ININ

Interactive Intelligence Group, Inc. (ININ)

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Interactive Intelligence Inc. (ININ)

Q3 2009 Earnings Call

October 26, 2009; 4:30 pm ET

Executives

Don Brown - Chairman, President & Chief Executive Officer

Steve Head - Chief Financial Officer

Paul Weber - Vice President of Sales for North America

Analysts

Shyam Patil - Raymond James and Associates

Tavis McCourt - Morgan Keegan

Graham Ryan - Bears Capital

Mike Latimore - Northland Securities

Craig Nankervis - First Analysis Corp.

Presentation

Operator

Welcome to the Interactive Intelligence third quarter 2009 earnings conference call. At this time all lines are in a listen-only mode. Later, we’ll announce the opportunity for questions and instructions will be given at that time. (Operator Instructions)

At this time, I’d like to turn the conference over to Dr. Don Brown, President and CEO of Interactive Intelligence. Please go ahead.

Don Brown

Thanks for joining us. Presenting with me on the call today is Steve Head our CFO and we’re also joined by Paul Weber our Vice President of Sales for North America. After our discussion and concluding remarks, we’ll have a Q-and-A session, and for any of you not able to ask questions today, please follow up with Steve after the call. I hope you’ve all received our third quarter earnings release by now, if not, it’s up on our website. Before we get any further into the call, Steve will present the standard legal disclaimer.

Steve Head

Thanks Don. Over the course of this conference call we will make predictive statements about our results, performance, plans, and objectives. In an effort to assist you in understanding our company, the enterprise software industry combined with the rapidly evolving economic environment makes predictions challenging and problematic. These predictive statements are forward-looking statements under Federal Securities Laws.

Our actual results could differ materially as a result of a variety of potential risks and uncertainties. Our 2008 Form 10-K, which we filed with the SEC, describe factors, risks and uncertainties that could cause our actual results to differ materially. The company disclaims any obligation or undertaking to update or revise any forward-looking statement.

Also, during this call we may refer to non-GAAP financial measures. These non-GAAP results eliminate the impact of stock base compensation expense and non-cash income tax expense. Management uses these non-GAAP financial measures in analyzing the business.

Don Brown

Alright thanks Steve. I’ll start off with an overview of the results for the quarter and then Steve will go into detail on the numbers and after that I’ll come back and give you a little update on company news and what we see ahead.

For the third quarter of 2009, we recognized revenues of $33.2 million up 10% from the third quarter of last year. We recognized product revenues have $15.6 million compared to $14.7 million last year of particularly noted that we sign three new CaaS contracts, so that’s our acronym for communications as a service our hosted contract center services worth a total of at least $39.6 million over their terms.

These contracts are for periods of three or four years and we’ll recognize revenue as the services are delivered. This is far and away the best quarter we have ever had for our hosted contracts center servicing offering and something we hope to build on in the future. We received licenses order from 64 new customers during the quarter, we had two of those in addition the two CaaS orders that exceeded $1 to us and an additional 8 over a quarter million dollars.

We achieved record services revenues during the quarter of $17.6 million and increase of 15% from the third quarter of last year. On a non-GAAP basis, net earnings for the quarter were $5.7 million or $0.31 per diluted share compared to $2.0 million or is $0.11 per diluted share for the third quarter of 2008.

I’ll now turn it over to Steve for some detail.

Steve Head

Okay. As usual I’ll comment on the operating performance, then the balance sheet and cash flows. There are two major items that impact the information we will discuss. First on a GAAP basis, we recorded income tax expense of $2 million in the third quarter of 2009. As we discussed in prior calls, most of the expense did not require cash payments.

On a non-GAAP basis, our tax expense was $92,000 for the third quarter of 2009. I will have additional comments on taxes in a few minutes. Second we recorded stock-based compensation expense of $975,000 for the third quarter of 2009, which compares to $439,000 in the third quarter of 2008. The increase in expense this year was due to a decrease in our expected forfeiture rate as a result of lower and fully turnover with the option holders.

This is a one-time increased of about $200,000 and we expect our stock-based compensation expense to be about $800,000 in the fourth quarter of this year. Last year our option expense was unusually low because we reversed expense tied to financial performance and we had recorded earlier in that year. Based on the conclusion we were not going to meet the financial targets.

In this quarter, our partners continue to generate the majority of orders with 74% of the dollar amount coming from the channel. We received license orders from 64 new customers for our contact center enterprise messaging and IP PBX solutions. The overall average new customer order in the quarter was $124,000 with an average new customer order for the contact center and large enterprise IP PBX licenses of $145,000.

Read the rest of this transcript for free on seekingalpha.com