Interactive Intelligence reports fourth quarter, full year 2011 financial results

Interactive Intelligence Group, a global provider of unified IP business communications solutions, has announced financial results for its fourth quarter and full year ended 31 December 2011.

“Market demand was strong and we executed well during the fourth quarter, a combination that provided a strong finish to a year with record revenue,” said Interactive Intelligence founder and CEO Dr Donald Brown. “In 2011, we firmly established Interactive Intelligence as a vendor of choice at the high end of the contact centre market. We continue to consistently grow faster than the overall market with our on-premise solutions and are emerging as a leader with our cloud-based offering.

“We show ever-increasing momentum among customer cloud deployments, which is the highest growth segment of our market. In 2012, we plan to capitalise on this momentum and step up investments to further enhance our brand recognition, extend our product capabilities and gain additional market share.

“Our order mix is expected to continue shifting toward the cloud, which, combined with strategic investments in sales, marketing and development, is expected to reduce our reported profitability from a near-term perspective. However, we're confident in the long-term viability of our business model, and our ability to generate shareholder value. We're addressing a multibillion-dollar market opportunity, and we're taking focused action to grow the business for long-term financial success driven by increasing recurring revenue,” concluded Brown.

Fourth quarter 2011 financial highlights:

Orders: Total orders increased 17% year-over-year, with cloud-based orders up over 500% year-over-year. The company signed 101 new customers during the fourth quarter of 2011, up 29% from 78 new customers during the same period in 2010, including 12 new customers for its cloud-based offering during the fourth quarter of 2011, up from eight during the same period in 2010.

Revenue: Total revenue was $57.7 million, with non-GAAP revenue of $58 million, an increase of 14% on a year-over-year basis. Recurring revenue, which include both maintenance contracts and cloud-based subscriptions, increased 23% to $24.4 million, and accounted for 42% of total revenue. Cloud-based revenue increased 61% year-over-year to $3.8 million. Product revenue was $27.3 million and service revenue was $6 million, up 9% and 4%, respectively, compared to the fourth quarter of last year.

Operating income: GAAP operating income for the fourth quarter was $6.5 million, with an operating margin of 11.3%, compared to $9.1 million and an operating margin of 18% for the fourth quarter 2010. Non-GAAP operating income was $8.7 million, with an operating margin of 15%, compared to $10.5 million and an operating margin of 20.7% for the fourth quarter of 2010. The year-over-year decline in operating margin was primarily due to the shift toward cloud-based orders, which are recognised ratably over the life of the contract, and away from on-premise product orders, which are typically recognised as revenue on an upfront basis.

Net income: GAAP net income for the fourth quarter was $4.6 million based on a 30% effective tax rate, and includes an adjustment of the full year effective tax rate down to 33.4%. This compares to GAAP net income of $7.1 million based on a 22.3% effective tax rate for the same period last year.

GAAP diluted earnings per share (EPS) for the fourth quarter was $0.23 based on 19.9 million weighted average diluted shares outstanding, compared to $0.37 based on 19.3 million shares outstanding for the same period last year. Non-GAAP net income for the fourth quarter was $7.3 million based on a 16.6% effective tax rate, compared to $10.4 million based on a 0.5% effective tax rate for the same period last year. Non-GAAP EPS for the fourth quarter was $0.37, compared to $0.54 for the same period last year.

Full year 2011 financial highlights:

Orders: Total orders increased 28% compared to 2010, with product orders up 11% and cloud-based orders up 179% year-over-year. The company signed 301 new customers in 2011, up 16% from 259 new customers during 2010, including 42 new cloud customers during 2011, up 91% from 22 new customers during 2010. Cloud-based orders were 23% of total orders in 2011, up from 11% of total orders in 2010.

Revenue: Total revenue was $209.5 million, with non-GAAP revenue of $210.1 million, an increase of 26% on a year-over-year basis. Recurring revenue, which include both maintenance contracts and cloud-based subscriptions, increased 33% to $91.4 million and accounted for 44% of total revenue. Cloud-based revenue increased 96% year-over-year to $12.2 million. Product revenue was $94.7 million and service revenue was $23.4 million, up 19% and 32%, respectively, compared to 2010.

Operating income: GAAP operating income was $21.6 million, with an operating margin of 10.3%, compared to $23.4 million and an operating margin of 14.1% for 2010. Non-GAAP operating income was $29.3 million, with an operating margin of 13.9%, compared to $27.8 million and an operating margin of 16.7% for 2010.

The year-over-year decline in operating margin was primarily due to the shift toward cloud-based orders, which are recognised ratably over the life of the contract, and away from on-premise product orders, which are typically recognised as revenue on an upfront basis.

Net income: GAAP net income was $14.8 million based on a 33.4% effective tax rate, compared to $14.9 million based on a 34% effective tax rate for 2010. GAAP EPS was $0.74 based on 19.9 million weighted average diluted shares outstanding, compared to $0.79 based on 18.9 million shares outstanding for 2010. Non-GAAP net income was $24.9 million based on a 16.7% effective tax rate, compared to $26.5 million based on a 1.8% effective tax rate for 2010, and non-GAAP EPS was $1.25, compared to $1.40 for 2010.

Deferred revenue: Total deferred revenue was $75.4 million as of 31 December 2011, up 39% from $54.1 million at the end of 2010. Unrecognised future cloud contracts were $34.6 million as of 31 December 2011, up 172% from $12.6 million at the end of 2010.

Cash and cash flow: As of 31 December 2011, the company had cash and cash equivalents and investments of $92.5 million, an increase compared to $85.9 million at the end of 2010. During 2011, the company generated operating cash of $21.4 million and used $13.4 million for acquisitions and $13.3 million for purchase of property and equipment, including significant fourth-quarter purchases to support facilities expansions and cloud operations.

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables. An explanation of these measures is also included below under the heading “non-GAAP measures”.

Additional fourth quarter and full year 2011 highlights:

* For the fourth quarter of 2011, the company had six orders over $1 million and 31 additional orders over $250 000, compared to five and 26, respectively, during the same period last year.
* For the full year 2011, the company had 17 orders over $1 million and 96 additional orders over $250 000, compared to 19 and 71, respectively, for 2010.
* The company launched Customer Interaction Center (CIC) version 4.0, a major new release of its flagship all-in-one IP communications software suite, which added real-time speech analytics, increased scalability, Web portal access, and a private cloud deployment model.
* The company launched Quick Spin, a cloud-based communications as a service trial program, providing a risk-free introduction to sophisticated applications, with set-up time in minutes.
* The company was named among the Top 500 Software and Service Providers by Software Magazine for the 11th consecutive year.
* The company was positioned in the Leaders Quadrant in Gartner's Magic Quadrant for Contact Centre Infrastructure, Worldwide report for the fourth consecutive year.
* The company was honoured by Frost & Sullivan with its Company of the Year, Contact Centre Systems North America award for the second consecutive year.
* The company was ranked by Forbes Magazine among America's Best Small Companies for the second consecutive year.

Interactive Intelligence hosted a conference call to review the company's financial results for the fourth quarter and year end 2011. The teleconference was broadcast live on the company's investor relations' page at http://investors.inin.com. An archive of the teleconference was posted following the call.