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Interactive Intelligence, Inc. provides software applications for contact centers and voice over Internet protocol (VoIP) applications to enterprises. Its products include Customer Interaction Center that provides contact centers and enterprises a single platform and a pre-integrated all-in-one application solution for IP telephony; Vonexus Enterprise Interaction Center, an IP PBX phone and communications system for SIP-supported VoIP in the mid-sized enterprises; Interaction Dialer that provides call scripting, multi-site campaign management, intelligent campaign staging, and compliance options; and Interaction EasyScripter, which integrates to Interaction Dialer for easy Web-based scripting. The company's products also comprise Interaction Optimizer that supports workforce management forecasting, scheduling, and real-time adherence for contact centers; Interaction Director that could migrate to various PBX/ACD platforms to route calls; Interaction Supervisor that provides a single real-time interface for monitoring agent, user, and workgroup activities; and Interaction Tracker, an interaction segment/contact history management utility, which tracks multimedia interactions and allows authorized users to resolve new contacts and search for and view historical interaction-based information. In addition, it offers Interaction Recorder that offers quality assessment control; Communite that provides enterprise messaging voice mail and voice mail replacement, and SIP-supported VoIP; e-FAQ, which uses linguistic analysis to clarify incoming questions, search for matches, and instantly reply when an appropriate match is found; Interaction Mobile Office for the mobile workforce; Interaction Gateway that configure Interaction Dialer 2.4; SIP Interaction Media Server; and Interaction SIP Proxy for organizations employing the SIP communications for VoIP. The company was founded in 1994 and is headquartered in Indianapolis, Indiana.

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Interactive Intelligence Reports Record Third Quarter Revenues
Monday October 29, 4:00 pm ET  
29 Percent Increase in Revenues Drives Profitability


INDIANAPOLIS--(BUSINESS WIRE)--Interactive Intelligence Inc. (Nasdaq:ININ - News), a global developer of business communications solutions, reported record results for the quarter and nine-month period ended Sept. 30, 2007.
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For the third quarter, revenues in 2007 were a record $28.7 million, up 29 percent over revenues of $22.2 million in 2006. Operating income for the third quarter increased 23 percent to $2.1 million in 2007 from $1.7 million in 2006, which included stock-based compensation expense of $812,000 in 2007 and $451,000 in 2006. Diluted earnings per share (EPS) for the third quarter were $0.13 in 2007. EPS in the same quarter last year were $0.36, including a non-cash income tax benefit of $5.0 million, or $0.26 per share, recorded to reduce the valuation allowance for deferred tax assets.

For the third quarter, non-GAAP (generally accepted accounting principles) net income was $3.3 million in 2007, or EPS of $0.17, compared to non-GAAP net income of $2.2 million in 2006, or EPS of $0.12. The non-GAAP differences were due to exclusion of the non-cash income tax benefit recorded in the third quarter of 2006 and stock-based compensation expense recorded in both years.

"We are seeing growth in all major geographies," said Interactive Intelligence founder and CEO, Dr. Donald E. Brown. "During the quarter we experienced strength in large contact center sales, as well as a rise in the licensing of our foundational voice over IP products, such as our gateways and media servers. These higher revenues are driving steady increases in profitability while we continue to invest in the development of new technology."

For the nine months ended Sept. 30, revenues in 2007 were a record $79.9 million, up 35 percent over revenues of $59.4 million in 2006. Operating income for the nine months ended Sept. 30 increased 48 percent to $5.4 million in 2007 from $3.7 million in 2006, which included stock-based compensation expense of $2.3 million in 2007 and $1.6 million in 2006. EPS for the nine months ended Sept. 30 were $0.33 in 2007. EPS for the same period in 2006 were $0.48, including the non-cash income tax benefit of $5.0 million.

Cash and short-term investments as of Sept. 30, 2007 totaled $34.4 million, up from $27.1 million on Dec. 31, 2006. Cash flow from operations for the first nine months of 2007 was $9.8 million, compared to $6.6 million for the first nine months of 2006.

As further testament to its success in the contact center market, industry analyst firm, Gartner, positioned Interactive Intelligence in the leaders' quadrant of its recently published Contact Center Infrastructure report.

An additional benchmark of the company's continued growth was a jump this year of 21 spots to rank 209th among Software Magazine's 500 largest global software and services suppliers.

Interactive Intelligence was also added earlier this year to the Russell 2000® Index, a listing of U.S. stocks from industry-leading small-cap companies.

Interactive Intelligence will host a conference call today, Oct. 29, at 4:30 p.m. EDT, featuring Dr. Brown and the company's CFO, Stephen R. Head. There will be a live Q&A session following opening remarks.

To access the teleconference, please dial 1 866.316.1372 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 Interactive Intelligence's investor relations' page at http://www.inin.com/investors. An archive of the teleconference will be posted following the call.

The non-GAAP measures shown in this release exclude non-cash stock-based compensation expense for stock options and a non-cash income tax benefit. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included after the financial information included in this press release. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. 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 historical periods because certain historical periods did not include stock-based compensation expense for stock options or the non-cash income tax benefit related to the reduction in the valuation allowance for the deferred tax assets. Interactive Intelligence's management uses these non-GAAP results to compare its performance to its competitors in the software industry. Because the stock-based compensation expense and non-cash tax benefit can vary significantly between companies, it is useful to compare results without these amounts. Management also uses financial statements that do not include stock-based compensation expense related for stock options or non-cash income tax benefits for its internal budgets.

About Interactive Intelligence

Interactive Intelligence Inc. (Nasdaq: ININ - News) is a global provider of business communications solutions for contact center automation, enterprise IP telephony, and enterprise messaging. The company was founded in 1994 and has more than 2,500 customers worldwide. Recent awards include Software Magazine's 2007 Top 500 Global Software and Services Companies, the 2006 Network World 200, CRM Magazine's 2006 Rising Star Excellence Award, and Network Computing Magazine's 2006 Well-Connected Award. Interactive Intelligence employs more than 550 people and is headquartered in Indianapolis, Indiana. The company has six global corporate offices, with additional sales offices throughout North America, Europe and Asia Pacific. Interactive Intelligence can be reached at +1 317.872.3000 or [email protected]; on the Net: http://www.inin.com.

This release contains 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 and increasingly complex third-party relationships; 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; and other factors described in the company's SEC filings, including the company's latest annual report on Form 10-K.

Interactive Intelligence Inc. 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, Inc.  
Condensed Consolidated Statements of Income  
(in thousands, except per share amounts)  
Unaudited  
                     
   Three Months Ended   Nine Months Ended  
   September 30,   September 30,  
      2007      2006         2007         2006    
           
Revenues:          
Product   $  15,032   $  12,143    $  41,740    $  30,590  
Services      13,676      10,030         38,141         28,766    
 Total revenues      28,708      22,173         79,881         59,356    
Cost of revenues:          
Product    4,232    2,707     10,173     6,073  
Services      5,533      3,828         15,475         10,121    
 Total cost of revenues      9,765      6,535         25,648         16,194    
Gross profit      18,943      15,638         54,233         43,162    
Operating expenses:          
Sales and marketing    9,231    7,711     26,680     21,459  
Research and development    4,348    3,519     12,472     9,933  
General and administrative      3,310      2,739         9,660         8,106    
 Total operating expenses      16,889      13,969         48,812         39,498    
Operating income      2,054      1,669         5,421         3,664    
Other income (expense):          
Interest income, net    412    162     1,268     382  
Other income (expense), net      29      (25  )      (69  )      (89  )  
Total other income (expense)      441      137         1,199         293    
Income before income taxes    2,495    1,806     6,620     3,957  
Income tax benefit (expense)      37      4,912         (163  )      4,735    
Net income   $  2,532   $  6,718      $  6,457      $  8,692    
           
Net income per share:          
Basic   $  0.15   $  0.40      $  0.37      $  0.53    
Diluted   $  0.13   $  0.36      $  0.33      $  0.48    
           
Shares used to compute net income per share:          
Basic    17,461    16,626     17,388     16,438  
Diluted    19,407    18,545     19,336     18,010  
 
Interactive Intelligence, Inc.  
Reconciliation of Supplemental Financial Information  
(in thousands, except per share amounts)  
Unaudited  
                   
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
     2007      2006         2007      2006    
           
Net income, as reported   $  2,532   $  6,718    $  6,457   $  8,692  
Non-cash stock-based compensation expense:          
Cost of services    70    38     184    116  
Sales and marketing    313    219     943    768  
Research and development    153    69     411    179  
General and administrative      276      125         748      545    
Total    812    451     2,286    1,608  
           
Non-cash income tax benefit      -      (5,000  )      -      (5,000  )  
Non-GAAP net income   $  3,344   $  2,169      $  8,743   $  5,300    
           
Operating income, as reported   $  2,054   $  1,669    $  5,421   $  3,664  
Non-cash stock-based compensation expense      812      451         2,286      1,608    
Non-GAAP operating income   $  2,866   $  2,120      $  7,707   $  5,272    
           
Diluted EPS, as reported   $  0.13   $  0.36    $  0.33   $  0.48  
Non-cash stock-based compensation expense    0.04    0.02     0.12    0.09  
Non-cash income tax benefit      -      (0.26  )      -      (0.28  )  
Non-GAAP diluted EPS   $  0.17   $  0.12      $  0.45   $  0.29    
 
Interactive Intelligence, Inc.  
Condensed Consolidated Balance Sheets  
(in thousands)  
             
   September 30,   December 31,  
      2007         2006    
   (unaudited)   (Note 1)  
Assets      
Current assets:      
Cash and cash equivalents   $  23,430    $  13,531  
Short-term investments    10,949     13,555  
Accounts receivable, net    29,561     21,370  
Deferred tax assets, net    1,314     1,314  
Prepaid expenses    6,057     5,358  
Other current assets      1,602         1,818    
 Total current assets    72,913     56,946  
Property and equipment, net    7,165     5,469  
Deferred tax assets, net    3,686     3,686  
Other assets, net      1,769         674    
Total assets   $  85,533      $  66,775    
       
Liabilities and Shareholders' Equity      
Current liabilities:      
Accounts payable and accrued liabilities   $  9,077    $  7,885  
Accrued compensation and related expenses    4,487     3,825  
Deferred product revenues    6,818     5,910  
Deferred services revenues      30,352         24,877    
 Total current liabilities      50,734         42,497    
       
Commitments and contingencies    -     -  
       
Shareholders' equity:      
Preferred stock    -     -  
Common stock    175     171  
Additional paid-in-capital    76,588     72,528  
Accumulated deficit      (41,964  )      (48,421  )  
 Total shareholders' equity      34,799         24,278    
Total liabilities and shareholders' equity   $  85,533      $  66,775    
           
Note 1: December 31, 2006 amounts derived from the audited Consolidated Balance Sheet included in the 2006 Annual Report on Form 10-K of Interactive Intelligence, Inc.  
 
Interactive Intelligence, Inc.  
Condensed Consolidated Statements of Cash Flows  
(in thousands)  
Unaudited  
             
   Nine Months Ended  
   September 30,  
      2007         2006    
       
Operating activities:      
Net income   $  6,457    $  8,692  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation    1,941     1,327  
Accretion of investment income    (317  )    (51  )  
Stock-based compensation expense    2,286     1,617  
Deferred income tax    -     (5,000  )  
Loss on disposal of fixed assets    -     4  
Changes in operating assets and liabilities:      
 Accounts receivable    (8,191  )    (4,048  )  
 Prepaid expenses    (699  )    (1,733  )  
 Other current assets    216     (71  )  
 Other assets    (49  )    (80  )  
 Accounts payable and accrued liabilities    1,192     974  
 Accrued compensation and related expenses    662     372  
 Deferred product revenues    908     301  
 Deferred services revenues      5,426         4,328    
Net cash provided by operating activities      9,832         6,632    
       
Investing activities:      
Purchases of available-for-sale investments    (15,192  )    (10,895  )  
Sale of available-for-sale investments    18,115     5,189  
Purchases of property and equipment    (3,601  )    (1,866  )  
Acquisition of intangible and other assets      (1,033  )      -    
Net cash used in investing activities      (1,711  )      (7,572  )  
       
Financing activities:      
Proceeds from stock options exercised    1,628     2,258  
Proceeds from issuance of common stock      150         138    
Net cash provided by financing activities      1,778         2,396    
       
Net increase in cash and cash equivalents    9,899     1,456  
Cash and cash equivalents, beginning of period      13,531         11,551    
Cash and cash equivalents, end of period   $  23,430      $  13,007    
       
Cash paid for interest   $  -    $  46  
Cash paid for taxes    147     314  




Contact:
Interactive Intelligence Inc.
Stephen R. Head, +1 317-715-8412
Chief Financial Officer
[email protected]
or
Interactive Intelligence Inc.
Christine Holley, +1 317-715-8220
Director, Market Communications
[email protected]

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