232,802

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Year Ended

December 31,

2012

2011

(unaudited)

Operating activities:

Net income

$            906

$      14,798

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

Amortization

Other non-cash items

Stock-based compensation expense

Tax benefits from stock-based payment arrangements

Deferred income tax

Amortization (accretion) of investment income

Loss (gain) on disposal of fixed assets

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses

Other current assets

Other assets

Accounts payable

Accrued liabilities

Accrued compensation and related expenses

Deferred product revenues

Deferred services revenues

Net cash provided by operating activities

Investing activities:

Sales of available-for-sale investments

Purchases of available-for-sale investments

Purchases of property and equipment

Acquisitions, net of cash

Unrealized gain (loss) on investment

Net cash used in investing activities

Financing activities:

Proceeds from stock options exercised

Proceeds from issuance of common stock

Employee taxes withheld for restricted stock units

 -

Tax benefits from stock-based payment arrangements

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

$       45,057

$      28,465

Cash paid during the period for:

Interest

$                5

$               3

Income taxes

Other non-cash item:

Purchases of property and equipment payable at end of period

Supplemental Data

(Dollars in thousands)

(unaudited)

2011

2012

Q1

Q2

Q3

Q4

Total

Q1

Q2

Q3

Q4

Total

Margins (GAAP):

Product

Recurring

Services

Overall

Year-over-year Revenue Growth (GAAP):

Product

-4.8%

-18.8%

-4.5%

Recurring

Services

-8.4%

Overall

Orders:

Over $1 million

Between $250,000 and $1 million

Number of new customers

Average new customer order:

Overall

$                  275 

$                  240 

$                  314 

$                  259 

$                  267 

$                  240 

$                  349 

$                  409 

$                  623 

$                  440 

Cloud-based