8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 8-K  

________________________

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): January 30, 2008

INTERACTIVE INTELLIGENCE, INC.

(Exact name of registrant as specified in its charter)

Indiana (State or other jurisdiction of incorporation)	000-27385  (Commission File Number)	35-1933097 (IRS Employer Identification No.)
7601 Interactive Way Indianapolis, IN 46278 (Address of principal executive offices, including zip code)
(317) 872-3000 (Registrant’s telephone number, including area code)
Not Applicable (Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02    Results of Operations and Financial Condition.

The following information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On January 30, 2008, Interactive Intelligence, Inc. issued a press release describing its results of operations for its fourth quarter and year ended December 31, 2007. See the registrant’s press release attached hereto as Exhibit 99.1, which is incorporated by reference into this Item 2.02.

Item 9.01    Financial Statements and Exhibits.

(d)           Exhibits:

The following item is furnished as an exhibit to this current report on Form 8-K:

99.1 Press Release, dated January 30, 2008, issued by Interactive Intelligence, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		Interactive Intelligence, Inc. (Registrant)
Date:    January 30, 2008	By:	/s/     Stephen R. Head
		Stephen R. Head Chief Financial Officer, Vice President of Finance and Administration, Secretary and Treasurer

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EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release, dated January 30, 2008, issued by Interactive Intelligence, Inc.

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EX-99.1

EXHIBIT 99.1

Interactive Intelligence Reports Record Fourth Quarter 2007 and Fiscal Year Operating Results

Company posts:

- 32 percent annual revenue growth

- 61 percent increase in operating income

- Over $20 million of operating cash flow

INDIANAPOLIS, Jan. 30, 2008 – Interactive Intelligence Inc. (Nasdaq: ININ), a global provider of unified IP business communications solutions, reported record financial results for its fourth quarter and fiscal year ended Dec. 31, 2007. Revenues for the 2007 fiscal year totaled $109.9 million, up 32 percent from $83.0 million in 2006. Fourth quarter revenues were $29.3 million, a 23 percent increase from $23.9 million in the same quarter last year.

“Our growth was largely driven by the significant value proposition offered by our unique all-in-one communications software suite for contact centers and enterprises,” said Interactive Intelligence CEO, Dr. Donald E. Brown. “We exceeded our original growth targets for the year, gained market share by growing faster than the overall market, and achieved a significant milestone by breaking through the $100 million revenue mark.

“Our results demonstrate that we continue to deliver great value to our customers as they make the transition to voice over IP. We added 93 new customers in the fourth quarter and 325 new customers for the year. We also gained increased recognition for our innovative technology as reflected in our positioning in the “Leaders Quadrant” of Gartner’s 2007 Contact Center Infrastructure report.”

Net income for the 2007 fourth quarter was $10.3 million, with diluted earnings per share (EPS) of $0.53. These results include $840,000 of expense related to employee stock options, as well as a tax benefit of $8.1 million recorded to reduce the valuation allowance for deferred tax assets. Net income for the fourth quarter of 2006 was $1.6 million with EPS of $0.08, including stock option expense of $539,000.

For the 2007 fourth quarter, non-GAAP (generally accepted accounting principles) net income was $3.1 million, or EPS of $0.16, compared to non-GAAP net income of $2.1 million, or EPS of $0.11, in the same quarter last year. The non-GAAP differences were due to exclusion of the non-cash income tax benefit recorded in the fourth quarter of 2007 and stock-based compensation expense recorded in both years.

Net income for the 2007 fiscal year was $17.5 million with EPS of $0.91, up from 2006 fiscal year net income of $10.2 million with EPS of $0.56. Net income for 2007 included expense for employee stock options of $3.1 million, as well as the tax benefit of $8.1 million recorded in the fourth quarter. Net income for 2006 included expense for employee stock options of $2.1 million, as well as a tax benefit of $5.0 million recorded in the third quarter to reduce the valuation allowance for deferred tax assets related to tax operating loss carry-forwards.

Non-GAAP net income for the 2007 fiscal year was $12.5 million, or EPS of $0.65, compared to non-GAAP net income of $7.4 million, or EPS of $0.40, in the 2006 fiscal year. The non-GAAP differences were due to exclusion of the non-cash income tax benefit and stock-based compensation expense recorded in both years.

Cash and short-term investments as of Dec. 31, 2007 totaled $46.3 million, up from $27.1 million on Dec. 31, 2006. Cash flow from operating activities for fiscal year 2007 was $20.2 million.

“We believe migration to VoIP continues to fuel our company’s strong and steady growth,” Brown said. “The latest version of our software, released in the fourth quarter of 2007, takes full advantage of this trend with additional IP-related enhancements in the areas of security, ease-of-deployment, integration, and mobility.

“While cautious about 2008 given the current economic environment, we believe our competitive advantages will continue to drive revenue growth and are targeting an increase in revenues in 2008 of between 20 and 25 percent, along with operating margins, excluding stock option expenses, of between 10 and 11 percent.”

Interactive Intelligence will host a conference call Wednesday, Jan. 30 at 4:30 p.m. Eastern time (EST), 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 1 877.548.7911 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://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 non-cash income tax benefits. 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 benefitsrelated 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 stock-based compensation expense and non-cash tax benefitscan 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) is a global provider of unified IP business communications solutions for contact center automation, enterprise telephony, and enterprise messaging. The company was founded in 1994 and has more than 3,000 customers worldwide. Interactive Intelligence is among the top 500 global software and services suppliers, and is ranked among the top 200 North American networking vendors. The company employs more than 550 people and is headquartered in Indianapolis, Indiana. It 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 info@inin.com; 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.

Contacts:

Stephen R. Head

Chief Financial Officer

Interactive Intelligence Inc.

+1 317.715.8412

steve.head@inin.com

Christine Holley

Director, Market Communications

Interactive Intelligence Inc.

+1 317.715.8220

christine.holley@inin.com

###

Interactive Intelligence, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
Unaudited
	Three Months Ended						Year Ended
	December 31,						December 31,
	2007			2006			2007			2006
							(Note 1)
Revenues:
Product	$	15,189		$	12,607		$	57,673		$	43,021
Services		14,087			11,257			52,228			40,023
Total revenues		29,276			23,864			109,901			83,044
Cost of revenues:
Product		3,986			3,245			14,159			9,318
Services		5,619			4,555			21,094			14,676
Total cost of revenues		9,605			7,800			35,253			23,994
Gross profit		19,671			16,064			74,648			59,050
Operating expenses:
Sales and marketing		9,606			8,220			36,368			29,503
Research and development		4,568			3,645			17,040			13,578
General and administrative		3,586			2,886			13,246			10,992
Total operating expenses		17,760			14,751			66,654			54,073
Operating income		1,911			1,313			7,994			4,977
Other income:
Interest income, net		453			312			1,721			694
Other expense, net		(27	)		(5	)		(96	)		(94	)
Total other income		426			307			1,625			600
Income before income taxes		2,337			1,620			9,619			5,577
Income tax benefit (expense)		8,000			(64	)		7,837			4,671
Net income	$	10,337		$	1,556		$	17,456		$	10,248
Net income per share:
Basic	$	0.58		$	0.09		$	1.00		$	0.62
Diluted	$	0.53		$	0.08		$	0.91		$	0.56
Shares used to compute net income per share:
Basic		17,757			16,895			17,481			16,553
Diluted		19,524			19,130			19,251			18,383
Note 1: The 2007 amounts for the first three quarters have been changed to reflect adjustments to product revenues and related commission expense. These adjustments were deemed immaterial to those prior periods.

Interactive Intelligence, Inc.
Reconciliation of Supplemental Financial Information
(in thousands, except per share amounts)
Unaudited
	Three Months Ended					Year Ended
	December 31,					December 31,
	2007			2006		2007			2006
Net income, as reported	$	10,337		$	1,556	$	17,456		$	10,248
Non-cash stock-based compensation expense:
Cost of services		63			41		247			157
Sales and marketing		362			255		1,305			1,023
Research and development		154			84		565			263
General and administrative		261			159		1,009			704
Total		840			539		3,126			2,147
Non-cash income tax benefit		(8,091	)		-		(8,091	)		(5,000	)
Non-GAAP net income	$	3,086		$	2,095	$	12,491		$	7,395
Operating income, as reported	$	1,911		$	1,313	$	7,994		$	4,977
Non-cash stock-based compensation expense		840			539		3,126			2,147
Non-GAAP operating income	$	2,751		$	1,852	$	11,120		$	7,124
Diluted EPS, as reported	$	0.53		$	0.08	$	0.91		$	0.56
Non-cash stock-based compensation expense		0.04			0.03		0.16			0.12
Non-cash income tax benefit		(0.41	)		-		(0.42	)		(0.28	)
Non-GAAP diluted EPS	$	0.16		$	0.11	$	0.65		$	0.40

Interactive Intelligence, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
	December 31,
	2007			2006
	(unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	29,270		$	13,531
Short-term investments		17,057			13,555
Accounts receivable, net		27,527			21,370
Deferred tax assets, net		5,833			1,314
Prepaid expenses		6,083			5,358
Other current assets		1,414			1,818
Total current assets		87,184			56,946
Property and equipment, net		6,932			5,469
Deferred tax assets, net		7,520			3,686
Other assets, net		1,802			674
Total assets	$	103,438		$	66,775
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	9,594		$	7,885
Accrued compensation and related expenses		4,381			3,825
Deferred product revenues		6,843			5,910
Deferred services revenues		34,001			24,877
Total current liabilities		54,819			42,497
Commitments and contingencies		-			-
Shareholders' equity:
Preferred stock		-			-
Common stock		179			171
Additional paid-in-capital		79,405			72,528
Accumulated deficit		(30,965	)		(48,421	)
Total shareholders' equity		48,619			24,278
Total liabilities and shareholders' equity	$	103,438		$	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
	Year Ended
	December 31,
	2007			2006
Operating activities:
Net income	$	17,456		$	10,248
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,667			1,839
Accretion of investment income		(447	)		(119	)
Stock-based compensation expense		3,126			2,156
Deferred income tax		(8,353	)		(5,000	)
Loss on disposal of fixed assets		-			4
Changes in operating assets and liabilities:
Accounts receivable		(6,157	)		(6,443	)
Prepaid expenses		(725	)		(2,298	)
Other current assets		404			(1,029	)
Other assets		(82	)		(71	)
Accounts payable and accrued liabilities		1,709			1,209
Accrued compensation and related expenses		556			1,323
Deferred product revenues		933			715
Deferred services revenues		9,075			8,049
Net cash provided by operating activities		20,162			10,583
Investing activities:
Purchases of available-for-sale investments		(24,670	)		(16,849	)
Sale of available-for-sale investments		21,615			6,989
Purchases of property and equipment		(4,094	)		(3,299	)
Acquisition of intangible and other assets		(1,033	)		-
Net cash used in investing activities		(8,182	)		(13,159	)
Financing activities:
Proceeds from stock options exercised		3,544			4,379
Proceeds from issuance of common stock		215			177
Net cash provided by financing activities		3,759			4,556
Net increase in cash and cash equivalents		15,739			1,980
Cash and cash equivalents, beginning of period		13,531			11,551
Cash and cash equivalents, end of period	$	29,270		$	13,531
Cash paid for interest	$	-		$	49
Cash paid for taxes		232			386

Interactive Intelligence, Inc.
Selected Quarterly Financial Data
(in thousands, except per share amounts)
Unaudited
	2007
	Quarter Ended
	Mar. 31,			Jun. 30,			Sept. 30,		Dec. 31,
Revenues:
Product	$	12,356		$	14,602		$	15,526	$	15,189
Services		11,932			12,533			13,676		14,087
Total revenues		24,288			27,135			29,202		29,276
Cost of revenues:
Product		2,441			3,500			4,232		3,986
Services		4,797			5,145			5,533		5,619
Total cost of revenues		7,238			8,645			9,765		9,605
Gross profit		17,050			18,490			19,437		19,671
Operating expenses:
Sales and marketing		8,654			8,822			9,286		9,606
Research and development		3,897			4,227			4,348		4,568
General and administrative		3,065			3,285			3,310		3,586
Total operating expenses		15,616			16,334			16,944		17,760
Operating income		1,434			2,156			2,493		1,911
Other income:
Interest income, net		472			384			412		453
Other income (expense), net		(56	)		(42	)		29		(27	)
Total other income		416			342			441		426
Income before income taxes		1,850			2,498			2,934		2,337
Income tax benefit (expense)		(97	)		(103	)		37		8,000
Net income	$	1,753		$	2,395		$	2,971	$	10,337
Net income per share:
Basic	$	0.10		$	0.14		$	0.17	$	0.58
Diluted	$	0.09		$	0.12		$	0.15	$	0.53
Shares used to compute net income per share:
Basic		17,247			17,401			17,461		17,757
Diluted		19,236			19,291			19,407		19,524
Note 1: The 2007 amounts for the first three quarters have been changed to reflect adjustments to product revenues and related commission expense. These adjustments were deemed immaterial to those prior periods.