10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

____________

FORM 10-Q

(Mark One)
	☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

Or

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

For the transition period from ____________to____________

Commission File Number:000-54450

INTERACTIVE INTELLIGENCE GROUP, INC.

(Exact name of registrant as specified in its charter)

Indiana (State or other jurisdiction of incorporation or organization)	45-1505676 (I.R.S. 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, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes     ☑ No      ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer (Do not check if a smaller reporting company) ☐    Smaller reporting company ☐   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes☐No☑

As of July 29, 2016, there were 22,238,318 shares outstanding of the registrant’s common stock, $0.01 par value.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2016 and 2015	4
	Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30, 2016	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	36
Item 4.	Controls and Procedures.	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings.	36
Item 1A.	Risk Factors.	37
Item 6.	Exhibits.	37
SIGNATURE		39

1

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements andNotes to Condensed Consolidated Financial Statements.

Interactive Intelligence Group, Inc.

Condensed Consolidated Balance Sheets

As of June 30, 2016 and December 31, 2015

(in thousands, except share amounts)

	June 30, 2016			December 31, 2015
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	106,872		$	94,808
Short-term investments	58,906			64,182
Accounts receivable, net of allowance for doubtful accounts
of $1,749 at June 30, 2016 and $1,508 at December 31, 2015	96,997			106,950
Prepaid expenses	34,197			32,709
Other current assets	10,242			13,264
Total current assets	307,214			311,913
Long-term investments	32,469			30,503
Property and equipment, net	39,812			44,837
Capitalized software, net	40,563			43,783
Goodwill	42,220			41,848
Intangible assets, net	14,083			14,427
Other assets, net	6,362			6,222
Total assets	$	482,723		$	493,533
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	9,771		$	10,571
Accrued liabilities	17,751			17,157
Accrued compensation and related expenses	18,448			18,910
Deferred license and hardware revenues	2,036			7,823
Deferred recurring revenues	100,057			92,773
Deferred services revenues	13,052			14,979
Total current liabilities	161,115			162,213
Convertible notes	121,232			118,022
Long-term deferred revenues	18,733			19,834
Deferred tax liabilities, net	2,294			2,143
Other long-term liabilities	6,947			7,291
Total liabilities	310,321			309,503
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000 authorized;
22,213,335 issued and outstanding at June 30, 2016,
21,821,895 issued and outstanding at December 31, 2015	222			218
Additional paid-in capital	247,976			237,496
Accumulated other comprehensive loss, net of tax	(9,945		)	(11,244		)
Accumulated deficit	(65,851		)	(42,440		)
Total shareholders' equity	172,402			184,030
Total liabilities and shareholders' equity	$	482,723		$	493,533

See Accompanying Notes to Condensed Consolidated Financial Statements

2

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2016 and 2015

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Revenues:
Recurring	$	66,045		$	53,846		$	130,335		$	108,058
License and hardware	29,702			27,010			51,080			48,631
Services	13,044			15,475			26,657			29,117
Total revenues	108,791			96,331			208,072			185,806
Costs of revenues (1)(2):
Costs of recurring	22,765			19,253			45,201			37,997
Costs of license and hardware	5,623			6,552			12,014			13,081
Costs of services	11,389			11,514			22,940			22,765
Total costs of revenues	39,777			37,319			80,155			73,843
Gross profit	69,014			59,012			127,917			111,963
Operating expenses (1)(2):
Sales and marketing	39,808			33,875			74,244			64,984
Research and development	23,242			16,694			46,022			30,531
General and administrative	13,216			12,204			25,726			24,980
Total operating expenses	76,266			62,773			145,992			120,495
Operating loss	(7,252		)	(3,761		)	(18,075		)	(8,532		)
Other expense:
Interest expense, net	(1,728		)	(590		)	(3,565		)	(442		)
Other expense	(412		)	(232		)	(663		)	(559		)
Total other expense	(2,140		)	(822		)	(4,228		)	(1,001		)
Loss before income taxes	(9,392		)	(4,583		)	(22,303		)	(9,533		)
Income tax (expense) benefit	(767		)	(501		)	(1,108		)	990
Net loss	$	(10,159	)	$	(5,084	)	$	(23,411	)	$	(8,543	)
Net loss per share:
Basic	$	(0.46	)	$	(0.24	)	$	(1.06	)	$	(0.40	)
Diluted	(0.46		)	(0.24		)	(1.06		)	(0.40		)
Shares used to compute net loss per share:
Basic	22,053			21,504			22,059			21,519
Diluted	22,053			21,504			22,059			21,519
(1) Amounts include amortization of purchased intangibles from business combinations, as follows:
Costs of license and hardware	$	186		$	177		$	372		$	354
General and administrative	422			442			839			891
Total intangible amortization expense	$	608		$	619		$	1,211		$	1,245
(2) Amounts include stock-based compensation expense, as follows:
Costs of recurring revenues	$	472		$	512		$	865		$	944
Costs of license and hardware revenues	25			20			55			42
Costs of services revenues	268			164			542			293
Sales and marketing	1,548			1,154			2,365			1,715
Research and development	1,640			963			3,394			1,782
General and administrative	1,175			1,063			1,876			2,093
Total stock-based compensation expense	$	5,128		$	3,876		$	9,097		$	6,869

See Accompanying Notes to Condensed Consolidated Financial Statements

3

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Net loss	$	(10,159	)	$	(5,084	)	$	(23,411	)	$	(8,543	)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(781		)	453			956			(2,809		)
Net unrealized investment gain (loss) - net of tax	95			(9		)	343			50
Comprehensive loss	$	(10,845	)	$	(4,640	)	$	(22,112	)	$	(11,302	)

See Accompanying Notes to Condensed Consolidated Financial Statements

4

Interactive Intelligence Group, Inc.

Condensed Consolidated Statementof Shareholders' Equity

For the Six Months Ended June 30, 2016

(in thousands)

(unaudited)

	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
	Shares	Amount
Balances, December 31, 2015	21,822	$	218	$	237,496		$	(11,244	)	$	(42,440	)	$	184,030
Net loss	—	—		—			—			(23,411		)	(23,411		)
Stock-based compensation expense	—	—		9,219			—			—			9,219
Exercise of stock options	129	4		2,831			—			—			2,835
Issuances of common stock	87	—		647			—			—			647
Tax withholding on restricted stock unit awards	175	—		(2,217		)	—			—			(2,217		)
Foreign currency translation adjustment	—	—		—			956			—			956
Net unrealized investment loss	—	—		—			343			—			343
Balances, June 30, 2016	22,213	$	222	$	247,976		$	(9,945	)	$	(65,851	)	$	172,402

See Accompanying Notes to Condensed Consolidated Financial Statements

5

Interactive Intelligence Group, Inc.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2016 and 2015

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2016			2015
Operating activities:
Net loss	$	(23,411	)	$	(8,543	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	8,617			8,227
Amortization	6,202			2,804
Other non-cash items	(319		)	(856		)
Stock-based compensation expense	9,097			6,869
Deferred income taxes	151			(89		)
Amortization of investment premium	94			151
Loss on disposal of fixed assets	403			21
Amortization of debt issuance costs	353			57
Amortization of debt discount	2,857			455
Gain on sale of subsidiary	(452		)	—
Changes in operating assets and liabilities:
Accounts receivable	9,839			2,188
Prepaid expenses	(1,488		)	1,453
Other current assets	3,022			294
Accounts payable	(800		)	(43		)
Accrued liabilities	770			(222		)
Accrued compensation and related expenses	(462		)	80
Deferred license and hardware revenues	(5,833		)	1,945
Deferred recurring revenues	7,297			(1,520		)
Deferred services revenues	(2,599		)	358
Other assets and liabilities	(434		)	533
Net cash provided by operating activities	12,904			14,162
Investing activities:
Sales of available-for-sale investments	41,294			20,462
Purchases of available-for-sale investments	(37,735		)	—
Purchases of property and equipment	(3,781		)	(10,659		)
Capitalized software	(1,867		)	(12,568		)
Acquisitions and divestitures	160			—
Net cash used in investing activities	(1,929		)	(2,765		)
Financing activities:
Proceeds from issuance of convertible debt	—			150,000
Payment for debt issuance costs	—			(4,521		)
Payment for capped call premiums	—			(12,750		)
Principal payments on capital lease obligations	(176		)	—
Proceeds from stock options exercised	2,835			2,166
Proceeds from issuance of common stock	647			789
Tax withholding on restricted stock unit awards	(2,217		)	(3,309		)
Net cash provided by financing activities	1,089			132,375
Net increase in cash and cash equivalents	12,064			143,772
Cash and cash equivalents, beginning of period	94,808			36,168
Cash and cash equivalents, end of period	$	106,872		$	179,940
Cash paid during the period for:
Interest	$	959		$	43
Income taxes	1,300			662
Non-cash financing and investing activities:
Issuance of retirement plan shares	—			2,523
Other non-cash item:
Purchase of property and equipment payable at end of period	646			105

See Accompanying Notes to Condensed Consolidated Financial Statements

6

Interactive Intelligence Group, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2016and 2015(unaudited)

1. FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Interactive Intelligence Group, Inc. (together with its consolidated subsidiaries, "the Company," "we," "us" and "our") have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and with the instructions for Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, certain information and note disclosures normally included in the Company’s financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC").

The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, at the respective balance sheet dates, and the reported amounts of revenues and expenses during the respective reporting periods. Despite management’s best effort to establish good faith estimates and assumptions, actual results could differ from these estimates. In management’s opinion, the Company’s accompanying condensed consolidated financial statements include all adjustments necessary (which are of a normal and recurring nature, except as otherwise noted) for the fair presentation of the results of the interim periods presented.

The Company’s accompanying condensed consolidated financial statements as of December 31, 2015 have been derived from the Company’s audited consolidated financial statements at that date but do not include all of the information and notes required by GAAP for complete financial statements. These accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2015, included in the Company’s most recent Annual Report on Form 10-K as filed with the SEC on February 29, 2016. The Company’s results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany accounts and transactions. 

2. SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

For a complete summary of the Company’s significant accounting policies and critical accounting estimates, refer to Note 2 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

In March 2016, the Financial Accounting Standards Board ("FASB") issued FASB Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation ("FASB ASU 2016-09"), which includes the simplification of several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Public business entities must apply the new requirements in fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company has elected not to early adopt the amendments. The Company is evaluating the effect that FASB ASU 2016-09 will have on its consolidated financial statements and related disclosures. The Company has not yet adopted the amendments nor has it determined the effect of the guidance on its ongoing financial reporting.

In February 2016, the FASB issued FASB ASU No. 2016-02, Leases ("FASB ASU 2016-02"), which amends the FASB Accounting Standards Codification ("ASC") to increase transparency and comparability among organizations by requiring companies to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Public business entities must apply the new requirements in fiscal years beginning after December 15, 2018, including interim periods within those years. All entities have the option of applying the amendments as of an earlier date for financial statements that have not been previously issued. The Company is evaluating the effect that FASB ASU 2016-02 will have on its consolidated financial statements and related disclosures. The Company has not yet adopted the amendments nor has it determined the effect of the guidance on its ongoing financial reporting.

7

In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers ("FASB ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. FASB ASU 2014-09 will replace most existing U.S. GAAP revenue recognition guidance when it becomes effective. As originally issued, the new standard was to become effective for the Company on January 1, 2017, and early adoption is not permitted. In August 2015, the FASB issued FASB ASU No. 2015-14, Deferral of the Effective Date, which declared a one-year deferral of the effective date of the new revenue recognition standard. As a result, the new standard will become effective for the Company beginning with the first quarter of 2018. FASB ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company expects to elect the retrospective transition method once the new standard becomes effective for the Company and is evaluating the effect that FASB ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the guidance on its ongoing financial reporting.

The Company capitalizes certain costs related to its multi-tenant cloud offering, PureCloud^® ("PureCloud"), and certain projects described below for internal use in accordance with FASB ASC 350-40, Internal Use Software. Once a product has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The capitalization of costs ceases upon completion of all substantial testing. Costs incurred in the preliminary stages of development, maintenance and training costs are expensed as incurred. During the three and six months ended June 30, 2016, the Company capitalized $200,000 and $1.2 million, respectively, of costs related to the development of its PureCloud Platform, compared to the capitalization of $5.2 million and $10.8 million during the same periods in 2015. The Company will continue to capitalize development costs related to new PureCloud functionality and will begin amortizing such costs once that functionality is released for general availability.

The Company also capitalizes costs related to implementing new business systems to meet its internal business needs. The Company has no substantive plans to market such software externally. During the three and six months ended June 30, 2016, the Company capitalized $400,000 and $800,000, respectively, of costs associated with development and implementation of these systems, compared to the capitalization of $2.1 million and $3.0 million during the same periods in 2015.

During the three and six months ended June 30, 2016, there were no other material changes to the Company’s significant accounting policies or critical accounting estimates.

3. NET LOSSPER SHARE

Basic net loss per share is calculated based on the weighted-average number of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share. Diluted net income per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive. Potential common shares consist of shares of common stock issuable upon the exercise of stock options and vesting of restricted stock units ("RSUs"). The following table sets forth the calculation of basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Net loss, as reported (A)	$	(10,159	)	$	(5,084	)	$	(23,411	)	$	(8,543	)
Weighted average shares of common stock outstanding (B)	22,053			21,504			22,059			21,519
Dilutive effect of employee stock options and RSUs	—			—			—			—
Common stock and common stock equivalents (C)	22,053			21,504			22,059			21,519
Net loss per share:
Basic (A/B)	$	(0.46	)	$	(0.24	)	$	(1.06	)	$	(0.40	)
Diluted (A/C)	(0.46		)	(0.24		)	(1.06		)	(0.40		)

The Company’s calculation of diluted net loss per share for the three and six months ended June 30, 2016 excludes RSUs and stock options to purchase approximately 716,000 and 1.6 million shares of the Company’s common stock, respectively, compared to 269,000 and 643,000 shares during the same periods in 2015, as their inclusion would be anti-dilutive.

8

4. INVESTMENTS

FASB ASC Topic 820, Fair Value Measurement ("FASB ASC 820"), as amended, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes the following three levels of inputs that may be used to measure fair value:

• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s short-term investments all mature in less than one year and its long-term investments all mature within three years. Both short-term and long-term investments are considered available for sale. The Company’s assets that are measured at fair value on a recurring basis are classified within Level 1 or Level 2 of the fair value hierarchy. The types of instruments valued based on quoted market prices in active markets include money market securities. Such instruments are classified within Level 1 of the fair value hierarchy. The Company invests in money market funds that are traded daily and does not adjust the quoted price for such instruments. The types of instruments valued based on quoted prices in less active markets, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include corporate notes, U.S. government securities, asset-backed securities, agency bonds and commercial paper. Such instruments are classified within Level 2 of the fair value hierarchy. The Company uses consensus pricing, which is based on multiple pricing sources, to value its fixed income investments. 

9

The following table sets forth a summary of the Company’s financial assets, classified as cash and cash equivalents, short-term investments and long-term investments on its condensed consolidated balance sheets, measured at fair value as of June 30, 2016 and December 31, 2015 (in thousands):

	Fair Value Measurements at June 30, 2016 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash & cash equivalents:
Cash	$	85,185	$	85,185	$	—	$	—
Money market funds	21,687		21,687		—		—
Total	$	106,872	$	106,872	$	—	$	—
Short-term investments:
Corporate notes	$	30,733	$	—	$	30,733	$	—
U.S. government securities	12,016		—		12,016		—
Commercial paper	5,977		—		5,977		—
Agency bonds	5,497		—		5,497		—
Asset-backed securities	4,683		—		4,683		—
Total	$	58,906	$	—	$	58,906	$	—
Long-term investments:
Corporate notes	$	25,735	$	—	$	25,735	$	—
U.S. government securities	5,026		—		5,026		—
Asset-backed securities	1,708		—		1,708		—
Total	$	32,469	$	—	$	32,469	$	—

10

	Fair Value Measurements at December 31, 2015 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash & cash equivalents:
Cash	$	76,966	$	76,966	$	—	$	—
Money market funds	17,842		17,842		—		—
Total	$	94,808	$	94,808	$	—	$	—
Short-term investments:
Corporate notes	$	27,105	$	—	$	27,105	$	—
Agency bonds	27,002		—		27,002		—
Asset-backed securities	4,681		—		4,681		—
U.S. government securities	3,896		—		3,896		—
Commercial paper	1,498		—		1,498		—
Total	$	64,182	$	—	$	64,182	$	—
Long-term investments:
Corporate notes	29,504		$	—	29,504		—
Asset-backed securities	999		$	—	999		—
Total	$	30,503	$	—	$	30,503	$	—

5. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

The Company evaluates the creditworthiness of its customers and partners on a periodic basis and generally does not require collateral. The Company records unbilled accounts receivable, which represents amounts recognized as revenues for invoices that have not yet been sent to customers. This balance fluctuates depending on the contractual billing milestones and work performed related to projects specified in the contract. When the work performed is ahead of the billing milestones related to a services engagement, unbilled accounts receivable will be recorded. The balance of unbilled accounts receivable recorded within accounts receivable on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 was $5.6 million and $9.6 million, respectively.

In addition, the Company records deferred revenues, which represent cash collections for which the Company cannot yet recognize revenues. The balance of deferred revenues also fluctuates depending on the contractual billing milestones and work performed related to projects specified in the contract. When the billing milestones and related cash collections occur prior to the product or service being delivered, deferred revenues will be recorded. The balance of deferred revenues recorded on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 was $133.9 million and $135.4 million, respectively.

No customer or partner accounted for more than 10% of the Company’s accounts receivable as of June 30, 2016 or December 31, 2015 or for more than 10% of the Company’s revenues for the three and six months ended June 30, 2016 or 2015. The Company’s top five partners collectively represented 19% and 14% of the Company’s accounts receivables balance at June 30, 2016 and December 31, 2015, respectively.

11

6. STOCK-BASED COMPENSATION

Stock Option Plan

The Company’s 2006 Equity Incentive Plan, as amended and as assumed by Interactive Intelligence Group, Inc. (the "2006 Plan") authorizes the Board of Directors or the Compensation Committee, as applicable, to grant incentive and nonqualified stock options, stock appreciation rights, restricted stock, RSUs, performance shares, performance units and other stock-based awards. After adoption of the 2006 Plan by the Company’s shareholders in May 2006, the Company may no longer make any grants under previous plans. At the Company’s 2016 Annual Meeting of Shareholders held on May 18, 2016, the Company’s shareholders approved an amendment to the 2006 Plan which increased the number of shares available for issuance under the 2006 Plan by 2,600,000 shares. A maximum of 11,650,933 shares are available for delivery under the 2006 Plan. The number of shares available under the 2006 Plan is subject to adjustment for certain changes in the Company’s capital structure. The exercise price of options granted under the 2006 Plan is equal to the closing price of the Company’s common stock, as reported by The NASDAQ Global Select Market, on the business day immediately preceding the date of grant. As of June 30, 2016, there were 2,964,501 shares of stock available for issuance for equity compensation awards under the 2006 Plan.

The Company has historically granted both time-based and performance-based RSUs and three types of stock options. The Company's stock options are all granted with a term of six years from the grant date. The first type of stock option is subject only to time-based vesting. These stock options have historically been granted by the Company as annual grants to executives and other employees, to certain new employees and to newly-elected non-employee directors. These stock options vest in four equal annual installments beginning one year after the grant date.  The fair value of these option grants is determined on the date of grant and the related compensation expense is recognized for the entire award on a straight-line basis over the requisite service period.

The second type of stock option granted by the Company is performance-based and is subject to cancellation if the specified performance targets are not met. If the applicable performance targets have been achieved, the options will vest in four equal annual installments beginning one year after the grant date. The fair value of these stock option grants is determined on the date of grant and the related compensation expense is recognized on a tranche-by-tranche basis, with each tranche expensed equally over the requisite service period, including the initial period for which the specified performance targets must be met.

The third type of stock option granted by the Company is director options and have historically been granted to non-employee directors annually at the Company's Annual Meeting of Shareholders during the second quarter of a fiscal year. These options are similar to the time-based options described above except that these director options vest one year after the grant date. The fair value of these option grants is determined on the date of the grant and the related compensation expense is recognized over one year.

If an incentive stock option is granted to an employee who, at the time the option is granted, owns stock representing more than 10% percent of the voting power of all classes of our stock, the exercise price of the option may not be less than 110% of the market value per share on the date the option is granted and the term of the option shall be not more than five years from the date of grant.

Performance-based and time-based RSUs can be granted by the Company to directors, executives, certain key employees and certain new employees. The fair value of the RSUs is determined on the date of grant. Time-based RSUs granted to executives, certain key employees, certain new employees and newly-elected non-employee directors vest in four equal annual installments beginning one year after the grant date. Time-based RSUs granted annually to non-employee directors vest in full one year after the grant date. Performance-based RSUs vest in four equal annual installments once the individual has achieved the performance targets and the related compensation expense is recognized on a tranche-by-tranche basis, with each tranche expensed equally over the requisite service period. RSUs are not included in issued and outstanding common stock until the shares are vested and settlement has occurred.

During 2015, the Company elected to grant performance-based and time-based RSUs to directors, executives, certain key employees and certain new employees. During 2016, the Company utilized time-based and performance-based stock options and time-based and performance-based RSUs for stock-based compensation.

The 2006 Plan may be terminated by the Company’s Board of Directors at any time.

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Stock-Based Compensation Expense Information

The following table summarizes the allocation of stock-based compensation expense related to employee and director stock options and RSUs under FASB ASC Topic 718, Compensation – Stock Compensation ("FASB ASC 718") for the three and six months ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Stock-based compensation expense by category:
Costs of recurring revenues	$	472		$	512		$	865		$	944
Costs of license and hardware revenue	25			20			55			42
Costs of services revenues	268			164			542			293
Sales and marketing	1,548			1,154			2,365			1,715
Research and development	1,640			963			3,394			1,782
General and administrative	1,175			1,063			1,876			2,093
Total stock-based compensation expense	$	5,128		$	3,876		$	9,097		$	6,869
Effect of stock-based compensation expense on net loss per share:
Basic	$	(0.23	)	$	(0.18	)	$	(0.41	)	$	(0.32	)
Diluted	(0.23		)	(0.18		)	(0.41		)	(0.32		)

During the three and six months ended June 30, 2016, the Company capitalized $16,000 and $122,000, respectively, of stock-based compensation expense related to capitalized software, compared to $570,000 and $1.2 million, respectively, during the same periods in 2015.

Stock Option and RSU Valuation

The Company estimated the fair value of stock options using the Black-Scholes valuation model.

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There were no stock options granted during the first six months of 2015. The weighted-average estimated per option value of time-based and performance-based options granted under the 2006 Plan during the six months ended June 30, 2016 used the following assumptions:

	Six Months Ended   June 30,
Valuation assumptions for time-based options:	2016
Dividend yield	—				%
Expected volatility	54.70	%	-	57.26	%
Risk-free interest rate	1.14	%	-	1.29	%
Expected life of option (in years)	4.25
	Six Months Ended   June 30,
Valuation assumptions for performance-based options:	2016
Dividend yield	—				%
Expected volatility	54.70	%	-	57.26	%
Risk-free interest rate	1.14	%	-	1.29	%
Expected life of option (in years)	4.25
	Six Months Ended   June 30,
Valuation assumptions for annual director options:	2016
Dividend yield	—				%
Expected volatility	55.95				%
Risk-free interest rate	1.25				%
Expected life of option (in years)	4.00

RSUs are valued using the fair market value of the Company’s stock on the date of grant and expense is recognized on a straight line basis taking into account an estimated forfeiture rate.

Stock Option and RSU Activity

The following table sets forth a summary of stock option activity for the six months ended June 30, 2016:

	Options						Weighted-Average Exercise Price
Balances, beginning of year	1,060,858						$	35.85
Options granted	380,310						28.64
Options exercised	(137,425					)	20.47
Options cancelled, forfeited or expired	(29,346					)	34.12
Options outstanding	1,274,397						35.40
Option price range	$	6.66	-	$	66.39
Weighted-average fair value of options granted	$	13.03
Options exercisable	770,628						$	35.29

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The following table sets forth information regarding the Company’s stock options outstanding and exercisable as of June 30, 2016:

					Options Outstanding				Options Exercisable
Range of Exercise Prices					Number	Weighted- Average Remaining Contractual Life	Weighted Average Exercise Price		Number	Weighted Average Exercise Price
$	6.66	—	$	22.92	37,325	0.63	$	18.83	37,325	$	18.83
24.50		—	24.50		220,629	1.73	24.50		209,379	24.50
25.00		—	27.53		46,500	1.83	26.20		44,000	26.14
27.73		—	27.73		311,649	5.60	27.73		—	—
28.82		—	30.92		13,750	1.69	30.35		13,750	30.35
32.33		—	32.33		176,250	0.74	32.33		176,250	32.33
32.53		—	34.69		96,565	3.81	33.89		39,750	33.07
39.97		—	39.97		133,530	2.82	39.97		92,095	39.97
48.12		—	66.21		87,000	3.39	50.30		83,500	49.67
66.39		—	66.39		151,199	3.71	66.39		74,579	66.39
Total shares/average price					1,274,397	3.13	$	35.40	770,628	$	35.29

The total intrinsic value of options exercised during the quarter ended ended June 30, 2016 was $1.2 million. The aggregate intrinsic value of options outstanding as of June 30, 2016 was $11.8 million and the aggregate intrinsic value of options currently exercisable as of June 30, 2016 was $7.0 million. The aggregate intrinsic value represents the total intrinsic value, based on the Company’s closing stock price per share of $40.99as of June 30, 2016, which would have been realized by the option holders had all option holders exercised their options as of that date. The total number of in-the-money optionsexercisable as of June 30, 2016represented approximately612,549shares with a weighted average exercise price of$29.54.

As of June 30, 2016, there was $7.5 million of total unrecognized compensation expense related to non-vested stock options. This expense is expected to be recognized over the weighted average remaining vesting period of 2.72 years.

The following table sets forth a summary of RSU activity for the six months ended June 30, 2016:

	Awards		Weighted- Average Grant Date Price
Balances, beginning of year	850,228		$	45.53
RSUs granted	579,938		26.96
RSUs vested	(257,007	)	45.99
RSUs forfeited	(80,132	)	39.71
RSUs outstanding	1,093,027		36.00

As of June 30, 2016, there was $35.9 million of total unrecognized compensation expense related to non-vested RSUs. This expense is expected to be recognized over the weighted average remaining vesting period of 2.90 years.

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7. INCOME TAXES

The Company’s effective tax rate, without the effect of discrete items, for the three and six months ended June 30, 2016 was (8.2)% and (5.0)%, respectively, compared to 0.9% and (7.5)%, respectively, for the same periods in 2015.  No discrete items were recorded during the three and six months ended June 30, 2016. During the three months ended June 30, 2015, the Company recorded $29,000 of expense related to discrete items. During the six months ended June 30, 2015, the Company recorded a net credit of $1.7 million related to discrete items, including a net credit of $1.9 million recorded during the first quarter of 2015 to correct an error in the Company's valuation reserve for deferred tax assets. With the effects of these discrete items, the Company’s effective tax rate was (11.7)% and 10.4% for the three and six months ended June 30, 2015, respectively. The Company’s effective tax rate for the three and six months ended June 30, 2016 was lower than the federal statutory tax rate of 35.0% primarily because the Company continues to record a full valuation allowance related to its domestic deferred tax assets.

8. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company has received notification from competitors and other technology providers claiming that the Company's technology infringes upon their proprietary rights. The Company cannot provide assurance that these matters can be resolved amicably without litigation, or that the Company will be able to enter into licensing arrangements on terms and conditions that would not have a material adverse effect on its business, financial condition or results of operations.

During the second quarter of 2016, the Company reduced its accrual related to its disputed royalty agreement with Avaya, Inc. (“Avaya”) by $2.1 million due to a change in the Company’s estimate of its expected liability as of June 30, 2016. This change in estimate resulted in a reduction to costs of license and hardware revenues on the Company's condensed consolidated statements of operations for the three and six months ended June 30, 2016. On July 29, 2016, Avaya unilaterally terminated the royalty agreement. On August 1, 2016, the Company filed a lawsuit, captioned Interactive Intelligence, Inc. v. Avaya, Inc., in the United States District Court for the Southern District of Indiana. In the lawsuit, the Company is seeking restitution and/or compensatory damages from Avaya related to the royalty agreement and is seeking declarations that, among other things, the Company does not infringe certain patents owned or controlled by Avaya and that such patents are invalid. The Company intends to vigorously pursue its claims; however, the ultimate outcome of this lawsuit cannot presently be determined.

From time to time, the Company is also involved in certain legal proceedings in the ordinary course of conducting its business. While the ultimate liability pursuant to these actions cannot currently be determined, the Company believes these legal proceedings will not have a material adverse effect on its financial position or results of operations. Litigation, in general, and intellectual property litigation, in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict.

Guarantees

The Company provides indemnifications of varying scope and amount to certain customers against claims of intellectual property infringement made by third parties arising from the use of its product and service offerings. The Company's software license and subscription agreements include certain provisions for indemnifying customers, in material compliance with their license agreement, against liabilities if the Company's software products or services infringe upon a third party's intellectual property rights, over the life of the agreement. There is no maximum potential amount of future payments set under the guarantee. However, the typical arrangement states that the Company may at any time and at its option and expense: (i) procure the right of the customer to continue to use the Company's software or services that may infringe a third party's rights; (ii) modify its software or services so as to avoid infringement; or (iii) require the customer to return its software or stop using the service and the Company will provide a refund to the customer depending on the type of offering (on-premises or cloud) used by such customer. The customer's failure to provide timely notice or reasonable assistance will relieve the Company of its obligations under this indemnification to the extent that it has been actually and materially prejudiced by such failure. To date, the Company has not incurred, nor does it expect to incur, any material related costs and, therefore, has not reserved for such liabilities, in accordance with FASB ASC Topic 460, Guarantees.

The Company’s software license and subscription agreements also include a warranty that its software products and services will substantially conform to its software user documentation for a period of one year, provided the customer is in material compliance with the software license or subscription agreement. To date, the Company has not incurred any material costs associated with these product warranties, and as such, has not reserved for any such warranty liabilities in its operating results.

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Lease Commitments

 The Company’s world headquarters are located in approximately 425,000 square feet of space in four office buildings in Indianapolis, Indiana. In May 2014, the Company entered into new separate lease agreements with Duke Realty Limited Partnership for three of the office buildings, one of which was originally to expire in March 2018 and two of which were originally to expire on June 30, 2025. Also in May 2014, the Company entered into a lease agreement with Duke Construction Limited Partnership to expand its world headquarters to include a fourth, build-to-suit office building in Indianapolis, Indiana.  The construction of the fourth office building was completed in June 2015 and the lease term was originally to expire in June 2025. In April 2016, the Company entered into a lease termination agreement with Duke Realty Limited Partnership for one of its headquarters office buildings that was to expire on March 31, 2018. Pursuant to the lease termination agreement, the lease will terminate and be cancelled effective as of September 30, 2016. Additionally, the Company entered into a lease amendment with Duke Realty Limited Partnership for each of its remaining three headquarters office buildings, which extend the term of the leases through June 30, 2027.

Other Contingencies

Effective March 6, 2015, the Company entered into an agreement with Verint Americas Inc. ("Verint"), with an initial term of five years. Under the terms of the agreement, Verint granted to the Company limited rights to sell Verint product and the Company agreed to pay Verint license fees. If sales of Verint product are not maintained at levels as stated in the agreement, the Company could potentially owe Verint up to $5 million. No accrual has been recorded as of June 30, 2016, as the Company anticipates selling at least the minimum amounts of Verint product set forth in the agreement.

The Company has received and may continue to receive certain payroll tax credits and real estate tax abatements that were granted to the Company based upon certain growth projections. If the Company's actual results are less than those projections, the Company may be subject to repayment of some or all of the tax credits or payment of additional real estate taxes in the case of the abatements. The Company does not believe that it will be subject to payment of any money related to these taxes; however, the Company cannot provide assurance as to the outcome.

9. DERIVATIVES

The Company enters into derivative contracts to mitigate its foreign currency risk associated with transacting business internationally.  The Company uses foreign currency forward contracts to hedge the revaluation exposure of its net monetary assets and liabilities including cash, accounts receivable, accounts payable and certain intercompany payables and receivables.  These hedges are not designated under GAAP, and all realized and unrealized gains and losses are recorded as incurred within other income (expense) on the Company’s condensed consolidated statements of operations.  The objective is to offset the gains and losses on the underlying exposures with the gains and losses from the forward contracts.  The Company’s hedging policy prohibits entering into hedge contracts that are speculative in nature.

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The Company records the fair value of its outstanding hedge contracts in other current assets and accrued liabilities depending upon the market value of the forward contracts at each balance sheet date.  The following table summarizes the notional amount and fair value of the Company’s outstanding currency contracts at June 30, 2016 and December 31, 2015, respectively (in thousands):

	USD Equivalent Notional Amount
	June 30, 2016		December 31, 2015
Euro	$	3,317	$	3,275
Japanese Yen	1,752		1,495
South African Rand	355		347
US Dollar	150		150
Total	$	5,574	$	5,267
	Fair Value USD(1)
	June 30, 2016		December 31, 2015
Derivative Asset	$	22	$	32

___________

(1) The fair value measurement of these derivative contracts falls within Level 2 of the fair value hierarchy as defined in FASB ASC 820. See Note 4 - Investments for further information.

During the three and six months ended June 30, 2016, the Company recorded hedging losses of $178,000 and $485,000, respectively, compared to a hedging loss of $57,000 and a hedging gain of $434,000 for the same periods last year.

In May 2015, the Company issued $150 million aggregate principal amount of its 1.25% convertible senior notes (the "Notes") due June 1, 2020, unless earlier purchased by the Company or converted. In connection with the pricing of the Notes, the Company entered into privately-negotiated capped call transactions (the "capped call transactions") with each of Morgan Stanley & Co. LLC, JPMorgan Chase Bank, National Association, London Branch and Royal Bank of Canada. The capped call transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of shares of the Company's common stock that underlie the Notes. The Company used approximately $12.8 million of the net proceeds from the issuance of the Notes to pay the cost of the capped call transactions. The strike price of the purchased call option is the same as the initial conversion price per share of the Notes of $61.24. The capped call transactions have an initial cap price of $79.38 per share. These capped call transactions are recorded within equity on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 and are not remeasured as long as they continue to meet the conditions for equity classification.

10. CONVERTIBLE NOTES

In May 2015, the Company issued $150 million aggregate principal amount of its Notes due June 1, 2020, unless earlier purchased by the Company or converted. Interest is payable semi-annually, in arrears, on June 1 and December 1 of each year. The Company made its first interest payment on the Notes on December 1, 2015.

The Notes were sold in a private placement under a purchase agreement entered into by and among the Company and Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and RBC Capital Markets, LLC, as representatives of the several initial purchasers named therein, for resale to qualified institutional buyers as defined in, and in reliance on, Rule 144A under the Securities Act of 1933, as amended.

The Notes are governed by an indenture between the Company, as issuer, and U.S. Bank National Association, as trustee (the "indenture"). The Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends or the incurrence of senior debt or other indebtedness.

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If converted, holders of the Notes will receive, at the Company's election, cash, shares of the Company's common stock or a combination of cash and shares. The initial conversion terms are as follows:

	Initial Conversion Rate per $1,000 Principal Amount	Initial Conversion Price per Share
1.25% Convertible Senior Notes	16.3303	$	61.24

Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events. Except for certain circumstances set forth in the indenture, holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited.

Holders may convert the Notes under the following circumstances:

• during any calendar quarter commencing after the calendar quarter ending on September 30, 2015 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

• during the five business day period after any 5 consecutive trading day period (the ‘‘measurement period’’) in which the trading price (as defined below) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;

• upon the occurrence of specified corporate transactions pursuant to the indenture; or

• at any time on or after March 3, 2020.

Holders of the Notes have the right to require the Company to repurchase for cash all or a portion of the Notes prior to maturity upon the occurrence of a fundamental change, including, among other things, a change of control, at a purchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate transactions that constitute a fundamental change, the Company is required to increase the conversion rate for a holder who elects to convert the Notes in connection with such fundamental change.

In accounting for the issuances of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the Notes, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to expense using the effective interest rate method over the term of the Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders’ equity.

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The Notes consisted of the following (in thousands):

	As of
	June 30, 2016			December 31, 2015
Liability component:
1.25% Convertible Senior Notes (1)	$	150,000		$	150,000
Less: debt discount, net (2)	(25,697		)	(28,554		)
Less: debt issuance costs (2)	(3,071		)	(3,424		)
Net carrying amount	$	121,232		$	118,022

___________ 

(1) The effective interest rate of the Notes is 6.25%. The interest rate is based on the interest rates of similar liabilities at the time of issuance that did not have an associated convertible feature.

(2) Included in the condensed consolidated balance sheet as of June 30, 2016 and December 31, 2015 within convertible notes and is amortized over the term of the Notes using the effective interest rate method.

The total estimated fair value of the Notes at June 30, 2016 was $138.5 million. The fair value was determined based on inputs that are observable in the market (Level 2) and was based on the closing trading price per $100 of the Notes as of the last day of trading for the second quarter of 2016.

Based on the closing price of the Company’s common stock of $40.99 on June 30, 2016, the if-converted value of the Notes fell below the principal amount by approximately $49.6 million. Based on the terms of the Notes, the Notes were not convertible at any time during the three and six months ended June 30, 2016.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide our investors with an understanding of our past performance, our financial condition and our prospects and should be read in conjunction with other sections of this Quarterly Report on Form 10-Q. Investors should carefully review the information contained in this report under Part II, Item 1A "Risk Factors" and in the Part I, Item 1A "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The following will be discussed and analyzed:

• Forward-Looking Information

• Overview

• Revenue, Outlook and Business Highlights

• Comparison of Results of Operations for the Three and Six Months Ended June 30, 2016 and 2015

• Liquidity and Capital Resources

• Critical Accounting Policies and Estimates

Forward-Looking Information

Certain statements in this Quarterly Report on Form 10-Q contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that involve risks and uncertainties which may cause actual results to differ materially from those predicted in the forward-looking statements. Forward-looking statements can often be identified by the use of such verbs as "expects," "anticipates," "believes," "intend," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," "feel" or similar verbs or conjugations of such verbs. This forward-looking information includes but is not limited to statements regarding our plans, objectives, expectations, intentions, future financial performance (including our outlook for 2016 and beyond), future financial condition and other statements that are not historical facts. If any of our assumptions on which the statements are based prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors, including, but not limited to, worldwide economic conditions and their impact on customer purchasing decisions; rapid technological changes and competitive pressures in the industry; our profitability; and our ability to: manage successfully our growth, meet debt service requirements, manage successfully our increasingly complex third-party relationships resulting from the software and hardware components being licensed or sold with our product offerings, maintain successful relationships with certain suppliers which may be impacted by the competition in the technology industry, maintain successful relationships with our current and any new partners, maintain and improve our current products, develop new products, protect our proprietary rights and sensitive customer information adequately, successfully integrate acquired businesses and improve our brand and name recognition, as well as other factors set forth in our Securities and Exchange Commission ("SEC") filings. Readers of this Quarterly Report on Form 10-Q are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a global provider of software and cloud services for customer engagement, communication and collaboration. We are the only vendor to be recognized by leading industry analyst firm Gartner, Inc. as a market leader in both its Magic Quadrant for Contact Center Infrastructure, Worldwide (for our on-premises offering) and its Magic Quadrant for Contact Center as a Service, North America (for our cloud offerings). We offer three types of products: on-premises software known as Interactive Intelligence Customer Interaction Center^® ("CIC"); a single-tenant cloud service known as Interactive Intelligence Communications as a Service^SM ("CaaS"); and a multi-tenant cloud service known as Interactive Intelligence PureCloud^® ("PureCloud"). Our offerings are used across a wide variety of vertical industries, including accounts receivable management, banking, government, healthcare, insurance, manufacturing, outsourcing, utilities and retail, among others. We continue to invest in the development of both our on-premises and cloud offerings, with particular emphasis on our latest cloud services delivered by our PureCloud Platform. This cloud platform is designed as a set of components that work independently of each other to deliver coordinated services (a "microservices architecture"). The PureCloud Platform leverages Amazon Web Services ("AWS") and has a comprehensive set of features capable of delivering cloud services for organizations of all types and sizes. The first PureCloud services were released in North America in March 2015. Subsequent releases have been made available in Australia, New Zealand, Japan and throughout Europe.

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For further information on our business and the products and services we offer, refer to the Part I, Item 1 "Business" section of our Annual Report on Form 10-K for the year ended December 31, 2015.

Our management monitors certain key measures to assess our financial results. In particular, we track trends in recurring revenues, license and hardware revenues, overage fees from cloud subscriptions and contracted professional services from quarter to quarter and in comparison to the prior year actual results and current year projected amounts. We also review leading market indicators to identify trends in economic conditions. In addition to revenues, management reviews costs of revenue, operating expenses and staffing levels to ensure we are controlling costs. We also regularly examine operating cash flow and free cash flow (as defined below). Trends in revenue, operating expenses and net income or loss will affect cash flow, as will other factors such as cash collections on accounts receivables, cash used for vendor payments and capital expenditures. For additional discussions regarding trends, see "Revenue, Outlook and Business Highlights," "Comparison of Results of Operations for the Three and Six Months Ended June 30, 2016 and 2015" and "Liquidity and Capital Resources" below.

Our management monitors diluted earnings per share ("EPS"), a key measure of performance also used by analysts and investors, based on accounting principles generally accepted in the United States of America ("GAAP"). In addition to measures based on GAAP, our management monitors non-GAAP performance measures including operating income and margin, net income and EPS to analyze our business and also reviews Adjusted EBITDA. These non-GAAP measures are not in accordance with, or an alternative for, GAAP, and may be different from non-GAAP measures used by other companies. We calculate Adjusted EBITDA by adding back the following items to net loss: depreciation; amortization; interest expense, net; income tax expense; stock-based compensation expense; and other expense, which consists primarily of foreign exchange gains and losses. The other non-GAAP performance measures include revenue which was not recognized on a GAAP basis due to purchase accounting adjustments, exclude non-cash stock-based compensation expense, certain acquisition-related expenses, the amortization of certain intangible assets related to acquisitions and the amortization of debt discounts and issuance costs and adjust for non-GAAP income tax expense. Stock-based compensation expense, amortization of intangibles related to acquisitions, and amortization of debt discounts and issuance costs are non-cash. Non-GAAP income tax expense is pro forma, and is calculated as 40% of non-GAAP (loss) income before taxes. We believe that the presentation of these 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 our core results of operations. Further, our management believes that these non-GAAP measures improve management's and investors' ability to compare our financial performance with other companies in the technology industry. Finally, our management also reviews financial statements that include these non-GAAP measures for its internal budgets.

Our management also monitors free cash flow, which we define as operating cash flow less capital expenditures and capitalized software. Management uses free cash flow to evaluate the amount of cash generated by our business that, after the capital investment needed to maintain and grow our business, can be used for repayment of debt and strategic opportunities, including investing in our business and strengthening our balance sheet, and believes that it enhances the understanding of the cash flows of our business for investors.

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Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included below (in thousands, except per share amounts):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Net loss, as reported	$	(10,159	)	$	(5,084	)	$	(23,411	)	$	(8,543	)
Purchase accounting adjustments:
Increase to revenues	—			3			2			6
Reduction of operating expenses:
Customer relationships	392			389			779			784
Acquired technology	186			177			372			354
Non-compete agreements	30			53			60			106
Acquisition costs	—			—			—			1
Total	608			622			1,213			1,251
Non-cash stock-based compensation expense:
Costs of recurring revenues	472			512			865			944
Costs of license and hardware revenues	25			20			55			42
Costs of services revenues	268			164			542			293
Sales and marketing	1,548			1,154			2,365			1,715
Research and development	1,640			963			3,394			1,782
General and administrative	1,175			1,063			1,876			2,093
Total	5,128			3,876			9,097			6,869
Amortization of debt discount and issuance costs	1,613			512			3,210			512
Non-GAAP income tax expense adjustment	1,584			381			4,621			(645		)
Non-GAAP net (loss) income	$	(1,226	)	$	307		$	(5,270	)	$	(556	)
Operating loss, as reported	$	(7,252	)	$	(3,761	)	$	(18,075	)	$	(8,532	)
Purchase accounting adjustments	608			622			1,213			1,251
Non-cash stock-based compensation expense	5,128			3,876			9,097			6,869
Non-GAAP operating (loss) income	$	(1,516	)	$	737		$	(7,765	)	$	(412	)
Diluted loss per share, as reported	$	(0.46	)	$	(0.24	)	$	(1.06	)	$	(0.40	)
Purchase accounting adjustments	0.03			0.03			0.05			0.06
Non-cash stock-based compensation expense	0.23			0.18			0.41			0.32
Amortization of debt discount and issuance costs	0.07			0.02			0.15			0.02
Non-GAAP income tax expense adjustment	0.07			0.02			0.21			(0.03		)
Non-GAAP diluted (loss) income per share	$	(0.06	)	$	0.01		$	(0.24	)	$	(0.03	)

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	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Reconciliation of Net Loss to Adjusted EBITDA
Net loss	$	(10,159	)	$	(5,084	)	$	(23,411	)	$	(8,543	)
Depreciation	4,170			4,068			8,617			8,227
Amortization	3,210			1,601			6,202			2,804
Interest expense, net	1,728			590			3,565			442
Income tax expense (benefit)	767			501			1,108			(990		)
Stock-based compensation expense	5,128			3,876			9,097			6,869
Other expense	412			232			663			559
Adjusted EBITDA	$	5,256		$	5,784		$	5,841		$	9,368

	Six Months Ended
	June 30,
	2016			2015
Reconciliation of Operating Cash Flow to Free Cash Flow
Operating cash flow	$	12,904		$	14,162
Capital expenditures	(3,781		)	(10,659		)
Capitalized software	(1,867		)	(12,568		)
Free cash flow	$	7,256		$	(9,065	)

Revenue, OutlookandBusinessHighlights

The table below shows our total revenues (in millions) for the most recent five quarters and the years ended December 31, 2015, 2014 and 2013 and the percentage change over the prior year period.

Period	Revenues		Year-over-Year Growth %
Three Months Ended:
June 30, 2016	$	108.8	13	%
March 31, 2016	99.3		11
December 31, 2015	107.7		16
September 30, 2015	97.4		9
June 30, 2015	96.3		21
Year Ended December 31:
2015	$	390.9	15	%
2014	341.3		7
2013	318.2		34

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Geographic Mix

The following table shows the percentage of revenues derived from each of our geographic regions for the periods presented:

	Three Months Ended June 30,				Six Months Ended   June 30,
	2016		2015		2016		2015
Americas	67	%	69	%	68	%	68	%
Europe, Middle East and Africa	21		20		20		20
Asia-Pacific	12		11		12		12

Foreign Currency Impact on Revenues and Profitability

Due to the continued strengthening of the US dollar against international currencies, we recognized $1.1 million and $2.9 million less in revenue for the three and six months ended June 30, 2016, respectively, than we would have utilizing foreign exchange rates in effect during the prior year periods. Since we operate in many international locations, the year-over-year change in foreign exchange rates positively impacted the expenses we recorded for the three and six months ended June 30, 2016, resulting in a net negative impact on operating income of $234,000 and $376,000 for the three and six months ended June 30, 2016, respectively.

Outlook for 2016

We are currently projecting total recognized revenue in the range of $425 million to $435 million for the full year of 2016, given the faster-than-expected adoption of PureCloud and potential effect on services revenues and license and hardware revenues. There can be no assurance that our outlook for 2016 as provided in our Annual Report on Form 10-K for the year ended December 31, 2015, and as modified above or otherwise, will be achieved, and actual results may be materially and adversely different from our current projections. 

Convertible Notes Issuance

In May 2015, we issued $150 million aggregate principal amount of 1.25% convertible senior notes (the "Notes") due June 1, 2020, unless earlier purchased by us or converted. Interest is payable semi-annually, in arrears, on June 1 and December 1 of each year. See Note 10 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our issuance of the Notes. For a discussion of the impact of the Notes offering on our liquidity and the expected use of the proceeds from the offering, see "Liquidity and Capital Resources" below.

Comparison ofThree and Six Months Ended June 30, 2016and 2015

Revenues

Our revenues include: (i) recurring revenues; (ii) license and hardware revenues; and (iii) services revenues. These revenues are generated through direct sales to customers and through our partner channels.

Recurring revenues include subscription revenues from our implemented cloud offerings and support fees from on-premises license agreements. The support fees are recognized over the support period, generally between one and three years. Cloud subscriptions have historically been for periods of up to five years; however, beginning in 2015, we began offering one year contracts and month-to-month contracts for our CaaS and PureCloud offerings, respectively. These shorter contract lengths are designed to simplify the contracting process and accelerate sales cycles.

License and hardware revenues include license fees for on-premises software and sale of hardware. Not all on-premises software and hardware product sales are recognized as revenue when they are received because of product general availability, certain contractual terms or the collection history with particular customers or partners. Consequently, license and hardware revenues for any particular period not only reflect certain sales received in the current period, but also include certain sales received but deferred in previous periods and recognized in the current period. In addition, a portion of license and hardware sales are related to support and recognized over the support period as recurring revenues.

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Services revenues primarily include professional and education services fees. Services revenues fluctuate based on the product implementation requirements of our customers and partners as well as the number of attendees at our training classes. Our PureCloud offering, by design, requires less professional services than our on-premises or CaaS offerings, which has reduced services revenues as more customers choose PureCloud.

					Percent of Total Revenues				Increase or (Decrease)
	Three Months Ended   June 30,				Three Months Ended   June 30,
	2016		2015		2016		2015		2016 vs. 2015
	($ in thousands)
Recurring	$	66,045	$	53,846	60.7	%	55.9	%	23	%
License and hardware	29,702		27,010		27.3		28.0		10
Services	13,044		15,475		12.0		16.1		(16	)
Total revenues	$	108,791	$	96,331					13

					Percent of Total Revenues				Increase or (Decrease)
	Six Months Ended   June 30,				Six Months Ended   June 30,
	2016		2015		2016		2015		2016 vs. 2015
	($ in thousands)
Recurring	$	130,335	$	108,058	62.7	%	58.1	%	21	%
License and hardware	51,080		48,631		24.5		26.2		5
Services	26,657		29,117		12.8		15.7		(8	)
Total revenues	$	208,072	$	185,806					12

Recurring Revenues

The breakdown of recurring revenues was as follows:

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2016		2015		2016		2015
	($ in thousands)				($ in thousands)
Support fees	$	34,720	$	31,926	$	69,283	$	65,097
Cloud subscriptions	31,325		21,920		61,052		42,961
Total	$	66,045	$	53,846	$	130,335	$	108,058

Cloud subscription revenues increased 43% and 42%, respectively, between the three and six month periods in 2016 and 2015. The increase was due to new customer implementations, upgrades and additional subscriptions from or usage by existing customers. Our support fees increased with the continued growth of our installed base of on-premises customers. Renewal rates were consistent between the 2016 and 2015 periods. The average sales price per user for our cloud offerings varies from period to period, but remained within a consistent range during the 2016 and 2015 periods.

Our unbilled future cloud subscription revenues were $262.9 million and $308.5 million as of June 30, 2016 and 2015, respectively. These unbilled cloud subscription revenues are not included in deferred revenues on our balance sheet, but represent the remaining minimum value of non-cancellable agreements that have not been invoiced to the customer. Unbilled future cloud subscription revenues decreased year-over-year because the subscriptions for our CaaS offering have primarily been one year in length since the beginning of 2015, compared to contracts that were historically three to five years in length prior to 2015. Additionally, in 2015, we began offering PureCloud, which typically involves month-to-month contracts.

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Licenseand HardwareRevenues

License and hardware revenues increased during both the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015 primarily due to the recognition of a significant contract received during the second quarter of 2016. We also saw strong demand from our partner channel, who sold the majority of our new on-premises contracts during the second quarter of 2016.

Services Revenues

Services revenues decreased during both the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015 primarily due to more services being delivered by our partners as well as the increase in PureCloud subscriptions as a percentage of our total sales. As cloud subscriptions, particularly PureCloud, continue to become a greater percentage of our total sales, our services revenues may continue to decline because our cloud subscriptions require less professional services than our on-premises and single-tenant cloud offerings.

Costs of Revenues

Our costs of revenues include the costs of:  (i) recurring revenues; (ii) license and hardware revenues; and (iii) services revenues. 

Costs of recurring revenues consist primarily of compensation expenses for technical support personnel as well as costs associated with deploying our cloud offerings. Some costs related to our cloud offerings, such as equipment costs, are recognized over time, but others, such as compensation and travel-related expenses, are recognized as incurred.  Some of these costs are fixed while others are variable based on usage and call volume. Our recurring revenue margin improved throughout 2015 and the first six months of 2016, and we expect it to continue to improve throughout the remainder of 2016 as this portion of our business continues to scale and as we implement operational efficiencies throughout our infrastructure.

Costs of license and hardware revenues consist of hardware costs (including media servers, Interaction Gateway^® appliances and Interaction SIP Stations^TM that we develop, as well as servers, telephone handsets and gateways that we purchase and resell), royalties for third-party software and other technologies included in our product offerings, as well as personnel costs and product distribution facility costs. These costs can fluctuate depending on which software products are licensed (including third-party software) and the dollar amount of sales for hardware and appliances.

Costs of services revenues consist primarily of compensation expenses for our professional services and educational personnel. 

							Percent of Total Revenues				Increase or (Decrease)
	Three Months Ended   June 30,						Three Months Ended   June 30,
	2016			2015			2016		2015		2016 vs. 2015
	($ in thousands)
Recurring	$	22,765		$	19,253		20.9	%	20.0	%	18	%
License and hardware	5,623			6,552			5.2		6.8		(14	)
Services	11,389			11,514			10.5		12.0		(1	)
Total cost of revenues	$	39,777		$	37,319						7
Recurring revenue gross margin	65.5		%	64.2		%
License and hardware revenue gross margin	81.1		%	75.7		%
Services revenue gross margin	12.7		%	25.6		%

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							Percent of Total Revenues				Increase or (Decrease)
	Six Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016		2015		2016 vs. 2015
	($ in thousands)
Recurring	$	45,201		$	37,997		21.7	%	20.4	%	19	%
License and hardware	12,014			13,081			5.8		7.0		(8	)
Services	22,940			22,765			11.0		12.3		1
Total cost of revenues	$	80,155		$	73,843						9
Recurring revenue gross margin	65.3		%	64.8		%
License and hardware revenue gross margin	76.5		%	73.1		%
Services revenue gross margin	13.9		%	21.8		%

Costs of Recurring Revenues

Costs of recurring revenues increased in both comparative periods primarily due to increased amortization of capitalized development costs related to our PureCloud Platform. We amortized $1.8 million and $3.5 million of PureCloud development costs during the three and six months ended June 30, 2016, respectively, compared to $419,000 and $465,000 during the same periods in 2015. Costs of recurring revenues also increased as a result of increased third party services, which included our use of AWS to support our PureCloud offering.

Costs ofLicenseand HardwareRevenues

Costs of license and hardware revenues decreased and license and hardware revenue gross margin increased in both comparative periods primarily due to a $2.1 million reduction to our accrual related to the royalty agreement with Avaya, Inc. ("Avaya") due to a change in our estimate of our expected liability, which resulted in a reduction to costs of license and hardware revenues for the three and six months ended June 30, 2016.

Costs of Services Revenues

Costs of services revenues were nearly flat during both comparative periods. Services revenue gross margin decreased in both comparative periods due to an increase in on-premises contracts originated by our partners, who also provide the related professional services, as well as our growing PureCloud deployment engagements, which require less professional services than our on-premises and single-tenant cloud offerings and have lower margins than our on-premises professional services engagements.

Gross Profit

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
	($ in thousands)						($ in thousands)
Gross Profit	$	69,014		$	59,012		$	127,917		$	111,963
Change from prior period	17		%	27		%	14		%	18		%
Gross margin	63.4		%	61.3		%	61.5		%	60.3		%

Gross margin increased during the three and six months ended June 30, 2016 compared to the same periods in 2015 primarily due to the $2.1 million reduction to our accrual related to our royalty agreement with Avaya due to a change in our estimate of our expected liability.

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Operating Expenses

Our operating expenses include the costs for: (i) sales and marketing; (ii) research and development; and (iii) general and administrative operations.

Sales and marketing expenses primarily include compensation, travel and promotional costs related to our sales, marketing, client success and channel management operations for our on-premises and cloud deployments. We expect these expenses to increase marginally in future periods as we continue to develop our inside sales organization and increase expenses for lead generation and digital marketing efforts.

Research and development expenses are comprised primarily of compensation expense, allocated overhead costs and depreciation expenses. We expect research and development expenses will continue to increase in the remainder of 2016 compared to 2015, as we have reduced the amount of research and development costs that we capitalize, and increased the amount of such costs that we expense, since the majority of new PureCloud features have been released for general availability. We believe that continued investment in research and development is critical to our future growth, particularly because our competitive position in the marketplace is directly related to the timely development of new and enhanced offerings.

General and administrative expenses include compensation expense as well as general corporate expenses that are not allocable to other departments, such as costs for legal and other professional fees and bad debt. We expect general and administrative expenses as a percentage of total revenues for the full year 2016 will be relatively consistent compared to the full year 2015.

					Percent of Total Revenues				Increase
	Three Months Ended   June 30,				Three Months Ended   June 30,
	2016		2015		2016		2015		2016 vs. 2015
	($ in thousands)
Sales and marketing	$	39,808	$	33,875	36.6	%	35.2	%	18	%
Research and development	23,242		16,694		21.4		17.3		39
General and administrative	13,216		12,204		12.1		12.7		8
Total operating expenses	$	76,266	$	62,773					21

					Percent of Total Revenues				Increase
	Six Months Ended   June 30,				Six Months Ended   June 30,
	2016		2015		2016		2015		2016 vs. 2015
	($ in thousands)
Sales and marketing	$	74,244	$	64,984	35.7	%	35.0	%	14	%
Research and development	46,022		30,531		22.1		16.4		51
General and administrative	25,726		24,980		12.4		13.4		3
Total operating expenses	$	145,992	$	120,495					21

Sales and Marketing 

Sales and marketing expenses increased in both comparative periods primarily due to increases in compensation and other related expenses resulting from sales staffing increases. Additionally, we increased our sales and marketing efforts for our PureCloud products, which included additional expenditures related to digital marketing and lead generation, and also incurred increased costs associated with our annual Interactions conference.

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Research and Development

Research and development expenses increased in both comparative periods primarily due to lower capitalization of development costs for our PureCloud Platform. During the three and six months ended June 30, 2016, we capitalized $200,000 and $1.2 million, respectively, of costs related to the development of the PureCloud Platform, compared to the capitalization of $5.2 million and $10.8 million during the same periods in 2015. The increase was also due to increases in compensation expenses resulting from staffing increases.

General and Administrative

General and administrative expenses increased in both comparative periods primarily due to expenses incurred to support the overall growth in our business. However, general and administrative expenses decreased in both comparative periods as a percentage of revenue due to efficiencies gained in supporting our overall growth.

Other Expense:

Interest Expense, net

Interest expense, net, consists of interest expense related to the Notes we issued in May 2015 partially offset by interest earned from investments, receivables and interest-bearing cash accounts. Other income, which was not material in any periods reported, is also included.

Interest expense, net breakdown	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
	($ in thousands)						($ in thousands)
Interest expense(1)	$	(2,091	)	$	(741	)	$	(4,202	)	$	(746	)
Interest income on investments	$	313		$	61		$	600		$	85
Interest income on receivables	50			40			66			119
Other income (expense)	—			50			(29		)	100
Total interest expense, net	$	(1,728	)	$	(590	)	$	(3,565	)	$	(442	)

______

(1) Includes the interest accrual for the semi-annual coupon payment and amortization of the debt discount and issuance costs, all which are related to the Notes.

We invest in longer term investments with maturities up to three years to increase our overall yield on investments and monitor the allocation of funds in our investment accounts to maximize our return on investment within our established investment policy. We do not invest in subprime assets.

Return on investments	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
	($ in thousands)						($ in thousands)
Cash, cash equivalents and investments (average)	$	198,144		$	124,928		$	193,870		$	123,309
Interest income on investments(1)	313			61			600			134
Return on investments	0.16		%	0.05		%	0.31		%	0.11		%

______

(1) Interest income on investments during the six months ended June 30, 2015 excludes a one-time adjustment to interest income. This amount has been excluded in order to reflect the actual return on investments earned during the period.

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The change in interest income for the three and six months ended June 30, 2016 compared to the same periods in 2015 was primarily due to an increase in interest rates on the investment vehicles that we utilized, as well as the investment of proceeds obtained through our Notes issuance in the second quarter of 2015. We continue to review our investment options in an effort to increase our interest income while keeping our risk of losing principal to a minimum.

OtherExpense

Other expense primarily includes foreign currency gains and losses, which fluctuate based on the amount of receivables we generate in certain international currencies, the exchange gain or loss that results from foreign currency disbursements and receipts, the cash balances and exchange rates at the end of a reporting period and the effectiveness of our hedging activities at mitigating currency risk.

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
	($ in thousands)						($ in thousands)
Other expense	$	(412	)	$	(232	)	$	(663	)	$	(559	)

Other expense increased during the three and six months ended June 30, 2016 compared to the same periods last year primarily due to the revaluation of cash in Venezuela and, to a lesser extent, increased foreign currency losses on other unhedged exposures. We regularly review our foreign currency exposures for inclusion in our hedging program.

Income Tax (Expense) Benefit

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
	($ in thousands)						($ in thousands)
Income tax (expense) benefit	$	(767	)	$	(501	)	$	(1,108	)	$	990

Our effective tax rate, without the effect of discrete items, for the three and six months ended June 30, 2016 was (8.2)%and (5.0)%, respectively, compared to 0.9% and (7.5)%, respectively, for the same periods in 2015. This tax rate was determined by considering the annual expected federal tax rate, rates in various states and international jurisdictions in which we have operations and certain income tax credits. No discrete items were recorded during the three and six months ended June 30, 2016. During the three months ended June 30, 2015, we recorded $29,000 of expense related to discrete items. During the six months ended June 30, 2015, we recorded a net credit of $1.7 million related to discrete items, including a net credit of $1.9 million recorded during the first quarter of 2015 to correct an error in our valuation reserve for deferred tax assets. With the effects of these discrete items, our effective tax rate was (11.7)% and 10.4% for the three and six months ended June 30, 2015, respectively. 

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Foreign Subsidiaries

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2016		2015		2016		2015
	($ in thousands)				($ in thousands)
Foreign subsidiary net income before taxes	$	1,737	$	750	$	831	$	1,700
Foreign tax expense	284		171		530		400

Our foreign effective tax rates for the six months ended June 30, 2016 and 2015 were 63.8% and 23.5%, respectively. No discrete items were recorded for the three or six months ended June 30, 2016. The impact of our foreign effective income tax rates could become material as we expand our operations in foreign countries and calculate foreign income taxes based on operating results in those countries.

Liquidity and Capital Resources

We generate cash from the collection of payments for the use of our cloud offerings, payments related to licensing our on-premises offerings as well as from selling hardware, renewals of support agreements and the delivery of other services. We use cash primarily to pay our employees (including salaries, commissions and benefits), lease office space, pay travel expenses, pay for marketing activities, pay vendors for hardware, other services and supplies, purchase property and equipment, pay research and development costs, pay interest payments on our debt and fund acquisitions.

We determine our liquidity by combining cash and cash equivalents and short-term and long-term investments as shown in the table below. During the second quarter of 2015, we sold $150 million aggregate principal amount of the Notes. We used approximately $12.8 million of the net proceeds from the offering to pay the cost of the capped call transactions entered in connection with the pricing of the Notes. We intend to use the remainder of the net proceeds from the offering of the Notes for working capital and other general corporate purposes, and may also pursue acquisitions in the future. Based on our current expectations, we believe that our current liquidity position will be sufficient to satisfy our working capital requirements and current or expected obligations associated with our operations for the foreseeable future. Our largest potential capital outlay in the future is expected to be related to purchases of information technology equipment and facility buildouts.

	June 30, 2016		December 31, 2015
	($ in thousands)
Cash and cash equivalents	$	106,872	$	94,808
Short-term investments	58,906		64,182
Long-term investments	32,469		30,503
Total liquidity	$	198,247	$	189,493

Given our liquidity in the U.S., we do not have plans to repatriate earnings from our foreign subsidiaries in the near future. As of June 30, 2016, Interactive Intelligence Group, Inc. held a total of $6.3 million in its various foreign bank accounts and its foreign subsidiaries held a total of $28.0 million in their various bank accounts. The temporary difference related to unremitted earnings of our foreign affiliates as of June 30, 2016, that have not been subject to United States income taxation as dividends and are indefinitely invested outside the United States, was $32.9 million. If we were to repatriate all of those earnings to Interactive Intelligence Group, Inc. in the form of dividends, the incremental U.S. federal income tax, net of applicable foreign tax credits, would be $6.0 million.

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The following table shows the U.S dollar equivalent of our foreign account balances for the stated periods:

	June 30, 2016		December 31, 2015
	($ in thousands)
Euro	$	13,216	$	10,952
Canadian dollar	8,641		6,645
Australian dollar	3,880		1,947
British pound	3,287		3,761
New Zealand dollar	1,429		1,654
South African rand	1,269		1,966
Other foreign currencies	2,645		4,412
Total	$	34,367	$	31,337

The following table shows cash flows from operating activities, investing activities and financing activities for the stated periods:

	Six Months Ended   June 30,
	2016			2015
	($ in thousands)
Beginning cash and cash equivalents	$	94,808		$	36,168
Cash provided by operating activities	12,904			14,162
Cash used in investing activities	(1,929		)	(2,765		)
Cash provided by financing activities	1,089			132,375
Ending cash and cash equivalents	$	106,872		$	179,940
Days sales outstanding (DSO)	80			80

Cash flow provided by operations was $12.9 million during the first six months of 2016 compared to $14.2 million during the same period in 2015. Cash flow provided by operations consists of our earnings adjusted for various non-cash expenses, such as depreciation and amortization, as well as balance sheet changes. Our cash flow from operations during the first six months of 2016 compared to 2015 was primarily affected by our net loss and changes in accounts receivable.

Accounts receivable provided more operating cash flow during the first six months of 2016 compared with the same period in 2015 primarily due to strong collections during the first quarter of 2016.

Cash used in investing activities decreased approximately $800,000 in the first six months of 2016 compared to the same period in 2015, primarily due to a $10.7 million decrease in our investment in capitalized software and a $6.9 million decrease in cash used to purchase property, plant and equipment, partially offset by a decrease in net sales of available-for-sale investments of $16.9 million.

Cash provided by financing activities decreased $131.3 million in the first six months of 2016 compared to the same period in 2015 primarily due to the issuance of the Notes during the second quarter of 2015.

Contractual Obligations

As of June 30, 2016, our purchase obligations increased $9.3 million from the amount disclosed in the contractual obligations table in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015. The contractual obligations table as of June 30, 2016, which reflects the increased purchase obligations and other immaterial changes, is set forth below (in thousands).

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	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual Obligations
Convertible notes	$	157,500	$	1,875	$	3,750	$	151,875	$	—
Capital lease obligations	1,557		1,162		395		—		—
Operating lease obligations	86,838		6,659		21,331		16,931		41,917
Purchase obligations	25,301		18,784		6,517		—		—
	$	271,196	$	28,480	$	31,993	$	168,806	$	41,917
Other long-term liabilities (uncertain timing of future payments)	$	138
	$	271,334

As set forth in the Contractual Obligations table above, we have operating lease obligations and purchase obligations that are not recorded in our condensed consolidated financial statements. The operating lease obligations represent future payments on leases classified as operating leases and disclosed pursuant to FASB ASC Topic 840, Leases ("FASB ASC 840"). These obligations include the operating lease of our world headquarters and the leases of several other locations for our offices in the United States and 20 other countries. See Note 8 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our lease commitments.

The convertible notes obligation set forth in the Contractual Obligations table includes principal payments and estimated interest payments based on the terms of our Notes.

The capital lease obligations set forth in the Contractual Obligations table represent future payments on leases classified as capital leases and disclosed pursuant to FASB ASC 840. The obligations include capital leases of hardware and software assets with initial lease terms of up to three years.

Finally, other long-term liabilities include amounts regarding our tax liabilities and uncertain tax positions related to FASB ASC 740. See Note 10 of Notes to Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion on our uncertain tax positions.

In addition to the amounts set forth in the table above, we have contractual obligations with certain third-party technology companies to pay royalties to them based upon future licensing of their products and patented technologies as well as purchase obligations in which the payments due are based on a percentage of our revenues, and are therefore unknown. We cannot estimate what these future amounts will be.

Off-Balance Sheet Arrangements

Except as set forth in the Contractual Obligations table above, we have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future material impact on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources as of June 30, 2016. 

We provide indemnifications of varying scope and amount to certain customers against claims of intellectual property infringement made by third parties arising from the use of our product and service offerings. Our software license and subscription agreements, in accordance with FASB ASC Topic 460, Guarantees, include certain provisions for indemnifying customers, in material compliance with their license agreement, against liabilities if our software products or services infringe upon a third party's intellectual property rights, over the life of the agreement. We are not able to estimate the potential exposure related to the indemnification provisions of our license and subscription agreements but have not incurred any material expenses under these indemnification provisions. We may at any time and at our option and expense: (i) procure the right of the customer to continue to use our software or services that may infringe a third party's rights; (ii) modify our software or services so as to avoid infringement; or (iii) require the customer to return our software or stop using the service and we will provide a refund to the customer depending on the type of offering (on-premises or cloud) used by that customer. The customer's failure to provide timely notice or reasonable assistance will relieve us of our obligations under this indemnification to the extent that we have been actually and materially prejudiced by such failure. To date, we have not incurred, nor do we expect to incur, any material related costs and, therefore, have not reserved for such liabilities.

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Our software license and subscription agreements also include a warranty that our software products or services will substantially conform to our software user documentation for a period of one year, provided the customer is in material compliance with the software license or subscription agreement. To date, we have not incurred any material costs associated with these product warranties, and as such, we have not reserved for any such warranty liabilities in our operating results.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. Actual results may differ from those estimates and judgments under different assumptions or conditions. We have discussed the critical accounting policies that we believe affect our more significant estimates and judgments used in the preparation of our consolidated financial statements in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" section of our Annual Report on Form 10-K for the year ended December 31, 2015 and in Note 2 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. For a further summary of certain accounting policies, see Note 2 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We develop software products in the United States and license our product offerings worldwide. As a result, our financial results could be affected by market risks, including changes in foreign currency exchange rates, interest rates or weak economic conditions in certain markets. Market risk is the potential of loss arising from unfavorable changes in market rates and prices.

Foreign Currency Exchange Rates

We transact business in certain foreign currencies including the Euro, Canadian dollar, Australian dollar, British pound, New Zealand dollar and the South African rand, among others. However, as a majority of the sales we receive are denominated in United States dollars, a strengthening of the dollar could make our product offerings more expensive and less competitive in foreign markets. We continue to mitigate our foreign currency risk by generally transacting business and paying salaries in the functional currency of each of the major countries in which we do business, thus creating natural hedges. Additionally, as our business matures in foreign markets, we may price our products and services in certain other local currencies. If this were to occur, foreign currency fluctuations could have a greater impact on us and may have an adverse effect on our results of operations. As of June 30, 2016, we had outstanding hedging arrangements for the Euro, Japanese yen, South African rand and United States Dollar. For the three and six months ended June 30, 2016, we recorded foreign currency losses of $883,000 and $1.2 million, respectively, primarily due to the revaluation of cash in Venezuela.

For the three and six months ended June 30, 2016, approximately 23% and 22% of our revenues, respectively, and 15% of our expenses were denominated in a foreign currency. As of June 30, 2016, we had net monetary assets valued in foreign currencies subject to foreign currency transaction gains or (losses), consisting primarily of cash and receivables, partially offset by accounts payable, with a carrying value of approximately $15.9 million. A 10% change in foreign currency exchange rates would have changed the carrying value of these net assets by approximately $1.6 million as of June 30, 2016, with a corresponding foreign currency gain (loss) recognized in our condensed consolidated statements of operations, if not hedged.

Interest Rate Risk

We invest cash balances in excess of operating requirements in securities that have maturities of up to three years and are diversified among security types. The carrying value of these securities approximates market value. These securities bear interest at fixed interest rates. Based on the weighted average maturities of the investments, if market interest rates were to increase by 100 basis points from the level at June 30, 2016, the fair value of our portfolio would decrease by approximately $945,000.

In May 2015, we issued $150 million aggregate principal amount of Notes due June 1, 2020, unless earlier purchased by us or converted, which have a fixed 1.25% coupon rate. The fair value of the Notes will be impacted by a change in market interest rates. See Note 10 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our issuance of the Notes.

Item 4.Controls and Procedures.

We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosures. We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2016, pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2016.  

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The information set forth under "Legal Proceedings" in Note 8 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

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Item 1A. Risk Factors.

In addition to the information set forth in this Quarterly Report on Form 10-Q and before deciding to invest in, or retain, shares of our common stock, you also should carefully review and consider the information contained in our other reports and periodic filings that we make with the SEC, including, without limitation, the information contained under the caption Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015. Those risk factors could materially affect our business, financial condition and results of operations. 

The risks that we describe in our public filings are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we presently deem to be immaterial, also may materially adversely affect our business, financial condition and results of operations. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 6. Exhibits

(a) Exhibits

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date	Filed Herewith
3.1	Articles of Incorporation of the Company, as currently in effect	S-4/A (Registration No. 333-173435)	Annex II to the Proxy Statement / Prospectus	4/27/2011
3.2	Amended By-Laws of the Company, as currently in effect	S-4/A (Registration No. 333-173435)	Annex III to the Proxy Statement / Prospectus	4/27/2011
10.1	First Lease Amendment, dated as of February 26, 2015, between Interactive Intelligence Group, Inc. and Duke Realty Limited Partnership (7676 Interactive Way)				X
10.2	Lease Termination Agreement, dated as of April 25, 2016, between Interactive Intelligence Group, Inc. and Duke Realty Limited Partnership (7602 Interactive Way)	8-K	10.1	4/29/2016
10.3	First Lease Amendment, dated as of April 25, 2016, between Interactive Intelligence Group, Inc. and Duke Realty Limited Partnership (7601 Interactive Way)	8-K	10.2	4/29/2016
10.4	Second Lease Amendment, dated as of April 25, 2016, between Interactive Intelligence Group, Inc. and Duke Realty Limited Partnership (7676 Interactive Way)	8-K	10.3	4/29/2016
10.5	First Lease Amendment, dated as of April 25, 2016, between Interactive Intelligence, Inc. and Duke Realty Limited Partnership. (7635 Interactive Way) (Exhibits thereto will be furnished supplementally to the Securities and Exchange Commission upon request)	8-K	10.4	4/29/2016

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		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date	Filed Herewith
10.6	Interactive Intelligence Group, Inc. 2006 Equity Incentive Plan, as amended May 18, 2016	8-K	10.1	5/20/2016
10.7	Interactive Intelligence Group, Inc. Employee Stock Purchase Plan, as amended and restated	8-K	10.2	5/20/2016
10.8	Form of Non-Employee Director Change of Control Agreements between Interactive Intelligence Group, Inc. and each of Mitchell E. Daniels, Jr., Edward L. Hamburg, Ph.D., Michael C. Heim, Mark E. Hill and Richard A. Reck				X
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1	Certification of the Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
32.2	Certification of the Chief Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X
101	The following materials from Interactive Intelligence Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statement of Comprehensive Loss; (iv) Condensed Consolidated Statement of Shareholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements				X

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SIGNATURE

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 Group, Inc. (Registrant)
Date: August 5, 2016	By: /s/     Ashley A. Vukovits
	Ashley A. Vukovits Chief Financial Officer, Senior Vice President of Administration, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)

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EX-10.1

EXHIBIT 10.1

FIRST LEASE AMENDMENT

THIS FIRST LEASE AMENDMENT (the "Amendment") is executed this 26th day of February, 2015, by and between DUKE CONSTRUCTION LIMITED PARTNERSHIP, anIndiana limited partnership ("Landlord"), and INTERACTIVE INTELLIGENCE GROUP, INC., an Indiana corporation ("Tenant").

W I T N E S S E T H:

WHEREAS, Landlord and Tenant entered into that certain Office Lease dated May 6, 2014 (the "Lease"), whereby Tenant agreed to lease from Landlord approximately 112,500 rentable square feet of space in a building to be constructed and known as Woodland VII (a/k/a HQ3) (the "Leased Premises") located at Woodland Corporate Park, Indianapolis, Indiana; and

WHEREAS, Tenant has provided notice to Landlord that it has chosen to delay the construction of the Tenant Improvements until a later date; and

WHEREAS, Tenant acknowledges and agrees that such choice constitutes a Tenant Delay; and

WHEREAS, as a result of the foregoing, the parties agree that the Commencement Date pursuant to the Lease shall be determined by Substantial Completion of the Shell Work; and

WHEREAS, the parties agree that the delay in the construction of the Tenant Improvements requires revisions to the provisions of the Lease regarding the timing of construction process; and

WHEREAS, Landlord and Tenant desire to amend certain provisions of the Lease to reflect such Tenant elected delay in construction of the Tenant Improvements and any other changes to the Lease;

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants herein contained and each act performed hereunder by the parties, Landlord and Tenant hereby enter into this Amendment.

1.Incorporation of Recitals. The above recitals are hereby incorporated into this Amendment as if fully set forth herein.

2.Amendment of Exhibits. The Lease is hereby amended by deleting Exhibit B and Exhibit B-2 and substituting the attached Amended Exhibit B and Amended Exhibit B-2, respectively, in lieu thereof.

3.Amendment of Article 2.01.Term.Section 2.01 of the Lease is hereby amended by deleting such Section and substituting the following in lieu thereof:

"The Lease Term shall commence (the "Commencement Date") on the later of: (i) the date of Substantial Completion (as defined in Amended Exhibit Bhereto) of the Shell Work (as such term is defined in Section 2.02below) or (ii) July 1, 2015."

4.Amendment of Article 2.02.Construction.Section 2.02 of the Lease is hereby amended by deleting such Section and substituting the following in lieu thereof:

"Section 2.02. Construction.

A.Shell Work. The scope of the work for the shell improvements ("Shell Work") to be performed by Landlord at Landlord's sole expense shall be consistent with those certain construction drawings referenced on that certain drawing log attached hereto and made part hereof as Schedule 1, which Landlord and Tenant agree are the final and approved plans and specifications and actual working drawings for the Shell Work (the "Shell CD's"). Landlord shall construct in a good and workmanlike manner all of the Shell Work and supply all work, labor, commercial grade materials and equipment necessary to complete the Shell Work in accordance with the Shell CD's, which shall include, without limitation, the installation of landscaping, parking lots, driveways and all improvements as shown on the Shell CD's or described in or reasonably inferable from the written project description attached hereto as Exhibit B-1("Project Description") for the benefit of the Leased Premises.

1

B.Tenant Improvements. Upon receipt of written notice to proceed by Tenant (the "TI Notice"), Landlord shall construct and install all leasehold improvements to the Leased Premises (collectively, the "Tenant Improvements"), at its sole cost and expense (except for the cost of those Allowance Improvements that exceed the allowances for such as provided in Amended Exhibit B, which shall be at Tenant's sole cost and expense and payable according to Amended Exhibit B), in accordance with Amended Exhibit Battached hereto and made a part hereof or described in or reasonably inferable from the Project Description.

C. Schedule.

(i)Shell Work. The Shell Work shall be constructed by Landlord in a good and workmanlike manner and in accordance with the Project Schedule to be attached hereto as Amended Exhibit B-2. Landlord shall apply for and obtain as expeditiously as possible, at its sole cost and expense, all permits, licenses and certificates necessary for the construction of the Shell Work. Landlord shall obtain any third party warranties required under the Shell CD's.

(ii)Tenant Improvements. Upon receipt of the TI Notice and final approval of the TI CD's (as defined in Amended Exhibit Bhereto), Landlord shall develop a project schedule for the construction of the Tenant Improvements (the "TI Schedule"). The Tenant Improvements shall be constructed by Landlord in a good and workmanlike manner and in accordance with the TI Schedule. Landlord shall apply for and obtain as expeditiously as possible, at its sole cost and expense, all permits, licenses and certificates necessary for the construction of the Tenant Improvements and for the occupancy thereof by Tenant but excluding any permits for Tenant's specific use as may be required to be obtained by Tenant by the State of Indiana or any other applicable governmental authority or agency. Landlord shall obtain any third party warranties required under the TI CD's.

D.Change Orders. After final completion and approval of the Shell CD's and TI CD's, Tenant may request changes to the Shell Work or Tenant Improvements, but any changes may only be made through the following change order process (each, a "Change Order", and collectively, "Change Orders"). Upon Tenant's commercially reasonable request for a change to the Shell Work or Tenant Improvements, including any corresponding changes to the Shell CD's or TI CD's, Landlord shall prepare and submit promptly to Tenant a written Change Order setting forth the impact on cost and schedule resulting from the proposed change. Tenant shall, within five (5) business days following Tenant's receipt of the proposed Change Order either: (a) execute and return the Change Order to Landlord, or (b) retract its request for the Change Order. Landlord shall receive a construction management fee of not more than seven percent (7%) on all Change Orders which shall cover Landlord's (or its construction manager or general contractor's) profit and overhead, but exclusive of supervision, personnel, office/admin and temporary utilities and any General Conditions that may be required with respect to said Change Orders. Tenant shall pay Landlord any actual increase in the cost to construct the Shell Work or the Tenant Improvements resulting from the Change Order in accordance with Amended Exhibit B. Landlord shall not be obligated to commence any work set forth in a Change Order until such time as Tenant has delivered to Landlord the Change Order executed by Tenant.

E.Warranty. Landlord hereby warrants (i) the Shell Work for a period of one (1) year from Substantial Completion of the Shell Work against defects in materials and workmanship, ordinary wear and tear excepted and (ii) Tenant Improvements for a period of one (1) year from Substantial Completion of the Tenant Improvements against defects in materials and workmanship, ordinary wear and tear excepted. The foregoing warranty covers all materials, labor and equipment for repairs, but do not cover consequential damages, such as lost profits or opportunity, incurred by the Tenant. In addition to the foregoing, upon the Substantial Completion of the Shell Work and/or Tenant Improvements, Landlord shall use commercially reasonable efforts to enforce for the benefit of Tenant all warranties and guaranties relating to the Shell Work and/or Tenant Improvements and any and all systems contained therein. Landlord shall provide Tenant with copies of all warranties and guaranties applicable to the Shell Work and Tenant Improvements within sixty (60) days after the respective Substantial Completion dates of the Shell Work and Tenant Improvements and Landlord shall consult with Tenant as to the application and restrictions applicable to all such warranties and guaranties. Tenant shall not take any action which shall invalidate any of the foregoing warranties or guarantees and shall provide Landlord with written notice of all warranty claims. Tenant will notify Landlord, within ten (10) days or such shorter period as required by any warranty, of its discovery of any potential problems which may be covered under the foregoing warranties. Without limiting Landlord's duty to perform repairs under any warranties contained herein, the extent and performance of any repairs required under the foregoing warranties will be mutually agreed to between Landlord and Tenant so as to minimize the disruption to Tenant's use of the Leased Premises. Notwithstanding the foregoing, the warranty and Landlord's obligations to correct any work hereunder excludes defects or damage caused by (1) abuse, modification, or improper maintenance, installation or operation by Tenant or its agents, contractors, employees or invitees, (2) damages or defects caused by Tenant or its agents, contractors, employees or invitees, or (3) normal wear and tear under normal usage.

2

F. Timing. Intentionally Omitted.

G. Tenant's Representative. Tenant hereby designates Ron Mumaw, Director of Real Estate

& Facilities (email: ron.mumaw@inin.com and telephone number 317-493-4559) and Amanda Wilson, Manager of Facilities (email: amanda.wilson@inin.comand telephone number 317-957-1991) to be its representatives, who each shall be fully acquainted with the project and who each shall have the authority to approve, issue and execute the Shell CD's, TI CD's and Change Orders, render decisions promptly and furnish such information to Landlord in time to meet the deadlines provided for in the Project Schedule and/or TI Schedule and to otherwise make decisions hereunder on behalf of Tenant."

5.Tenant Delay on Shell Work. As of the date of this Amendment, Landlord and Tenant agree that, as documented in that certain correspondence dated August 8, 2014, Tenant has accrued fourteen (14) days of Tenant Delay in connection with the Shell Work.

6.Tenant's Representations and Warranties. The undersigned represents and warrants to Landlord that (i) Tenant is duly organized, validly existing and in good standing in accordance with the laws of the state under which it was organized; (ii) all action necessary to authorize the execution of this Amendment has been taken by Tenant; and (iii) the individual executing and delivering this Amendment on behalf of Tenant has been authorized to do so, and such execution and delivery shall bind Tenant. Tenant, at Landlord's request, shall provide Landlord with evidence of such authority.

7.Examination of Amendment. Submission of this instrument for examination or signature to Tenant does not constitute a reservation or option, and it is not effective until execution by and delivery to both Landlord and Tenant.

8.Definitions. Except as otherwise provided herein, the capitalized terms used in this Amendment shall have the definitions set forth in the Lease.

9.Incorporation. This Amendment shall be incorporated into and made a part of the Lease, and all provisions of the Lease not expressly modified or amended hereby shall remain in full force and effect.

[Signatures on following page]

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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed on the day and year first written above.

LANDLORD:

DUKE CONSTRUCTION LIMITED PARTNERSHIP,

an Indiana limited partnership

By: Duke Business Centers Corporation, an Indiana corporation, its general partner

By :/s/ Mark E. Hosfeld

Mark E. Hosfeld

                Vice President

TENANT:

INTERACTIVE INTELLIGENCE GROUP, INC.,

an Indiana corporation

By: /s/ Stephen R. Head

Printed:Stephen R. Head

Title: CFO

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Amended Exhibit B

TENANT IMPROVEMENTS

1. Landlord's Obligations. Landlord shall construct the Building in accordance with Article 2of the Lease and this Amended Exhibit Band Tenant shall accepts the same "AS IS" without representation or warranty by Landlord of any kind except as expressly set forth in this Amended Exhibit Band in the Lease, and with the understanding that Landlord shall have no responsibility with respect thereto except to construct and install within the Leased Premises, in a good and workmanlike manner and in accordance with all applicable codes and laws, the Shell Work and Tenant Improvements, in accordance with Article 2 and this Amended Exhibit B.

2.Construction Drawings, Cost Statement, and Allowance.

(a)On or before the date thirty (30) days after receipt of the TI Notice, Landlord shall, based on Tenant's then-current space plan for the Leased Premises, prepare and submit a set of construction drawings (the "TI CD's") to Tenant covering all work to be performed by Landlord in constructing and installing the Tenant Improvements. Tenant shall have ten (10) business days after receipt of the TI CD's in which to review the TI CD's and to give Landlord written notice of Tenant's approval of the TI CD's or its requested changes thereto. Tenant shall have the right to meet with Landlord on a weekly basis to review the TI CD's as such are being prepared. Tenant shall have no right to request any changes to the TI CD's that would materially alter the exterior appearance or basic nature of the Building or the Building systems except pursuant to an executed Change Order. If Tenant fails to approve or request changes to the revised TI CD's within ten (10) business days after its receipt thereof, then Tenant shall be deemed to have approved the revised TI CD's and the same shall thereupon be final. If Tenant requests any reasonable changes to the TI CD's, Landlord shall make those changes which are reasonably requested by Tenant and shall within ten (10) business days of its receipt of such request submit the revised portion of the TI CD's to Tenant. Tenant shall have five (5) business days to approve the revised portions of the revised TI CD's or to notify Landlord that it has unreasonably failed to incorporate reasonable comments of Tenant and, subject to the foregoing, the TI CD's, as modified by said revisions, shall be deemed to be final absent Tenant's approval or notice of objection to such revisions within five (5) business days. Landlord and Tenant shall at all times in their review of the TI CD's, and of any revisions thereto, act reasonably and in good faith. Without limiting the foregoing, Tenant agrees to confirm Tenant's consent to the TI CD's in writing (which may be by email) within five (5) days following Landlord's written request therefor.

(b)Following receipt of the TI Notice and based on the final approved TI CD's, Landlord shall solicit competitive bids from at least three (3) subcontractors for each major trade. Tenant shall have the right to provide Landlord with a proposed subcontractor for each major trade (other than mechanical and electrical), and provided such subcontractor meets with Landlord's reasonable approval, such subcontractor shall have the right to enter a bid. Landlord and Tenant shall review the bids jointly and Tenant shall select one sub-contractor for each item bid. Promptly following the selection of a subcontractor for each major trade, Landlord shall deliver to Tenant a statement of the cost to construct and install all of the Tenant Improvements (the "Cost Statement"). Tenant acknowledges and agrees that (A) the Cost Statement shall include design fees and a construction management fee not to exceed seven percent (7%) of the costs, which fee shall be exclusive of the cost of Landlord's (or its construction manager or general contractor's) supervision, personnel, office/administrative support, temporary utilities, and General Conditions (as defined below), and (B) such construction manager or general contractor may be comprised of a subsidiary, affiliate or employees of Landlord. For the purposes of this Lease, "General Conditions" shall include, without limitation: architectural, engineering, permits to the extent separate permits required for the Tenant Improvements (but not including any permits that are required for the Shell Work, which shall be included as part of the Shell Work) and clean-up/dumpsters. Tenant agrees to acknowledge the Cost Statement in writing within three (3) business days following Landlord's written request therefor.

(c)Tenant shall be responsible for the cost to construct and install the Tenant Improvements only to the extent that the Cost Statement, taking into account any increases or decreases resulting from any Change Orders (as hereinafter defined), exceeds Three Million Two Hundred Six Thousand Two Hundred Fifty and 00/100 Dollars ($3,206,250.00) (the "Allowance"). Notwithstanding the foregoing, Tenant acknowledges and agrees that it has already utilized $48,000.00 of the Allowance as of the date of this Amendment and the remaining balance is $3,158,250.00. Landlord agrees that the Allowance shall be applied toward hard and soft costs associated with Tenant's work, including, but not limited to, construction of the Tenant Improvement, architecture, and voice and data cabling to the Leased Premises. In addition to the foregoing, Landlord agrees that Tenant may utilize up to Two and 50/100 Dollars ($2.50) per square foot of the Allowance, totaling Two Hundred Eighty One Thousand Two Hundred Fifty and 00/100 Dollars ($281,250.00), for costs associated with furniture, fixtures and equipment. If, following Tenant's approval (or deemed approval) of the TI CD's, the Cost Statement shows that the cost to construct and install the Tenant Improvements will exceed the Allowance, Tenant shall deliver to Landlord, within ten (10) days following Landlord's written

request, an amount equal to one-half (1/2) of such excess. Following Substantial Completion of the Tenant Improvements, Tenant shall pay to Landlord the remaining difference between the Cost Statement (taking into account any increases or decreases resulting from any Change Orders) and the Allowance within ten (10) days of Landlord's request therefor. Tenant's failure to deliver the payments required in this paragraph shall entitle Landlord to stop the construction and installation of the Tenant Improvements until such payment is received, and any resulting delay shall constitute a Tenant Delay (as hereinafter defined) hereunder. In addition, all delinquent payments shall accrue interest at 10% per annum. If the Allowance exceeds the Cost Statement (taking into account any increases or decreases resulting from any Change Orders), such savings shall be the property of Landlord. Notwithstanding anything in this Lease to the contrary, any portion of the Allowance not used or applied by Tenant on or before December 31, 2016 shall be forfeited by Tenant.

3.Schedule and Early Occupancy. Upon receipt of the TI Notice and final approval of the TICD's, Landlord shall develop the TI Schedule and, thereafter, shall notify Tenant of any material changes to the TISchedule. Tenant agrees to coordinate with Landlord regarding the installation of Tenant's phone and data wiring and any other trade related fixtures that will need to be installed in the Leased Premises prior to Substantial Completion of the Tenant Improvements. In addition, if and to the extent permitted by applicable laws, rules and ordinances, Tenant shall have the right to enter the Leased Premises prior to the scheduled date for Substantial Completion of the Tenant Improvements (as may be modified from time to time) in order to install fixtures and otherwise prepare the Leased Premises for occupancy, which right shall expressly exclude making any structural modifications. During any entry prior to such early entry date (a) Tenant shall comply with all terms and conditions of this Lease, (b) Tenant shall not interfere with Landlord's completion of the Tenant Improvements and (c) Tenant shall cause its personnel and contractors to comply with the terms and conditions of Landlord's rules of conduct (which Landlord agrees to furnish to Tenant upon request). Tenant acknowledges that Tenant shall be responsible for obtaining all applicable permits and inspections relating to any such entry by Tenant.

4.Letter of Understanding. Promptly following Substantial Completion of the Tenant Improvements, Tenant shall execute Landlord's Letter of Understanding in substantially the form attached hereto as Exhibit Cand made a part hereof, acknowledging (a) the Commencement Date of this Lease, and (b) except for any punchlist items, that Tenant has accepted the Leased Premises. If Tenant takes possession of and occupies the Leased Premises, Tenant shall be deemed to have accepted the Leased Premises and that the condition of the Leased Premises was at the time satisfactory and in conformity with the provisions of this Lease in all respects, subject to any punchlist items.

5.Definitions. "Substantial Completion" (or any grammatical variation thereof) shall mean (i) with regard to the Shell Work only, completion of construction of the Shell Work in accordance with the Shell CD's and (ii) with regard to the Tenant Improvements, completion of the Tenant Improvements in accordance with the TI CD's, subject only to minor punch list items of work which do not substantially interfere with Tenant's use of the Building, the Common Areas or the Leased Premises in accordance with the terms of this Lease, which items shall be identified by Landlord and Tenant in a joint inspection of the Leased Premises prior to Tenant's occupancy, as established by a temporary or permanent certificate of occupancy for the Leased Premises or other similar authorization issued by the appropriate governmental authority, if required. "Tenant Delay" (or any grammatical variation thereof) shall mean any delay caused by or resulting from the following or any combination of the following: (1) failure of Tenant to fully comply with the Project Schedule; (2) any Change Orders requested by Tenant that cause a delay in the schedule; (3) failure of Tenant to timely or properly arrange its furnishings or be present for any scheduled walk-through of the Leased Premises, Building or Common Areas; (4) failure of Tenant to respond promptly to any reasonable request of Landlord or otherwise required by the terms of this Lease; or (5) Tenant's fixturing of the Leased Premises prior to the Commencement Date unless coordinated with Landlord in accordance with Paragraph 3 of this Exhibit Babove.

OFFICE BUILDING DESCRIPTION

Exhibit B-1

WOODLAND VII

OFFICE BUILDING

Site Development and Building Core and Shell Description

March 10, 2014

March 14, 2014

March 19, 2014

April 29, 2014

TABLE OF CONTENTS
GENERAL OUTLINE...................................................................................................................	4
GENERAL CONDITIONS............................................................................................................	6
SITEWORK....................................................................................................................................	8
Earthwork..................................................................................................................................	8
CONCRETE...................................................................................................................................	10
STRUCTURAL STEEL AND MISCELLANEOUS METALS.....................................................	10
CARPENTRY.................................................................................................................................	11
THERMAL AND MOISTURE PROTECTION............................................................................	11
DOORS AND WINDOWS............................................................................................................	12
INTERIOR CONSTRUCTION......................................................................................................	12
INTERIOR FINISHES...................................................................................................................	13
SPECIALTIES................................................................................................................................	15
ELEVATOR....................................................................................................................................	16
FIRE PROTECTION......................................................................................................................	16
HEATING, VENTILATION AND AIR CONDITIONING...........................................................	16
BUILDING AUTOMATION SYSTEM.........................................................................................	18

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OFFICE BUILDING DESCRIPTION

PLUMBING...................................................................................................................................	19
ELECTRICAL................................................................................................................................	19
SUMMARY OF ALLOWANCES..................................................................................................	20
ALTERNATES...............................................................................................................................	21
QUALIFICATIONS.......................................................................................................................	21

• Location:             Woodland Corporate Park

• Project Duration:         13 months

• Site Acreage:         6.04 acres

• Square Footage:         117,822 SF (Gross)

        113,994 SF (Rentable)

• Number of Stories:         Three

• Building Dimensions:     120' x 330'

• Bay Sizes:             Exterior bays - 45' x 30'

Interior bays - 30' x 30'

• Floor to Floor Height:     14'-0"

• Parking Ratio:         4 per 1,000 (surface)

• Exterior Walls:         Architectural Precast and Aluminum Storefront & Curtainwall

• Structural Steel:         Steel beams/girders and joists supported by steel wide flange

columns.

• Floor Load:             100 psf (80 psf live and 20 psf partition)

• Roof Load:             20 psf

• Wind Load:             60 psf

• Roofing:             Mechanically attached .45 mil TPO with R-19 Insulation

• Ceiling Height:         9' typical

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OFFICE BUILDING DESCRIPTION

• Tenant Ceilings:         4x4 ceiling grid install as part of the Shell Building with 2' x 2'

ceiling grid/tees and tile stacked on floor. Ceilings to be 9'.

• Perimeter Drywall:         Included as part of Shell Building

• Column Furr Outs:         Included as part of Shell Building

• Tenant Improvement:     To Be Determined

• Window Treatments:     1" horizontal mini-blinds

• HVAC:             Rooftop VAV system with BAS controls

• Electrical Service:         2,500 amp service

• Tenant Lighting:         Included as part of Tenant Improvement

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OFFICE BUILDING DESCRIPTION

GENERAL OUTLINE

Executive Summary

We value the long-term partnership between Duke and Interactive Intelligence. Given the current economic times, it is critical to work with a financially sound partner who can truly perform. We are a trustworthy reliable partner with a stable financial balance sheet and proven capability to perform on budget and on time. We do what we say we will do, when we say we will do it.

Working with Interactive for over 10 years, we understand the constant changes in your business, both in technology and in people. Our team will listen to your needs and further design/tailor this building to your specific needs, as we have done many times in the past.

Quality is often found below the surface of the building. We go to exemplary measures to ensure the products/practices we use are of the highest quality and designed with a long-term ownership mind sent versus just the lowest cost.

We look forward to continuing our long-standing partnership with Interactive Intelligence, the specifics to base building specifications are below:

Exhibits

The following exhibits are included as part of this proposal:

• Exhibit A:Preliminary Site Plan dated March 27, 2014 Final location for Car Charging Station, Handicap Spaces, Access to Innovation Blvd and Walkway TBD. The two (2) Landlord provided car charging stations will be in similar proximity to the building as shown on the site plan. Final Handicap Spaces and Walkway locations will be mutually agreed upon by Landlord and Tenant.

• Exhibit B: Preliminary Rendering dated November 15, 2013

• Exhibit C: Preliminary Project Schedule dated April 18, 2014

Architectural and Engineering Services

Duke Realty shall employ the services of architectural and engineering firms licensed in the State of Indiana for the design and engineering of all civil, landscaping, structural, and architectural drawings and specifications. Duke Realty will oversee and coordinate all aspects of the building design. Architectural and engineering fees for the design of the project are included in this proposal.

Duke Realty shall utilize qualified, experienced firms for the design and construction of HVAC, plumbing, fire protection, and electrical systems.

The building will be designed to meet or exceed all local code requirements. The building meets the requirements of the Indiana Building Code. The building mechanical and electrical systems are designed to meet Indiana Building Code, state, and local code requirements, as well as the requirements defined in Duke Realty's Master Mechanical and Electrical Specifications dated January 1, 2008. Copies of these specifications are available upon request.

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OFFICE BUILDING DESCRIPTION

All fire protection systems comply with the requirements of the National Fire Protection Association (NFPA) and local fire department and building code requirements.

The building structure is designed to meet the following requirements:

• Floor live load capacity:     100 psf (80 live + 20 dead)

• Roof load:             20 psf

• Wind load:             60 mph.

It has been assumed that the Tenant Finish Allowance will provide funding for the costs for space planning and tenant finish construction documents and specifications for future interior build-out.

Schedule

The total duration of the project from start of construction to availability for occupancy is approximately 14 months. This duration is subject to change depending on the final building/site design. Please see the project schedule dated January 29, 2014 for a detailed schedule of the design, permitting and construction phases of the project.

Permit and Impact Fees

This proposal includes all permitting, tap and impact fees required for the project. Duke Realty shall make application for, secure and pay for all permit fees and impact fees required by the authorities having jurisdiction over the project. All taxes required for the building construction are included.

Geotechnical Engineering

Soil borings will be required for the final design of the building foundations and exterior pavements. However, in preparing this proposal, it has been assumed that the existing soils will provide suitable bearing capacities. Duke Realty will obtain soil borings, and the proposed foundation and pavement designs will be verified prior to the final design.

Warranty

A one (1) year labor and material warranty from the date of substantial completion will be provided. Please refer to the Thermal and Moisture Protection section of this proposal for additional roof and caulking warranties. Duke Realty will provide the Tenant with one (1) copy of all maintenance manuals for the facility. Manuals shall include copies of all record drawings, equipment specifications and respective warranties.

General Qualifications

Items that are excluded from this proposal include performance and payment bond fees and fees for consultants engaged directly by the Tenant. Duke Realty reserves the right to obtain open shop and/or merit shop labor to construct this facility. Premiums for prevailing wages or other requirements affecting hourly wages are not included.

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OFFICE BUILDING DESCRIPTION

GENERAL CONDITIONS

General Conditions consist of all administrative costs necessary for the construction of the building, as further described below.

Insurance

We will maintain the following insurance coverage for the project:

• Workman's Compensation Insurance

• Comprehensive Public Liability Insurance

• Auto Liability Insurance for Duke Realty's operations

• Professional Liability Insurance (Errors and Omissions)

Preconstruction

We will assign a Preconstruction Manager to hire the design team, lead and manage the design process, work with our in-house Development Services Manager during the due diligence investigation process, apply for permits and manage the permitting process, assemble bid packages, solicit subcontractor pricing, and manage the subcontractor bidding process.

Project Management

We will assign a Project Manager to manage the construction of the building. The Project Manager will be responsible for negotiating and awarding subcontracts, all Owner coordination and correspondence, material procurement, scheduling, and contract administration. The Project Manager shall be the Owner's single point representative for all construction matters.

Superintendent

An experienced full-time on-site Superintendent will be assigned to the project that has performed work of a similar size and nature. The Superintendent will be responsible for all day-to-day field operation and coordination issues, quality control, safety, inspections and punchlist completion. The Superintendent will hold mandatory weekly Subcontractor Coordination Meetings to review safety, job progress, planning, schedule, and quality issues.

Submittals and Shop Drawings

The Construction Drawings and Specifications shall specify the materials and equipment to be used in the construction of the project. Subcontractors and material suppliers will be required to submit manufacturer literature and fabrication/installation drawings, as specified, prior to incorporating the materials and/or equipment into the project. Appropriate Design consultants shall review the manufacturer's literature and fabrication/installation drawings to verify compliance with the requirements of the Construction Drawings and Specifications. A record copy of the reviewed submittal data will be provided to the Owner.

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OFFICE BUILDING DESCRIPTION

Quality Control

In addition to quality control monitoring and inspections to be performed by the Superintendent, Duke Realty shall retain an Independent Testing Agency to perform various field and laboratory tests to verify compliance with project requirements. These tests will include soil compaction testing, concrete material strength testing, concrete placement, inspection of structural steel connections, window leakage testing and periodic roof inspections during roof system installation. Laboratory reports prepared by the Independent Testing Agency shall be submitted to the Subcontractors performing the work, all pertinent government agencies, Duke Realty, and the Owner's representative. Any materials that are not in compliance with the project requirements shall be corrected or removed from the project.

Temporary Construction Facilities

Duke Realty shall establish and construct temporary construction facilities as necessary to manage and coordinate the work. The facilities shall consist of, but are not necessarily limited to, the following:

• Construction office trailer

• Temporary construction communications

• Temporary power and water

• Sanitary facilities

• Facsimile and reprographic machines

• Temporary safety and public protection barricades/enclosures

• Trash dumpster for construction debris

• Temporary enclosures for weather protection

• Construction material storage areas

• Project identification signs

Clean Up

Excessive accumulation of waste materials and debris will be avoided by periodic clean up of the building and construction site. When the building is substantially completed, we will remove all debris, tools, scaffolding, equipment, and surplus materials, and leave the building in a "wiped clean" condition. We will clean all of the exterior windows, vacuum all carpeting, damp mop all ceramic and vinyl composition tile flooring, clean all bathroom mirrors, fixtures and toilet partitions.

Progress Photos

Aerial photos will be taken each month to record the progress of construction. Copies of aerial progress photos will be provided to the Tenant.

Construction Layout

Duke Realty will retain the services of a land surveyor to establish the building control for construction of the building.

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OFFICE BUILDING DESCRIPTION

Operations and Maintenance Manuals

Upon project completion, Duke Realty will provide the Owner three (3) binders and the Tenant one (1) binder containing complete copies of the operating and maintenance instructions for all the building equipment and systems. Copies of material and equipment warranties and guarantees will be included. As-built documentation will be provided to the Owner and Tenant in both hard copy and electronic format.

SITEWORK

Earthwork

Demolition of the existing asphalt, concrete curb, concrete, etc. has been included.

Site clearing and preparation will be provided to accommodate all paving areas, building pad, and landscape areas. All grading will be provided to ± 0.1 of a foot and all fill material will be compacted to 95% standard proctor under all paving and slab areas. All excavation for foundations, site concrete, and site utilities will be provided.

Granular fill shall be #53 limestone material placed under slab-on-grade and used as interior backfill at the continuous footings. The fill depth shall be 6".

All soils are assumed to be suitable and stable. Should the final Geotechnical Report contradict this assumption, Duke Realty shall perform a pricing adjustment as necessary.

The building elevation will be established to allow for drainage, which may be handled by means of catch basins, storm sewers, swales and surface runoff as specific site conditions dictate.

Sedimentation and erosion control measures will be provided per code.

Duke Realty will employ a certified testing agency to provide testing and field inspection during earthwork procedures to confirm that compaction is completed in accordance with plans and specifications.

Site Utilities

All utilities shall extend to the building and final connections made for electric, water, sanitary and gas service.

All storm water removal shall be provided via a combination of sheet drainage, underground pipe and drainage swales. All required detention and approvals are provided.

Underground fire main and hydrants are included per municipal requirements.

Pavement

"Heavy duty" pavement will be provided in the drive aisles to the loading dock area. The heavy-duty pavement section consists of:

• 5" Compacted Aggregate #2 and 3" Compacted Aggregate #53

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OFFICE BUILDING DESCRIPTION

• 3" H.A.C. Binder & 1" H.A.C. Surface

"Light duty" pavement sections will be provided in parking areas and vehicle drive lanes within parking areas. The light-duty pavement section consists of:

• 4" Compacted Aggregate #2 and 4" Compacted Aggregate #53

• 2" H.A.C. Binder & 1" H.A.C. Surface

All paving will be striped to indicate parking stalls, handicapped parking locations, fire lanes and traffic control features in accordance with the site design. Traffic control and handicapped parking signage will be provided in accordance with the site design and code requirements.

Four Hundred Fifty spaces will be provided as shown on the Site Plan to achieve a parking ratio of 4 per 1,000 RSF.

Sidewalks

Sidewalks will be provided around the perimeter of the building and at the entries as shown on the Site Plan.

A sidewalk connecting Woodland Corporate Park Building VII to Woodland Corporate Park Building VI as shown on the Site Plan dated March 27, 2014 has been included. Final location and details TBD. Location shall be similar to what is shown on the most recent site plan.

Tenant has the right at its expense to install an emergency call system and basketball goals at locations mutually agreed upon by Landlord and Tenant.

Landscaping and Irrigation

An Allowance of $90,600 is included and for a fully operational Landscape and Irrigation system. The design will include all trees, plants, grass, mulch, and soil preparation as needed to meet city minimum zoning requirements or park covenants. Landscaping and Irrigation to meet the same standard as installed at Woodland VI.

The fully operational irrigation system shall be complete with piping, sleeves, fittings, heads, valves, valve boxes, wiring, controllers and other required appurtenances.

Site Improvements

An allowance of $15,000 has been included for the installation of an exterior monument sign. The exterior monument sign to be similar to exterior monument sign installed at Woodland VI. This allowance is intended to pay for one (1) exterior concrete monument sign, foundations, flood lighting (one fixture each side of sign), and electric service (if required). Graphics for the monument sign are assumed furnished and installed by the Tenant.

A patio as shown on the Site Plan dated March 27, 2014 has been included.

Two (2) Car Charging Stations have been included. Landlord to install conduit to add two additional

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OFFICE BUILDING DESCRIPTION

Charging Stations in the future. Landlord to install Architectural Barriers outside the exterior Data Center wall. Landlord will install a conduit to accommodate two additional car charging stations in the future and install architectural barriers in the form of planters outside the data canter wall.

CONCRETE

Foundations

The building foundation system is a combination of shallow spread foundations for interior columns and a continuous perimeter foundation for the exterior load bearing walls. Foundations will be constructed with 3,000 psi concrete to depths are assumed to be 2'-0" below finished floor. Assuming an allowable bearing capacity of 2,500 psf and typical column loads ranging from 225 kips to 450 kips.

Floor Slabs

The 1st floor shall be a four-Inch (4") thick reinforced concrete slab-on-grade over a 10-mil vapor barrier. This concrete will achieve a 28-day compressive strength of 4,000 psi. Floor flatness and levelness tolerances shall meet overall values of FF=25 and FL=20.

The elevated slabs will be cast with a five-inch (5") thick (3" concrete and 2" metal deck) normal weight concrete fill, reinforced with welded wire mesh or fiber mesh and will achieve a 28-day compressive strength of 3,000 psi.

Exterior Walls

Architectural Precast concrete wall panels shall be utilized for the building's exterior wall structure. The wall panels will be non-load bearing and will be complete with the necessary reinforcements and embedments. These panels shall be constructed with 4,000 psi concrete.

STRUCTURAL STEEL AND MISCELLANEOUS METALS

Building Frame

A braced structural steel end wide flange column frame will be designed and erected to meet code requirements. Floors will be designed with a steal joist and joist girder framing system, with floor loads designed to accommodate an 80 psf live load, and a 20 psf partition loads. All roof loads will be based upon local code requirements and reducible where allowed by code.

Pan-filled metal stairs withhandrails will be installed to meet all applicable codes. A total of three (3) stairs have been included. One stair will extend to the roof.

Floor-to-floor heights are as follows:

• First floor: 15'-0".

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OFFICE BUILDING DESCRIPTION

• Upper Floors: 14'-0"

Bay spacing for the building are as follows:

• Exterior bays 45'-0" x 30'-0".

• Interior bays 30'-0" x 30'-0".

No allowances have been provided for concentrated loads, exercise rooms, fitness centers, major penetrations, or other structural modifications required to accommodate tenant related needs. It has been assumed that if such requirements are defined in such a timely manner that the design and fabrication schedule is not interrupted, these requirements will be incorporated into the design and the tenant shall fund the additional cost.

Floors shall be designed following the AISC Steel Guidance Series 11 for floor vibrations due to human activities limiting the acceleration to 0.5%G, ground acceleration for walking excitation.

Miscellaneous Metals

Wide-flange columns shall support the architectural canopy at the lobby entry. The canopy shall consist of joists and perforated galvanized steel. The canopy to be similar to canopy installed at Woodland VI.

CARPENTRY

Plywood backboards will be provided for all telephone systems as required. Rough blocking will be provided as required.

THERMAL AND MOISTURE PROTECTION

Roofing

The roof system shall be a single-ply 45 mil mechanically fastened TPO membrane roof over R-19 rigid cell polyisocyanurate roof insulation mechanically attached to the roof decking. The roof shall carry the manufacturer's standard twenty (20) year prorated membrane warranty and a ten (10) year labor and material watertight warranty. The roof shall also have the contractor's two (2) year warranty covering all other roof related items.

Roof flashings at all known roof penetrations are included. No allowances have been made for additional roof penetrations required for undefined Owner and Tenant requirements not specifically identified in this proposal.

Fireproofing

Sprayed on fireproofing is not required by code for this building type and occupancy classification.

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OFFICE BUILDING DESCRIPTION

Caulking and Sealants

Joint sealants shall consist of polyurethane at the interior and exterior of the architectural precast concrete wall panel joints. A 5-year warranty is included for all exterior caulking.

DOORS AND WINDOWS

Doors, Frames and Hardware

3'-0" x 8'-0" hollow metal door frames and plain sliced solid core wood veneer doors will be installed in the core areas including restrooms, janitor's closets, and electrical rooms. Wood doors shall be birch, ash or similar "tight" grain wood, stained with a cherry or mahogany finish. Door heights to be similar to the door heights in Woodland VI.

Doors will receive cylindrical locksets with interchangeable cores. Door hardware finish shall be satin chrome. Hardware for all doors shall meet ADA requirements.

Aluminum Storefront and Entrances

A thermally improved anodized aluminum curtain-wall system (equal to Kawneer 1600 Wall system) will be provided at the lobby area entries and the four comers of the facility.

The second and third floor facades shall receive an anodized aluminum punched window system as shown on the Rendering.

The first floor fade shall receive a ribbon window/storefront system that shall anchor to the foundation.

Medium stile glass entry doors are included for the main entry, and for three (3) alternate entry/exit locations to be determined.

All windows shall be 1" insulated, low-E glass. The framing shall include an anodized finish from a factory standard selection chart. The window systems shall then be tested upon completion to meet industry standard specifications.

INTERIOR CONSTRUCTION

Walls

All walls will be constructed to achieve the fire resistance rating required by applicable codes. Typical interior wall construction shall be 3 5/8" metal studs at 16" on center with 5/8" thick drywall on each side. Stud gauge will be determined by the height of the wall. The number of layers of fire rated drywall will be determined by the required fire rating of the wall.

Walls of elevator shafts will utilize shaft wall studs with shaft wall liner panels. Walls around mechanical rooms, exit corridors, restrooms and communication rooms will have insulation for sound attenuation and will extend to the underside of the structure above. These will have drywall installed and finished on both side ready to receive paint. The perimeter walls with the tenant space will receive drywall, finished ready for paint.

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OFFICE BUILDING DESCRIPTION

The tenant side of non-rated corridor walls within the tenant space will not receive drywall as part of the core and shell work.

Ceilings

The typical ceiling system within the tenant space shall be a standard 15/16" wide, 2'x2' ceiling grid with 2'x2' tegular edge acoustical tile. The standard ceiling height within the tenant space will be 9'-0" above finished floor. As part of the Shell Building, the ceiling grid will be installed in a 4' x 4' pattern. The remaining grid and tile will be stacked on the floor to be installed as part of the Tenant Improvements.

The lobby ceiling shall be a combination of 2' x 2' acoustical ceiling tile and drywall to a height of 14'-0" above finished floor.

INTERIOR FINISHES

Entrance Vestibule:

Flooring:     Carpet Tile & Walk-off Mat

Base:         Vinyl

Walls:     Paint

Ceilings:    Combination of 2'x2' acoustical ceiling tile and painted gypsum board

Ground Floor Lobby:

Flooring:     Combination of stone or thin-set tile (12"x12") and carpet

Base:         Tile base at tiled floor and vinyl base at carpet

Walls:     Paint and vinyl wall covering

Ceilings:    Combination of 2'x2' acoustical ceiling tile and painted gypsum board

Ground Floor Elevator Lobby:

Flooring:     Combination of stone or thin-set tile (12"x12") and carpet

Base:         Tile base at tiled floor and vinyl base at carpet

Walls:        Paint and vinyl wall covering

Ceilings:    Combination of 2'x2' acoustical ceiling tile and painted gypsum board

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OFFICE BUILDING DESCRIPTION

Exit Common Corridors (typical width will be 6'-0"):

Flooring:     Carpet (provide 10% overstock)

Base:          Vinyl

Walls:     Vinyl wall covering (provide 10% overstock)

Ceilings:     2'x2' acoustical ceiling tile

Restrooms: Landlord will agree to add two urinals and one additional stall in each Men's restroom.

Flooring:     Ceramic tile

Base:         6" high sanitary coved ceramic tile

Walls:        Full height drywall partitions with wood louver doors (Similar to the partitions

installed in Woodland V have been included in the Shell Building. Full height

ceramic tile for walls behind plumbing fixtures and perpendicular to urinals with

vinyl wall covering elsewhere

Ceilings:     2'x2' acoustical ceiling tile

Lavatories:    Solid surface granite countertops with integral bowls

Mechanical and Electrical Rooms:

Flooring:     Sealed concrete

Base:         Vinyl

Walls:     Paint

Ceilings:    None

Janitor's Closet:

Flooring:     Sealed concrete

Base:         Vinyl

Walls:     Paint with FRP to 4' around the mop sink

Ceilings:    None

Vending/Mailroom/Recycling:

Flooring:VCT

Base:        Vinyl

14

OFFICE BUILDING DESCRIPTION

Walls:     Paint

Ceilings:    2'x2' acoustical ceiling tile

Exit Stairs:

Flooring:     Sealed concrete

Base:         Vinyl at landings, steel stringers will be painted

Walls:     Paint

Ceilings:    None

Tenant Spaces:

Flooring:     Unfinished (shall be part of tenant finish work)

Base:         Unfinished (shall be part of tenant finish work)

Walls:     Unfinished (shall be part of tenant finish work)

Ceiling:    2'x2' acoustical ceiling grid and tile shall be furnished only and stacked on the

floor (installation shall be part of tenant finish work)

SPECIALTIES

Window Treatments

Exterior windows in tenant areas will be equipped with 1" horizontal blinds. Blinds will be provided in a color selected from the manufacturer's standard color chart. All blinds will be inside mount installation.

Toilet Partitions and Accessories

Full height drywall partitions with wood louver doors (Similar to the partitions installed in Woodland V have been included in the Shell Building.

The following stainless steel accessories have been included:

• Toilet tissue dispensers

• Paper towel dispensers and Waste Receptacle - fully recessed

• Soap dispenser - under counter mount

• Grab bars for handicapped stalls

• Unframed mirrors over the vanity tops

• Feminine napkin disposal units (women's)

15

OFFICE BUILDING DESCRIPTION

Miscellaneous

Signage for the shell building consists of labels for the core areas including men's and women's restrooms, electrical and mechanical rooms, and the janitor's closet.

One (1) postal mailbox and collection box system shall be provided based on tenant occupancy.

Pricing for LEED Silver Certification has been included

ELEVATOR

One (1) hydraulic passenger elevator will be provided, and one (1) hydraulic freight elevator will be provided. The passenger elevator shall have a capacity of 3,500 lbs., a travel speed of 125 fpm, and a cab ceiling height of 9'-0". The freight elevator will have a capacity of 4,000 pounds, a travel speed of 100 fpm, and cab ceiling height of 10'-0".

Elevator cab interior finish too match Woodland Corporate Park Building VI is included.

FIRE PROTECTION

A complete wet pipe fire protection sprinkler/standpipe system will be installed in accordance with all local governing authorities, including a double-detector check valve assembly. Sprinkler design is based upon light hazard occupancies throughout the building. Density shall be 0.10 gpm over the most remote 1,500 sq. ft.

Stand pipes to be provided in the stairwells with 2 1/2" fire dept valves at each floor landing for fire department use (hoses and cabinets not provided). Individual sprinkler system control valves to be provided for each floor level with a 2" common drain for easy maintenance and tenant finish of each floor independently.

Finished core and lobby areas will receive semi-recessed type sprinklers with white escutcheons (Architect shall review head locations for symmetry within the ceiling area). Each sprinkler to be provided on a 1" outlet with appropriate reducing fitting to allow for future economical relocation drops to tenant finishes as they are determined. Head spacing in future finished areas to be limited to approximately 180 sq. ft per head and shall be turned upward until areas are finished.

HEATING, VENTILATION AND AIR CONDITIONING

Conditioned air will be supplied to the occupied spaces via a roof top mounted Variable Air Volume (VAV) Air Conditioning System thermostatically controlled from individual zones. The HVAC system has been designed with an "open office" plan. Each zone will have a thermostat and a maximum interior zone of 1,500 SF and maximum exterior zone of 800 SF. All exterior exposures, and elevator equipment rooms will constitute a zone and will have a sensor. Other areas requiring special zoning consideration will be considered above and beyond zoning provided and will be addressed prior to design.

16

OFFICE BUILDING DESCRIPTION

All VAV boxes and perimeter slot diffusers within the Tenant areas shall be provided as part of the Shell Building, but will not be installed until the Tenant Finish Construction is underway.

The air conditioning system will be designed per requirements set forth in the Duke Realty Master MEP Specifications and local building codes.

17

OFFICE BUILDING DESCRIPTION

HVAC Design Parameters

1. Outdoor Conditions:

a.Summer: 2005 ASHRAE 0.4% Design Criteria

b. Winter: 2005 ASHRAE 99.6% Design Criteria

c.For convenience, reference attached ASHRAE weather data for major metropolitan areas common to Duke Realty developments. Reference the 2005 ASHRAE Fundamentals for locations not included.

2. Indoor Conditions:

a.The following indoor conditions shall be maintained within all occupied spaces.

b. Summer: 73°F DB @ 60% maximum RH (by system design without reheat)

c. Winter:72°F DB (without credit for internal gains or solar contribution) (humidification not required)

1) Indoor conditions must be maintained within less than 1.5°F mean deviation from temperature specified.

2) The relative humidity requirement is a maximum condition and is not to be exceeded.

Exhaust fans for the shell building restrooms shall be provided.

BUILDING AUTOMATION SYSTEM

HVAC controls shall consist of a fully integrated Building Automation System (BAS) incorporating direct digital control (DOC) for energy management, equipment monitoring and control. All shall include open licenses with access to both station and platform provided to Duke Realty at the highest administrative levels. Workbench and any other configuration/programming tools shall be embedded and licensed to Duke Realty.

All application specific controllers (ASCs) shall be LonMark certified with all necessary configuration/programming tools or software provided and licensed to Duke Realty. All graphics, alarms, histories, passwords, etc shall comply with published standards that shall be provided by Duke Realty. The completed system shall be configured to communicate via the NACs to the Duke Realty Enterprise level Web Supervisor via a high speed internet connection.

18

OFFICE BUILDING DESCRIPTION

PLUMBING

Plumbing will include a complete sanitary sewer system with waste and vent piping in the building connected to the site sanitary system outside the building. Water closets and urinals will be wall-hung with an adjustable carrier system, and allow for one handicapped water closet per toilet room. Standard flush valves are to be provided on water closets. Automatic battery operated flush valves are to be provided on urinals.

Stainless steel water coolers, one standard and handicapped on at each pair of restrooms, will be installed. Mop sinks will be provided in each janitor's closet.

An electric water heater will be located on the each floor. Hot water piping will be insulated where exposed. All hot and cold-water piping will be copper. Floor drains will be provided in each toilet room. Internal roof drains will be installed as required. Overflow drains shall be provided per code requirements. Shut off valves for the water supply shall be installed at supplies to each user. A backflow preventer and booster pump will be installed as required.

One sanitary sewer line shall be run the length of the first floor with a 4" cleanout every fifty feet. Four (4) sanitary and domestic lines shall be run vertically from the first floor to the fifth floor. These lines shall run up two separate columns.

Frost-free hose bibs are to be provided at each exposure of the building and one at the roof level for maintenance purposes.

ELECTRICAL

Service and Distribution

Electric service will consist of a 2,500 amp 480V/277V three phase four wire primary service. The transfomer shall be installed by the Utility Company within 50' of the building. Empty conduits from the pad mounted transformer to the termination point will be provided for the primary service feed as directed by the Utility Company. Conductors will be installed by the Utility Company. Secondary electrical service including conduit and conductors shall be provided by the electrician. Main switchgear will be located in the electric room on the first floor. Increases in service size due to specialized uses shall be funded through the tenant improvement allowances of the tenants.

Electrical Service sized is based on seven (7) watts per rentable square foot for tenant's use not including HVAC and standard lighting.

Power distribution shall be provided via conduit and wire or bus duct to each floor, allowing electrical load flexibility throughout the entire building. Distribution will be 480V/277V for lighting panel boards and 120/208V for receptacle panel boards provided at each floor.

19

OFFICE BUILDING DESCRIPTION

Site Lighting

Parking lot lighting will be provided with 30' high pole lights. An average maintained lighting level of 1.0 foot­ candles shall be provided. The exterior lighting system will be controlled by photocell for automated operation.

Architectural lighting of the facility shall be provided at the entries. Soffit lights shall be provided at the entries to the facility.

Interior Lighting

Interior lighting will be furnished and installed in all finished core areas such as Restrooms, Corridors and Lobby.

Lighting for the Tenant space shall be part of the Tenant Improvements.

Telephone and Data

Three (3) 4" conduits shall be provided from utility source to the main telephone/telecommunications room for use by the Tenant's and Owner's telephone and data provider. A 4'x8' sheet of plywood shall be secured to the framing of the main telephone/telecommunications room to accommodate equipment, cabling and hardware.

Two (2) 4" riser sleeves (one each for tenant and landlord) shall be provided at each floor to allow connectivity between floors.

Two (2) 4" spare conduits shall be provided from the main telephone/telecommunications room to a location outside the building to allow for connectivity with future buildings within the development.

One (1) 4" access hole with sleeve, cap and appropriate weather proofing in the top floor communications room to the roof shall be provided to accommodate cabling and power runs for rooftop installations.

Power Requirements

General power receptacles will be provided in all core areas as required by code.

Systems

A complete code compliant fire alarm system shall be installed to accommodate the entire building (including future Tenant Improvements). Only devices (hams, strobes, pull stations, etc.) for the building's core and shell shall be provided. All devices for the tenant areas shall be designed, furnished, installed and funded through the tenant improvement work. The fire alarm enunciator panel will include a graphic zone plan.

SUMMARY OF ALLOWANCES

• Monument Sign - $15,000.00

• Landscaping - $90,600.00

20

OFFICE BUILDING DESCRIPTION

ALTERNATES

Not Applicable

QUALIFICATIONS

• Proposal based upon open shop construction.

• Civil, structural and architectural design to be completed by Duke Construction Limited Partnership.

• FM Global design has not been included for the building systems design.

• Special fire suppression systems are not referenced and therefore are not included.

• Electrical Service has provided as specified in documents

• Pricing for the Data Center has not been included.

• Pricing for slide between floors has not been included.

• Pricing for alternate facades has not been included

• Pricing for LEED Silver has been included.

21

Amended Exhibit B-2

[To be provided upon request]

EXHIBIT C

LETTER OF UNDERSTANDING

Duke Realty Limited Partnership

Attention: Vice President, Asset Management and Customer Service

600 East 96th Street, Suite 100

Indianapolis, IN 46240

RE: Lease Agreement between Duke Realty Limited Partnership, an Indiana limited partnership ("Landlord") and _________________________________________, a(n) ________________ ("Tenant") for the Leased Premises located at ____________________________, __________________, ______________ (the "Leased Premises"), dated ____________, 20_ (the "Lease").

Dear __________________________:

The undersigned, on behalf of Tenant, certifies to Landlord as follows:

1. The Commencement Date under the Lease is _________________.

2. The rent commencement date is ______________.

3. The expiration date of the Lease is __________________.

4. The Lease (including amendments or guaranty, if any) is the entire agreement between Landlord and Tenant as to the leasing of the Leased Premises and is in full force and effect.

5. The Landlord has completed the improvements designated as Landlord's obligation under the Lease (excluding punchlist items as agreed upon by Landlord and Tenant), if any, and Tenant has accepted the Leased Premises as of the Commencement Date.

6. To the best of the undersigned's knowledge, there are no uncured events of default by either Tenant or Landlord under the Lease.

IN WITNESS WHEREOF, the undersigned has caused this Letter of Understanding to be executed this _______ day of ___________________________, 20___.

EXHIBIT - NOT FOR SIGNATURE

EX-10.8

EXHIBIT 10.8

INTERACTIVE INTELLIGENCE GROUP, INC.

FORM OF NON-EMPLOYEE DIRECTOR CHANGE OF CONTROL AGREEMENT

THIS NON-EMPLOYEE DIRECTOR CHANGE OF CONTROL AGREEMENT (“Agreement”) is effective as of May 19, 2016, by and between ______ (the “Director”) and Interactive Intelligence Group, Inc., an Indiana corporation (the “Corporation”).

Recitals

A.The board of directors of the Corporation has determined that it is in the best interests of the Corporation and its shareholders to assure that the Corporation will have the continued dedication and objectivity of the Director, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Corporation.

B.In order to accomplish the foregoing objective, the board of directors has directed the Corporation, upon execution of this Agreement by the Director, to amend the terms of all outstanding stock option awards, unvested restricted stock unit awards and any other unvested or restricted equity or equity-based awards granted to the Director under the Corporation’s 2006 Equity Incentive Plan, as amended, assigned and assumed (the “2006 Plan”) as of the date hereof and thereafter (the “Plan Awards”) to the extent set forth below.

C.Capitalized terms used in the Agreement and not defined herein have the respective meanings ascribed to them in the 2006 Plan.

[D. This Agreement shall replace in its entirety and supersede that certain Non-Employee Director Change of Control Agreement by and between the Company and the Director entered into prior to the date hereof.]

In consideration of the mutual covenants herein contained, and in consideration of the continuing association of the Director with the Corporation, the parties agree as follows:

1.Acceleration of Vesting of Plan Awards. If the Director’s service on the board of directors is terminated, for whatever reason, pursuant to a transaction resulting in a Change in Control of the Corporation, any and all outstanding Plan Awards granted under the 2006 Plan then held by the Director will vest on a pro rata monthly basis, including full credit for partial months elapsed; provided, however, that for purposes of determining the vested portion of the Plan Awards, the Director shall be credited with one additional month of service for each month of service completed by the Director, up to a maximum of twenty-four (24) additional months of service credit.

The following examples illustrate the effect of this grant of additional service credit:

Example 1: As of the effective date of a Change in Control, the Director, who is then still serving as a director, has actually completed 6 full months of service as a member of the Board of Directors. For purposes of determining the vested portion of his outstanding Plan Awards under the 2006 Plan, the Director will be deemed to have completed an additional 6 months of service (1 for each of the 6 full months he has actually completed), for a total of 12 months of service.

Example 2: As of the effective date of a Change in Control, the Director, who is then still serving as a director, has actually completed 18 ½ months of service as a member of the Board of Directors. For purposes of determining the vested portion of his outstanding Plan Awards under the 2006 Plan, the Director will be deemed to have completed 19 months of service and will be credited with an additional 19 months of service, for a total of 38 months of service. For clarity, 12 of the 38 months would have already vested on the first anniversary date of the grant date of the Plan Award and, therefore, 26 months of vesting would be accelerated upon the Change in Control.

Example 3: As of the effective date of a Change in Control, the Director, who is then still serving as a director, has actually completed 36 full months of service as a member of the Board of Directors. For purposes of determining the vested portion of his outstanding Plan Awards under the 2006 Plan, the Director will be deemed to have completed an additional 24 months of service, for a total of 60 months. Although he has actually completed 36 full months of service, the Director is credited with 24 additional months, which is the maximum number of additional months of service that can be credited under this Agreement.

2.Term. The terms of this Agreement shall terminate upon the earlier of (i) the date that all obligations of the parties hereunder have been satisfied or (ii) on the date, prior to a Change in Control, the Director is no longer a member of the board of directors of the Corporation.

3.Successors.

(a)Corporation’s Successors. Any successor to the Corporation (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Corporation’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Corporation would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Corporation” shall include any successor to the Corporation’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b)Director’s Successors. Without the written consent of the Corporation, the Director shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. The terms of this Agreement and all rights of the Director hereunder shall inure to the benefit of, and be enforceable by, the Director’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

4.Federal Excise Tax.

(a)Avoidance of Excise Tax. If the acceleration of the Plan Awards provided for in this Agreement would be subject to the excise tax or denial of deduction imposed by Sections 280G and 4999 of the Code (an “Excess Parachute Payment”), then the Director’s benefits under this Agreement shall be reduced, or portions of the then unvested Plan Awards shall not vest as provided herein, in order to avoid any Excess Parachute Payment.

(b)Calculation by Independent Public Accountants. Unless the Corporation and the Director otherwise agree in writing, any calculation of the amount of any Excess Parachute Payments shall be made in writing by the Corporation’s independent public accountants (the “Accountants”), whose determination, absent manifest error, shall be conclusive and binding upon the Director and the Corporation. For purposes of making such calculation, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Corporation and the Director shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make the required calculation. The Corporation shall bear all fees and expenses the Accountants may charge in connection with such calculation.

5.Arbitration.

(a)Disputes Subject to Arbitration. To the extent permitted by law, any claim, dispute or controversy arising out of this Agreement, the interpretation, validity or enforceability of this Agreement or the alleged breach hereof shall be submitted by the parties to binding arbitration by a sole arbitrator under the rules of the American Arbitration Association. Judgment may be entered on the award of the arbitrator in any court having jurisdiction.

(b)Costs of Arbitration. All costs of arbitration, including reasonable attorney’s fees of the Director, will be borne by the Corporation, except that, if the Director initiates arbitration and the arbitrator finds the Director’s claims to be frivolous, the Director shall be responsible for his own costs and attorney’s fees.

(c)Site of Arbitration. The site of the arbitration proceeding shall be in Indianapolis, Indiana.

(d)Acknowledgment. THE DIRECTOR HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. THE DIRECTOR UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, THE DIRECTOR AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, OR RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF THE DIRECTOR’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THIS AGREEMENT.

6.Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Director, mailed notices shall be addressed to him/her at the home address that was most recently communicated to the Corporation in writing. In the case of the Corporation, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

7.Miscellaneous Provisions.

(a)Amendment and Waiver. No provision of this Agreement shall be modified, amended, waived or discharged unless the modification, amendment, waiver or discharge is agreed to in writing and signed by the Director and by an authorized officer of the Corporation (other than the Director). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(b)Integration. This Agreement, the 2006 Plan and any outstanding Plan Award agreements referenced in this Agreement represent the entire agreement and understanding between the parties as to the subject matter of this Agreement and supersede all prior or contemporaneous agreements, whether written or oral, with respect to this Agreement, the 2006 Plan and such Plan Award agreements.

(c)Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Indiana, without regard to where the Director has his residence or principal office or where he performs his duties hereunder.

(d)Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(e)Amendment of Award Agreements. The Corporation and the Director agree that the provisions of this Agreement shall supersede any conflicting provisions of any Plan Award agreement of the Director, and the Corporation and the Director agree to execute such further documents as may be necessary to amend any such agreement. All other terms of the Director’s Plan Award agreement shall remain in full force and effect.

(f)Director Service. Nothing in this Agreement is intended to or shall modify the nature of the Director’s service as a member of the board of directors of the Corporation. This Agreement should not be construed as giving the Director any right to be retained as a director of the Corporation.

(g)Headings. The headings of sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any provisions of this Agreement.

(h)Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Corporation by its duly authorized officer, as of the day and year first above written.

INTERACTIVE INTELLIGENCE GROUP, INC.	DIRECTOR
By:_________________________________	________________________
Name: Ashley A. Vukovits	Name:
Title: Chief Financial Officer, Senior Vice President of Administration, Secretary and Treasurer

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald E. Brown, M.D., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Interactive Intelligence Group, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Donald E. Brown, M.D.

Donald E. Brown, M.D.

President and Chief Executive Officer

(Principal Executive Officer)

August 5, 2016

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ashley A. Vukovits, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Interactive Intelligence Group, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Ashley A. Vukovits

Ashley A. Vukovits

Chief Financial Officer, Senior Vice President of Administration,

Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

August 5, 2016

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Interactive Intelligence Group, Inc. (the "Registrant") on Form 10-Q for the quarterly period ending June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald E. Brown, M.D., Chairman of the Board, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report, to which this certification is attached as Exhibit 32.1, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Donald E. Brown, M.D.

Donald E. Brown, M.D.

President and Chief Executive Officer

(Principal Executive Officer)

August 5, 2016

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Interactive Intelligence Group, Inc. (the "Registrant") on Form 10-Q for the quarterly period ending June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ashley A. Vukovits, Chief Financial Officer, Senior Vice President of Administration, Secretary and Treasurer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report, to which this certification is attached as Exhibit 32.2, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Ashley A. Vukovits

Ashley A. Vukovits

Chief Financial Officer, Senior Vice President of Administration,

Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

August 5, 2016

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 29, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Interactive Intelligence Group, Inc.
Entity Central Index Key	0001517650
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		22,238,318
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 106,872	$ 94,808
Short-term investments	58,906	64,182
Accounts receivable, net of allowance for doubtful accounts of $1,749 at June 30, 2016 and $1,508 at December 31, 2015	96,997	106,950
Prepaid expenses	34,197	32,709
Other current assets	10,242	13,264
Total current assets	307,214	311,913
Long-term investments	32,469	30,503
Property and equipment, net	39,812	44,837
Capitalized software, net	40,563	43,783
Goodwill	42,220	41,848
Intangible assets, net	14,083	14,427
Other assets, net	6,362	6,222
Total assets	482,723	493,533
Current liabilities:
Accounts payable	9,771	10,571
Accrued liabilities	17,751	17,157
Accrued compensation and related expenses	18,448	18,910
Deferred license and hardware revenues	2,036	7,823
Deferred recurring revenues	100,057	92,773
Deferred services revenues	13,052	14,979
Total current liabilities	161,115	162,213
Convertible notes	121,232	118,022
Long-term deferred revenues	18,733	19,834
Deferred tax liabilities, net	2,294	2,143
Other long-term liabilities	6,947	7,291
Total liabilities	310,321	309,503
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000 authorized; 22,213,335 issued and outstanding at June 30, 2016, 21,821,895 issued and outstanding at December 31, 2015	222	218
Additional paid-in capital	247,976	237,496
Accumulated other comprehensive loss, net of tax	(9,945)	(11,244)
Accumulated deficit	(65,851)	(42,440)
Total shareholders' equity	172,402	184,030
Total liabilities and shareholders' equity	$ 482,723	$ 493,533

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Accounts receivable, allowance for doubtful accounts	$ 1,749	$ 1,508
Shareholders' equity:
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	22,213,335	21,821,895
Common stock, shares outstanding (in shares)	22,213,335	21,821,895

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Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues:
Recurring	$ 66,045	$ 53,846	$ 130,335	$ 108,058
License and hardware	29,702	27,010	51,080	48,631
Services	13,044	15,475	26,657	29,117
Total revenues	108,791	96,331	208,072	185,806
Costs of revenues:
Costs of recurring	22,765	19,253	45,201	37,997
Costs of license and hardware	5,623	6,552	12,014	13,081
Costs of services	11,389	11,514	22,940	22,765
Total costs of revenues	39,777	37,319	80,155	73,843
Gross profit	69,014	59,012	127,917	111,963
Operating expenses:
Sales and marketing	39,808	33,875	74,244	64,984
Research and development	23,242	16,694	46,022	30,531
General and administrative	13,216	12,204	25,726	24,980
Total operating expenses	76,266	62,773	145,992	120,495
Operating loss	(7,252)	(3,761)	(18,075)	(8,532)
Other expense:
Interest expense, net	(1,728)	(590)	(3,565)	(442)
Other expense	(412)	(232)	(663)	(559)
Total other expense	(2,140)	(822)	(4,228)	(1,001)
Loss before income taxes	(9,392)	(4,583)	(22,303)	(9,533)
Income tax (expense) benefit	(767)	(501)	(1,108)	990
Net loss	$ (10,159)	$ (5,084)	$ (23,411)	$ (8,543)
Net loss per share:
Basic (in dollars per share)	$ (0.46)	$ (0.24)	$ (1.06)	$ (0.40)
Diluted (in dollars per share)	$ (0.46)	$ (0.24)	$ (1.06)	$ (0.40)
Shares used to compute net loss per share:
Basic (shares)	22,053	21,504	22,059	21,519
Diluted (shares)	22,053	21,504	22,059	21,519
Amounts include amortization of purchased intangibles from business combinations
Total intangible amortization expense	$ 608	$ 619	$ 1,211	$ 1,245
Amounts include stock-based compensation expense
Total stock-based compensation expense	5,128	3,876	9,097	6,869
General and administrative
Amounts include amortization of purchased intangibles from business combinations
Total intangible amortization expense	422	442	839	891
Amounts include stock-based compensation expense
Total stock-based compensation expense	1,175	1,063	1,876	2,093
Costs of recurring revenues
Amounts include stock-based compensation expense
Total stock-based compensation expense	472	512	865	944
Costs of license and hardware revenue
Amounts include amortization of purchased intangibles from business combinations
Total intangible amortization expense	186	177	372	354
Amounts include stock-based compensation expense
Total stock-based compensation expense	25	20	55	42
Costs of services revenues
Amounts include stock-based compensation expense
Total stock-based compensation expense	268	164	542	293
Sales and marketing
Amounts include stock-based compensation expense
Total stock-based compensation expense	1,548	1,154	2,365	1,715
Research and development
Amounts include stock-based compensation expense
Total stock-based compensation expense	$ 1,640	$ 963	$ 3,394	$ 1,782

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Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statement of Comprehensive Income [Abstract]
Net loss	$ (10,159)	$ (5,084)	$ (23,411)	$ (8,543)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(781)	453	956	(2,809)
Net unrealized investment gain (loss) - net of tax	95	(9)	343	50
Comprehensive loss	$ (10,845)	$ (4,640)	$ (22,112)	$ (11,302)

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Condensed Consolidated Statement of Shareholders' Equity - 6 months ended Jun. 30, 2016 - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit
Beginning Balance at Dec. 31, 2015	$ 184,030	$ 218	$ 237,496	$ (11,244)	$ (42,440)
Beginning Balance (in shares) at Dec. 31, 2015	21,821,895	21,822,000
Net loss	$ (23,411)				(23,411)
Stock-based compensation expense	9,219		9,219
Exercise of stock options	2,835	$ 4	2,831
Exercise of stock options (shares)		129,000
Issuances of common stock	647		647
Issuances of common stock (in shares)		87,000
Tax withholding on restricted stock unit awards	(2,217)		(2,217)
Tax withholding on restricted stock awards (in shares)		175,000
Foreign currency translation adjustment	956			956
Net unrealized investment loss	343			343
Ending Balance at Jun. 30, 2016	$ 172,402	$ 222	$ 247,976	$ (9,945)	$ (65,851)
Ending Balance (in shares) at Jun. 30, 2016	22,213,335	22,213,000

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Condensed Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Operating activities:
Net loss	$ (23,411,000)	$ (8,543,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	8,617,000	8,227,000
Amortization	6,202,000	2,804,000
Other non-cash items	(319,000)	(856,000)
Stock-based compensation expense	9,097,000	6,869,000
Deferred income taxes	151,000	(89,000)
Amortization of investment premium	94,000	151,000
Loss on disposal of fixed assets	403,000	21,000
Amortization of debt issuance costs	353,000	57,000
Amortization of debt discount	2,857,000	455,000
Gain on sale of subsidiary	(452,000)	0
Changes in operating assets and liabilities:
Accounts receivable	9,839,000	2,188,000
Prepaid expenses	(1,488,000)	1,453,000
Other current assets	3,022,000	294,000
Accounts payable	(800,000)	(43,000)
Accrued liabilities	770,000	(222,000)
Accrued compensation and related expenses	(462,000)	80,000
Deferred license and hardware revenues	(5,833,000)	1,945,000
Deferred recurring revenues	7,297,000	(1,520,000)
Deferred services revenues	(2,599,000)	358,000
Other assets and liabilities	(434,000)	533,000
Net cash provided by operating activities	12,904,000	14,162,000
Investing activities:
Sales of available-for-sale investments	41,294,000	20,462,000
Purchases of available-for-sale investments	(37,735,000)	0
Purchases of property and equipment	(3,781,000)	(10,659,000)
Capitalized software	(1,867,000)	(12,568,000)
Acquisitions and divestitures	160,000	0
Net cash used in investing activities	(1,929,000)	(2,765,000)
Financing activities:
Proceeds from issuance of convertible debt	0	150,000,000
Payment for debt issuance costs	0	(4,521,000)
Payment for capped call premiums	0	(12,750,000)
Principal payments on capital lease obligations	(176,000)	0
Proceeds from stock options exercised	2,835,000	2,166,000
Proceeds from issuance of common stock	647,000	789,000
Tax withholding on restricted stock unit awards	(2,217,000)	(3,309,000)
Net cash provided by financing activities	1,089,000	132,375,000
Net increase in cash and cash equivalents	12,064,000	143,772,000
Cash and cash equivalents, beginning of period	94,808,000	36,168,000
Cash and cash equivalents, end of period	106,872,000	179,940,000
Cash paid during the period for:
Interest	959,000	43,000
Income taxes	1,300,000	662,000
Non-cash financing and investing activities:
Issuance of retirement plan shares	0	2,523,000
Other non-cash item:
Purchase of property and equipment payable at end of period	$ 646,000	$ 105,000

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FINANCIAL STATEMENT PRESENTATION

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

FINANCIAL STATEMENT PRESENTATION

FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Interactive Intelligence Group, Inc. (together with its consolidated subsidiaries, "the Company," "we," "us" and "our") have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and with the instructions for Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, certain information and note disclosures normally included in the Company’s financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC").

The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, at the respective balance sheet dates, and the reported amounts of revenues and expenses during the respective reporting periods. Despite management’s best effort to establish good faith estimates and assumptions, actual results could differ from these estimates. In management’s opinion, the Company’s accompanying condensed consolidated financial statements include all adjustments necessary (which are of a normal and recurring nature, except as otherwise noted) for the fair presentation of the results of the interim periods presented.

The Company’s accompanying condensed consolidated financial statements as of December 31, 2015 have been derived from the Company’s audited consolidated financial statements at that date but do not include all of the information and notes required by GAAP for complete financial statements. These accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2015, included in the Company’s most recent Annual Report on Form 10-K as filed with the SEC on February 29, 2016. The Company’s results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany accounts and transactions.

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SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2016

Accounting Changes and Error Corrections [Abstract]

SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

For a complete summary of the Company’s significant accounting policies and critical accounting estimates, refer to Note 2 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

In March 2016, the Financial Accounting Standards Board ("FASB") issued FASB Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation ("FASB ASU 2016-09"), which includes the simplification of several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Public business entities must apply the new requirements in fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company has elected not to early adopt the amendments. The Company is evaluating the effect that FASB ASU 2016-09 will have on its consolidated financial statements and related disclosures. The Company has not yet adopted the amendments nor has it determined the effect of the guidance on its ongoing financial reporting.

In February 2016, the FASB issued FASB ASU No. 2016-02, Leases ("FASB ASU 2016-02"), which amends the FASB Accounting Standards Codification ("ASC") to increase transparency and comparability among organizations by requiring companies to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Public business entities must apply the new requirements in fiscal years beginning after December 15, 2018, including interim periods within those years. All entities have the option of applying the amendments as of an earlier date for financial statements that have not been previously issued. The Company is evaluating the effect that FASB ASU 2016-02 will have on its consolidated financial statements and related disclosures. The Company has not yet adopted the amendments nor has it determined the effect of the guidance on its ongoing financial reporting.

In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers ("FASB ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. FASB ASU 2014-09 will replace most existing U.S. GAAP revenue recognition guidance when it becomes effective. As originally issued, the new standard was to become effective for the Company on January 1, 2017, and early adoption is not permitted. In August 2015, the FASB issued FASB ASU No. 2015-14, Deferral of the Effective Date, which declared a one-year deferral of the effective date of the new revenue recognition standard. As a result, the new standard will become effective for the Company beginning with the first quarter of 2018. FASB ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company expects to elect the retrospective transition method once the new standard becomes effective for the Company and is evaluating the effect that FASB ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the guidance on its ongoing financial reporting.

The Company capitalizes certain costs related to its multi-tenant cloud offering, PureCloud^® ("PureCloud"), and certain projects described below for internal use in accordance with FASB ASC 350-40, Internal Use Software. Once a product has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The capitalization of costs ceases upon completion of all substantial testing. Costs incurred in the preliminary stages of development, maintenance and training costs are expensed as incurred. During the three and six months ended June 30, 2016, the Company capitalized $200,000 and $1.2 million, respectively, of costs related to the development of its PureCloud Platform, compared to the capitalization of $5.2 million and $10.8 million during the same periods in 2015. The Company will continue to capitalize development costs related to new PureCloud functionality and will begin amortizing such costs once that functionality is released for general availability.

The Company also capitalizes costs related to implementing new business systems to meet its internal business needs. The Company has no substantive plans to market such software externally. During the three and six months ended June 30, 2016, the Company capitalized $400,000 and $800,000, respectively, of costs associated with development and implementation of these systems, compared to the capitalization of $2.1 million and $3.0 million during the same periods in 2015.

During the three and six months ended June 30, 2016, there were no other material changes to the Company’s significant accounting policies or critical accounting estimates.

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NET LOSS PER SHARE

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

NET LOSS PER SHARE

NET LOSSPER SHARE

Basic net loss per share is calculated based on the weighted-average number of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share. Diluted net income per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive. Potential common shares consist of shares of common stock issuable upon the exercise of stock options and vesting of restricted stock units ("RSUs"). The following table sets forth the calculation of basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Net loss, as reported (A)	$	(10,159	)	$	(5,084	)	$	(23,411	)	$	(8,543	)
Weighted average shares of common stock outstanding (B)	22,053			21,504			22,059			21,519
Dilutive effect of employee stock options and RSUs	—			—			—			—
Common stock and common stock equivalents (C)	22,053			21,504			22,059			21,519
Net loss per share:
Basic (A/B)	$	(0.46	)	$	(0.24	)	$	(1.06	)	$	(0.40	)
Diluted (A/C)	(0.46		)	(0.24		)	(1.06		)	(0.40		)

The Company’s calculation of diluted net loss per share for the three and six months ended June 30, 2016 excludes RSUs and stock options to purchase approximately 716,000 and 1.6 million shares of the Company’s common stock, respectively, compared to 269,000 and 643,000 shares during the same periods in 2015, as their inclusion would be anti-dilutive.

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INVESTMENTS

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

INVESTMENTS

INVESTMENTS

FASB ASC Topic 820, Fair Value Measurement ("FASB ASC 820"), as amended, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes the following three levels of inputs that may be used to measure fair value:

• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s short-term investments all mature in less than one year and its long-term investments all mature within three years. Both short-term and long-term investments are considered available for sale. The Company’s assets that are measured at fair value on a recurring basis are classified within Level 1 or Level 2 of the fair value hierarchy. The types of instruments valued based on quoted market prices in active markets include money market securities. Such instruments are classified within Level 1 of the fair value hierarchy. The Company invests in money market funds that are traded daily and does not adjust the quoted price for such instruments. The types of instruments valued based on quoted prices in less active markets, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include corporate notes, U.S. government securities, asset-backed securities, agency bonds and commercial paper. Such instruments are classified within Level 2 of the fair value hierarchy. The Company uses consensus pricing, which is based on multiple pricing sources, to value its fixed income investments. 

The following table sets forth a summary of the Company’s financial assets, classified as cash and cash equivalents, short-term investments and long-term investments on its condensed consolidated balance sheets, measured at fair value as of June 30, 2016 and December 31, 2015 (in thousands):

	Fair Value Measurements at June 30, 2016 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash & cash equivalents:
Cash	$	85,185	$	85,185	$	—	$	—
Money market funds	21,687		21,687		—		—
Total	$	106,872	$	106,872	$	—	$	—
Short-term investments:
Corporate notes	$	30,733	$	—	$	30,733	$	—
U.S. government securities	12,016		—		12,016		—
Commercial paper	5,977		—		5,977		—
Agency bonds	5,497		—		5,497		—
Asset-backed securities	4,683		—		4,683		—
Total	$	58,906	$	—	$	58,906	$	—
Long-term investments:
Corporate notes	$	25,735	$	—	$	25,735	$	—
U.S. government securities	5,026		—		5,026		—
Asset-backed securities	1,708		—		1,708		—
Total	$	32,469	$	—	$	32,469	$	—

	Fair Value Measurements at December 31, 2015 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash & cash equivalents:
Cash	$	76,966	$	76,966	$	—	$	—
Money market funds	17,842		17,842		—		—
Total	$	94,808	$	94,808	$	—	$	—
Short-term investments:
Corporate notes	$	27,105	$	—	$	27,105	$	—
Agency bonds	27,002		—		27,002		—
Asset-backed securities	4,681		—		4,681		—
U.S. government securities	3,896		—		3,896		—
Commercial paper	1,498		—		1,498		—
Total	$	64,182	$	—	$	64,182	$	—
Long-term investments:
Corporate notes	29,504		$	—	29,504		—
Asset-backed securities	999		$	—	999		—
Total	$	30,503	$	—	$	30,503	$	—

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ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

6 Months Ended

Jun. 30, 2016

Risks and Uncertainties [Abstract]

ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

The Company evaluates the creditworthiness of its customers and partners on a periodic basis and generally does not require collateral. The Company records unbilled accounts receivable, which represents amounts recognized as revenues for invoices that have not yet been sent to customers. This balance fluctuates depending on the contractual billing milestones and work performed related to projects specified in the contract. When the work performed is ahead of the billing milestones related to a services engagement, unbilled accounts receivable will be recorded. The balance of unbilled accounts receivable recorded within accounts receivable on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 was $5.6 million and $9.6 million, respectively.

In addition, the Company records deferred revenues, which represent cash collections for which the Company cannot yet recognize revenues. The balance of deferred revenues also fluctuates depending on the contractual billing milestones and work performed related to projects specified in the contract. When the billing milestones and related cash collections occur prior to the product or service being delivered, deferred revenues will be recorded. The balance of deferred revenues recorded on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 was $133.9 million and $135.4 million, respectively.

No customer or partner accounted for more than 10% of the Company’s accounts receivable as of June 30, 2016 or December 31, 2015 or for more than 10% of the Company’s revenues for the three and six months ended June 30, 2016 or 2015. The Company’s top five partners collectively represented 19% and 14% of the Company’s accounts receivables balance at June 30, 2016 and December 31, 2015, respectively.

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Stock Option Plan

The Company’s 2006 Equity Incentive Plan, as amended and as assumed by Interactive Intelligence Group, Inc. (the "2006 Plan") authorizes the Board of Directors or the Compensation Committee, as applicable, to grant incentive and nonqualified stock options, stock appreciation rights, restricted stock, RSUs, performance shares, performance units and other stock-based awards. After adoption of the 2006 Plan by the Company’s shareholders in May 2006, the Company may no longer make any grants under previous plans. At the Company’s 2016 Annual Meeting of Shareholders held on May 18, 2016, the Company’s shareholders approved an amendment to the 2006 Plan which increased the number of shares available for issuance under the 2006 Plan by 2,600,000 shares. A maximum of 11,650,933 shares are available for delivery under the 2006 Plan. The number of shares available under the 2006 Plan is subject to adjustment for certain changes in the Company’s capital structure. The exercise price of options granted under the 2006 Plan is equal to the closing price of the Company’s common stock, as reported by The NASDAQ Global Select Market, on the business day immediately preceding the date of grant. As of June 30, 2016, there were 2,964,501 shares of stock available for issuance for equity compensation awards under the 2006 Plan.

The Company has historically granted both time-based and performance-based RSUs and three types of stock options. The Company's stock options are all granted with a term of six years from the grant date. The first type of stock option is subject only to time-based vesting. These stock options have historically been granted by the Company as annual grants to executives and other employees, to certain new employees and to newly-elected non-employee directors. These stock options vest in four equal annual installments beginning one year after the grant date.  The fair value of these option grants is determined on the date of grant and the related compensation expense is recognized for the entire award on a straight-line basis over the requisite service period.

The second type of stock option granted by the Company is performance-based and is subject to cancellation if the specified performance targets are not met. If the applicable performance targets have been achieved, the options will vest in four equal annual installments beginning one year after the grant date. The fair value of these stock option grants is determined on the date of grant and the related compensation expense is recognized on a tranche-by-tranche basis, with each tranche expensed equally over the requisite service period, including the initial period for which the specified performance targets must be met.

The third type of stock option granted by the Company is director options and have historically been granted to non-employee directors annually at the Company's Annual Meeting of Shareholders during the second quarter of a fiscal year. These options are similar to the time-based options described above except that these director options vest one year after the grant date. The fair value of these option grants is determined on the date of the grant and the related compensation expense is recognized over one year.

If an incentive stock option is granted to an employee who, at the time the option is granted, owns stock representing more than 10% percent of the voting power of all classes of our stock, the exercise price of the option may not be less than 110% of the market value per share on the date the option is granted and the term of the option shall be not more than five years from the date of grant.

Performance-based and time-based RSUs can be granted by the Company to directors, executives, certain key employees and certain new employees. The fair value of the RSUs is determined on the date of grant. Time-based RSUs granted to executives, certain key employees, certain new employees and newly-elected non-employee directors vest in four equal annual installments beginning one year after the grant date. Time-based RSUs granted annually to non-employee directors vest in full one year after the grant date. Performance-based RSUs vest in four equal annual installments once the individual has achieved the performance targets and the related compensation expense is recognized on a tranche-by-tranche basis, with each tranche expensed equally over the requisite service period. RSUs are not included in issued and outstanding common stock until the shares are vested and settlement has occurred.

During 2015, the Company elected to grant performance-based and time-based RSUs to directors, executives, certain key employees and certain new employees. During 2016, the Company utilized time-based and performance-based stock options and time-based and performance-based RSUs for stock-based compensation.

The 2006 Plan may be terminated by the Company’s Board of Directors at any time.

Stock-Based Compensation Expense Information

The following table summarizes the allocation of stock-based compensation expense related to employee and director stock options and RSUs under FASB ASC Topic 718, Compensation – Stock Compensation ("FASB ASC 718") for the three and six months ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Stock-based compensation expense by category:
Costs of recurring revenues	$	472		$	512		$	865		$	944
Costs of license and hardware revenue	25			20			55			42
Costs of services revenues	268			164			542			293
Sales and marketing	1,548			1,154			2,365			1,715
Research and development	1,640			963			3,394			1,782
General and administrative	1,175			1,063			1,876			2,093
Total stock-based compensation expense	$	5,128		$	3,876		$	9,097		$	6,869
Effect of stock-based compensation expense on net loss per share:
Basic	$	(0.23	)	$	(0.18	)	$	(0.41	)	$	(0.32	)
Diluted	(0.23		)	(0.18		)	(0.41		)	(0.32		)

During the three and six months ended June 30, 2016, the Company capitalized $16,000 and $122,000, respectively, of stock-based compensation expense related to capitalized software, compared to $570,000 and $1.2 million, respectively, during the same periods in 2015.

Stock Option and RSU Valuation

The Company estimated the fair value of stock options using the Black-Scholes valuation model.

There were no stock options granted during the first six months of 2015. The weighted-average estimated per option value of time-based and performance-based options granted under the 2006 Plan during the six months ended June 30, 2016 used the following assumptions:

	Six Months Ended   June 30,
Valuation assumptions for time-based options:	2016
Dividend yield	—				%
Expected volatility	54.70	%	-	57.26	%
Risk-free interest rate	1.14	%	-	1.29	%
Expected life of option (in years)	4.25
	Six Months Ended   June 30,
Valuation assumptions for performance-based options:	2016
Dividend yield	—				%
Expected volatility	54.70	%	-	57.26	%
Risk-free interest rate	1.14	%	-	1.29	%
Expected life of option (in years)	4.25
	Six Months Ended   June 30,
Valuation assumptions for annual director options:	2016
Dividend yield	—				%
Expected volatility	55.95				%
Risk-free interest rate	1.25				%
Expected life of option (in years)	4.00

RSUs are valued using the fair market value of the Company’s stock on the date of grant and expense is recognized on a straight line basis taking into account an estimated forfeiture rate.

Stock Option and RSU Activity

The following table sets forth a summary of stock option activity for the six months ended June 30, 2016:

	Options						Weighted-Average Exercise Price
Balances, beginning of year	1,060,858						$	35.85
Options granted	380,310						28.64
Options exercised	(137,425					)	20.47
Options cancelled, forfeited or expired	(29,346					)	34.12
Options outstanding	1,274,397						35.40
Option price range	$	6.66	-	$	66.39
Weighted-average fair value of options granted	$	13.03
Options exercisable	770,628						$	35.29

The following table sets forth information regarding the Company’s stock options outstanding and exercisable as of June 30, 2016:

					Options Outstanding				Options Exercisable
Range of Exercise Prices					Number	Weighted- Average Remaining Contractual Life	Weighted Average Exercise Price		Number	Weighted Average Exercise Price
$	6.66	—	$	22.92	37,325	0.63	$	18.83	37,325	$	18.83
24.50		—	24.50		220,629	1.73	24.50		209,379	24.50
25.00		—	27.53		46,500	1.83	26.20		44,000	26.14
27.73		—	27.73		311,649	5.60	27.73		—	—
28.82		—	30.92		13,750	1.69	30.35		13,750	30.35
32.33		—	32.33		176,250	0.74	32.33		176,250	32.33
32.53		—	34.69		96,565	3.81	33.89		39,750	33.07
39.97		—	39.97		133,530	2.82	39.97		92,095	39.97
48.12		—	66.21		87,000	3.39	50.30		83,500	49.67
66.39		—	66.39		151,199	3.71	66.39		74,579	66.39
Total shares/average price					1,274,397	3.13	$	35.40	770,628	$	35.29

The total intrinsic value of options exercised during the quarter ended ended June 30, 2016 was $1.2 million. The aggregate intrinsic value of options outstanding as of June 30, 2016 was $11.8 million and the aggregate intrinsic value of options currently exercisable as of June 30, 2016 was $7.0 million. The aggregate intrinsic value represents the total intrinsic value, based on the Company’s closing stock price per share of $40.99as of June 30, 2016, which would have been realized by the option holders had all option holders exercised their options as of that date. The total number of in-the-money optionsexercisable as of June 30, 2016represented approximately612,549shares with a weighted average exercise price of$29.54.

As of June 30, 2016, there was $7.5 million of total unrecognized compensation expense related to non-vested stock options. This expense is expected to be recognized over the weighted average remaining vesting period of 2.72 years.

The following table sets forth a summary of RSU activity for the six months ended June 30, 2016:

	Awards		Weighted- Average Grant Date Price
Balances, beginning of year	850,228		$	45.53
RSUs granted	579,938		26.96
RSUs vested	(257,007	)	45.99
RSUs forfeited	(80,132	)	39.71
RSUs outstanding	1,093,027		36.00

As of June 30, 2016, there was $35.9 million of total unrecognized compensation expense related to non-vested RSUs. This expense is expected to be recognized over the weighted average remaining vesting period of 2.90 years.

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INCOME TAXES

6 Months Ended

Jun. 30, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company’s effective tax rate, without the effect of discrete items, for the three and six months ended June 30, 2016 was (8.2)% and (5.0)%, respectively, compared to 0.9% and (7.5)%, respectively, for the same periods in 2015.  No discrete items were recorded during the three and six months ended June 30, 2016. During the three months ended June 30, 2015, the Company recorded $29,000 of expense related to discrete items. During the six months ended June 30, 2015, the Company recorded a net credit of $1.7 million related to discrete items, including a net credit of $1.9 million recorded during the first quarter of 2015 to correct an error in the Company's valuation reserve for deferred tax assets. With the effects of these discrete items, the Company’s effective tax rate was (11.7)% and 10.4% for the three and six months ended June 30, 2015, respectively. The Company’s effective tax rate for the three and six months ended June 30, 2016 was lower than the federal statutory tax rate of 35.0% primarily because the Company continues to record a full valuation allowance related to its domestic deferred tax assets.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company has received notification from competitors and other technology providers claiming that the Company's technology infringes upon their proprietary rights. The Company cannot provide assurance that these matters can be resolved amicably without litigation, or that the Company will be able to enter into licensing arrangements on terms and conditions that would not have a material adverse effect on its business, financial condition or results of operations.

During the second quarter of 2016, the Company reduced its accrual related to its disputed royalty agreement with Avaya, Inc. (“Avaya”) by $2.1 million due to a change in the Company’s estimate of its expected liability as of June 30, 2016. This change in estimate resulted in a reduction to costs of license and hardware revenues on the Company's condensed consolidated statements of operations for the three and six months ended June 30, 2016. On July 29, 2016, Avaya unilaterally terminated the royalty agreement. On August 1, 2016, the Company filed a lawsuit, captioned Interactive Intelligence, Inc. v. Avaya, Inc., in the United States District Court for the Southern District of Indiana. In the lawsuit, the Company is seeking restitution and/or compensatory damages from Avaya related to the royalty agreement and is seeking declarations that, among other things, the Company does not infringe certain patents owned or controlled by Avaya and that such patents are invalid. The Company intends to vigorously pursue its claims; however, the ultimate outcome of this lawsuit cannot presently be determined.

From time to time, the Company is also involved in certain legal proceedings in the ordinary course of conducting its business. While the ultimate liability pursuant to these actions cannot currently be determined, the Company believes these legal proceedings will not have a material adverse effect on its financial position or results of operations. Litigation, in general, and intellectual property litigation, in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict.

Guarantees

The Company provides indemnifications of varying scope and amount to certain customers against claims of intellectual property infringement made by third parties arising from the use of its product and service offerings. The Company's software license and subscription agreements include certain provisions for indemnifying customers, in material compliance with their license agreement, against liabilities if the Company's software products or services infringe upon a third party's intellectual property rights, over the life of the agreement. There is no maximum potential amount of future payments set under the guarantee. However, the typical arrangement states that the Company may at any time and at its option and expense: (i) procure the right of the customer to continue to use the Company's software or services that may infringe a third party's rights; (ii) modify its software or services so as to avoid infringement; or (iii) require the customer to return its software or stop using the service and the Company will provide a refund to the customer depending on the type of offering (on-premises or cloud) used by such customer. The customer's failure to provide timely notice or reasonable assistance will relieve the Company of its obligations under this indemnification to the extent that it has been actually and materially prejudiced by such failure. To date, the Company has not incurred, nor does it expect to incur, any material related costs and, therefore, has not reserved for such liabilities, in accordance with FASB ASC Topic 460, Guarantees.

The Company’s software license and subscription agreements also include a warranty that its software products and services will substantially conform to its software user documentation for a period of one year, provided the customer is in material compliance with the software license or subscription agreement. To date, the Company has not incurred any material costs associated with these product warranties, and as such, has not reserved for any such warranty liabilities in its operating results.

Lease Commitments

 The Company’s world headquarters are located in approximately 425,000 square feet of space in four office buildings in Indianapolis, Indiana. In May 2014, the Company entered into new separate lease agreements with Duke Realty Limited Partnership for three of the office buildings, one of which was originally to expire in March 2018 and two of which were originally to expire on June 30, 2025. Also in May 2014, the Company entered into a lease agreement with Duke Construction Limited Partnership to expand its world headquarters to include a fourth, build-to-suit office building in Indianapolis, Indiana.  The construction of the fourth office building was completed in June 2015 and the lease term was originally to expire in June 2025. In April 2016, the Company entered into a lease termination agreement with Duke Realty Limited Partnership for one of its headquarters office buildings that was to expire on March 31, 2018. Pursuant to the lease termination agreement, the lease will terminate and be cancelled effective as of September 30, 2016. Additionally, the Company entered into a lease amendment with Duke Realty Limited Partnership for each of its remaining three headquarters office buildings, which extend the term of the leases through June 30, 2027.

Other Contingencies

Effective March 6, 2015, the Company entered into an agreement with Verint Americas Inc. ("Verint"), with an initial term of five years. Under the terms of the agreement, Verint granted to the Company limited rights to sell Verint product and the Company agreed to pay Verint license fees. If sales of Verint product are not maintained at levels as stated in the agreement, the Company could potentially owe Verint up to $5 million. No accrual has been recorded as of June 30, 2016, as the Company anticipates selling at least the minimum amounts of Verint product set forth in the agreement.

The Company has received and may continue to receive certain payroll tax credits and real estate tax abatements that were granted to the Company based upon certain growth projections. If the Company's actual results are less than those projections, the Company may be subject to repayment of some or all of the tax credits or payment of additional real estate taxes in the case of the abatements. The Company does not believe that it will be subject to payment of any money related to these taxes; however, the Company cannot provide assurance as to the outcome.

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DERIVATIVES

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

DERIVATIVES

The Company enters into derivative contracts to mitigate its foreign currency risk associated with transacting business internationally.  The Company uses foreign currency forward contracts to hedge the revaluation exposure of its net monetary assets and liabilities including cash, accounts receivable, accounts payable and certain intercompany payables and receivables.  These hedges are not designated under GAAP, and all realized and unrealized gains and losses are recorded as incurred within other income (expense) on the Company’s condensed consolidated statements of operations.  The objective is to offset the gains and losses on the underlying exposures with the gains and losses from the forward contracts.  The Company’s hedging policy prohibits entering into hedge contracts that are speculative in nature.

The Company records the fair value of its outstanding hedge contracts in other current assets and accrued liabilities depending upon the market value of the forward contracts at each balance sheet date.  The following table summarizes the notional amount and fair value of the Company’s outstanding currency contracts at June 30, 2016 and December 31, 2015, respectively (in thousands):

	USD Equivalent Notional Amount
	June 30, 2016		December 31, 2015
Euro	$	3,317	$	3,275
Japanese Yen	1,752		1,495
South African Rand	355		347
US Dollar	150		150
Total	$	5,574	$	5,267
	Fair Value USD(1)
	June 30, 2016		December 31, 2015
Derivative Asset	$	22	$	32

___________

(1) The fair value measurement of these derivative contracts falls within Level 2 of the fair value hierarchy as defined in FASB ASC 820. See Note 4 - Investments for further information.

During the three and six months ended June 30, 2016, the Company recorded hedging losses of $178,000 and $485,000, respectively, compared to a hedging loss of $57,000 and a hedging gain of $434,000 for the same periods last year.

In May 2015, the Company issued $150 million aggregate principal amount of its 1.25% convertible senior notes (the "Notes") due June 1, 2020, unless earlier purchased by the Company or converted. In connection with the pricing of the Notes, the Company entered into privately-negotiated capped call transactions (the "capped call transactions") with each of Morgan Stanley & Co. LLC, JPMorgan Chase Bank, National Association, London Branch and Royal Bank of Canada. The capped call transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of shares of the Company's common stock that underlie the Notes. The Company used approximately $12.8 million of the net proceeds from the issuance of the Notes to pay the cost of the capped call transactions. The strike price of the purchased call option is the same as the initial conversion price per share of the Notes of $61.24. The capped call transactions have an initial cap price of $79.38 per share. These capped call transactions are recorded within equity on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 and are not remeasured as long as they continue to meet the conditions for equity classification.

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CONVERTIBLE NOTES

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

CONVERTIBLE NOTES

CONVERTIBLE NOTES

In May 2015, the Company issued $150 million aggregate principal amount of its Notes due June 1, 2020, unless earlier purchased by the Company or converted. Interest is payable semi-annually, in arrears, on June 1 and December 1 of each year. The Company made its first interest payment on the Notes on December 1, 2015.

The Notes were sold in a private placement under a purchase agreement entered into by and among the Company and Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and RBC Capital Markets, LLC, as representatives of the several initial purchasers named therein, for resale to qualified institutional buyers as defined in, and in reliance on, Rule 144A under the Securities Act of 1933, as amended.

The Notes are governed by an indenture between the Company, as issuer, and U.S. Bank National Association, as trustee (the "indenture"). The Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends or the incurrence of senior debt or other indebtedness.

If converted, holders of the Notes will receive, at the Company's election, cash, shares of the Company's common stock or a combination of cash and shares. The initial conversion terms are as follows:

	Initial Conversion Rate per $1,000 Principal Amount	Initial Conversion Price per Share
1.25% Convertible Senior Notes	16.3303	$	61.24

Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events. Except for certain circumstances set forth in the indenture, holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited.

Holders may convert the Notes under the following circumstances:

• during any calendar quarter commencing after the calendar quarter ending on September 30, 2015 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

• during the five business day period after any 5 consecutive trading day period (the ‘‘measurement period’’) in which the trading price (as defined below) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;

• upon the occurrence of specified corporate transactions pursuant to the indenture; or

• at any time on or after March 3, 2020.

Holders of the Notes have the right to require the Company to repurchase for cash all or a portion of the Notes prior to maturity upon the occurrence of a fundamental change, including, among other things, a change of control, at a purchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate transactions that constitute a fundamental change, the Company is required to increase the conversion rate for a holder who elects to convert the Notes in connection with such fundamental change.

In accounting for the issuances of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the Notes, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to expense using the effective interest rate method over the term of the Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders’ equity.

The Notes consisted of the following (in thousands):

	As of
	June 30, 2016			December 31, 2015
Liability component:
1.25% Convertible Senior Notes (1)	$	150,000		$	150,000
Less: debt discount, net (2)	(25,697		)	(28,554		)
Less: debt issuance costs (2)	(3,071		)	(3,424		)
Net carrying amount	$	121,232		$	118,022

___________ 

(1) The effective interest rate of the Notes is 6.25%. The interest rate is based on the interest rates of similar liabilities at the time of issuance that did not have an associated convertible feature.

(2) Included in the condensed consolidated balance sheet as of June 30, 2016 and December 31, 2015 within convertible notes and is amortized over the term of the Notes using the effective interest rate method.

The total estimated fair value of the Notes at June 30, 2016 was $138.5 million. The fair value was determined based on inputs that are observable in the market (Level 2) and was based on the closing trading price per $100 of the Notes as of the last day of trading for the second quarter of 2016.

Based on the closing price of the Company’s common stock of $40.99 on June 30, 2016, the if-converted value of the Notes fell below the principal amount by approximately $49.6 million. Based on the terms of the Notes, the Notes were not convertible at any time during the three and six months ended June 30, 2016.

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SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Changes and Error Corrections [Abstract]

New Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued FASB Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation ("FASB ASU 2016-09"), which includes the simplification of several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Public business entities must apply the new requirements in fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company has elected not to early adopt the amendments. The Company is evaluating the effect that FASB ASU 2016-09 will have on its consolidated financial statements and related disclosures. The Company has not yet adopted the amendments nor has it determined the effect of the guidance on its ongoing financial reporting.

In February 2016, the FASB issued FASB ASU No. 2016-02, Leases ("FASB ASU 2016-02"), which amends the FASB Accounting Standards Codification ("ASC") to increase transparency and comparability among organizations by requiring companies to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Public business entities must apply the new requirements in fiscal years beginning after December 15, 2018, including interim periods within those years. All entities have the option of applying the amendments as of an earlier date for financial statements that have not been previously issued. The Company is evaluating the effect that FASB ASU 2016-02 will have on its consolidated financial statements and related disclosures. The Company has not yet adopted the amendments nor has it determined the effect of the guidance on its ongoing financial reporting.

In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers ("FASB ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. FASB ASU 2014-09 will replace most existing U.S. GAAP revenue recognition guidance when it becomes effective. As originally issued, the new standard was to become effective for the Company on January 1, 2017, and early adoption is not permitted. In August 2015, the FASB issued FASB ASU No. 2015-14, Deferral of the Effective Date, which declared a one-year deferral of the effective date of the new revenue recognition standard. As a result, the new standard will become effective for the Company beginning with the first quarter of 2018. FASB ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company expects to elect the retrospective transition method once the new standard becomes effective for the Company and is evaluating the effect that FASB ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the guidance on its ongoing financial reporting.

Internal Use Software

The Company capitalizes certain costs related to its multi-tenant cloud offering, PureCloud^® ("PureCloud"), and certain projects described below for internal use in accordance with FASB ASC 350-40, Internal Use Software. Once a product has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The capitalization of costs ceases upon completion of all substantial testing. Costs incurred in the preliminary stages of development, maintenance and training costs are expensed as incurred.

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NET LOSS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Calculation Of Basic And Diluted Net Income Per Share

The following table sets forth the calculation of basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Net loss, as reported (A)	$	(10,159	)	$	(5,084	)	$	(23,411	)	$	(8,543	)
Weighted average shares of common stock outstanding (B)	22,053			21,504			22,059			21,519
Dilutive effect of employee stock options and RSUs	—			—			—			—
Common stock and common stock equivalents (C)	22,053			21,504			22,059			21,519
Net loss per share:
Basic (A/B)	$	(0.46	)	$	(0.24	)	$	(1.06	)	$	(0.40	)
Diluted (A/C)	(0.46		)	(0.24		)	(1.06		)	(0.40		)

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INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Financial Assets Measured At Fair Value

The following table sets forth a summary of the Company’s financial assets, classified as cash and cash equivalents, short-term investments and long-term investments on its condensed consolidated balance sheets, measured at fair value as of June 30, 2016 and December 31, 2015 (in thousands):

	Fair Value Measurements at June 30, 2016 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash & cash equivalents:
Cash	$	85,185	$	85,185	$	—	$	—
Money market funds	21,687		21,687		—		—
Total	$	106,872	$	106,872	$	—	$	—
Short-term investments:
Corporate notes	$	30,733	$	—	$	30,733	$	—
U.S. government securities	12,016		—		12,016		—
Commercial paper	5,977		—		5,977		—
Agency bonds	5,497		—		5,497		—
Asset-backed securities	4,683		—		4,683		—
Total	$	58,906	$	—	$	58,906	$	—
Long-term investments:
Corporate notes	$	25,735	$	—	$	25,735	$	—
U.S. government securities	5,026		—		5,026		—
Asset-backed securities	1,708		—		1,708		—
Total	$	32,469	$	—	$	32,469	$	—

	Fair Value Measurements at December 31, 2015 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash & cash equivalents:
Cash	$	76,966	$	76,966	$	—	$	—
Money market funds	17,842		17,842		—		—
Total	$	94,808	$	94,808	$	—	$	—
Short-term investments:
Corporate notes	$	27,105	$	—	$	27,105	$	—
Agency bonds	27,002		—		27,002		—
Asset-backed securities	4,681		—		4,681		—
U.S. government securities	3,896		—		3,896		—
Commercial paper	1,498		—		1,498		—
Total	$	64,182	$	—	$	64,182	$	—
Long-term investments:
Corporate notes	29,504		$	—	29,504		—
Asset-backed securities	999		$	—	999		—
Total	$	30,503	$	—	$	30,503	$	—

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Allocation of Stock-Based Compensation Expense

The following table summarizes the allocation of stock-based compensation expense related to employee and director stock options and RSUs under FASB ASC Topic 718, Compensation – Stock Compensation ("FASB ASC 718") for the three and six months ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Stock-based compensation expense by category:
Costs of recurring revenues	$	472		$	512		$	865		$	944
Costs of license and hardware revenue	25			20			55			42
Costs of services revenues	268			164			542			293
Sales and marketing	1,548			1,154			2,365			1,715
Research and development	1,640			963			3,394			1,782
General and administrative	1,175			1,063			1,876			2,093
Total stock-based compensation expense	$	5,128		$	3,876		$	9,097		$	6,869
Effect of stock-based compensation expense on net loss per share:
Basic	$	(0.23	)	$	(0.18	)	$	(0.41	)	$	(0.32	)
Diluted	(0.23		)	(0.18		)	(0.41		)	(0.32		)

Schedule of Valuation Assumptions

The weighted-average estimated per option value of time-based and performance-based options granted under the 2006 Plan during the six months ended June 30, 2016 used the following assumptions:

	Six Months Ended   June 30,
Valuation assumptions for time-based options:	2016
Dividend yield	—				%
Expected volatility	54.70	%	-	57.26	%
Risk-free interest rate	1.14	%	-	1.29	%
Expected life of option (in years)	4.25
	Six Months Ended   June 30,
Valuation assumptions for performance-based options:	2016
Dividend yield	—				%
Expected volatility	54.70	%	-	57.26	%
Risk-free interest rate	1.14	%	-	1.29	%
Expected life of option (in years)	4.25
	Six Months Ended   June 30,
Valuation assumptions for annual director options:	2016
Dividend yield	—				%
Expected volatility	55.95				%
Risk-free interest rate	1.25				%
Expected life of option (in years)	4.00

Summary of Stock Option Activity

The following table sets forth a summary of stock option activity for the six months ended June 30, 2016:

	Options						Weighted-Average Exercise Price
Balances, beginning of year	1,060,858						$	35.85
Options granted	380,310						28.64
Options exercised	(137,425					)	20.47
Options cancelled, forfeited or expired	(29,346					)	34.12
Options outstanding	1,274,397						35.40
Option price range	$	6.66	-	$	66.39
Weighted-average fair value of options granted	$	13.03
Options exercisable	770,628						$	35.29

Summary of Stock Options Outstanding and Exercisable

The following table sets forth information regarding the Company’s stock options outstanding and exercisable as of June 30, 2016:

					Options Outstanding				Options Exercisable
Range of Exercise Prices					Number	Weighted- Average Remaining Contractual Life	Weighted Average Exercise Price		Number	Weighted Average Exercise Price
$	6.66	—	$	22.92	37,325	0.63	$	18.83	37,325	$	18.83
24.50		—	24.50		220,629	1.73	24.50		209,379	24.50
25.00		—	27.53		46,500	1.83	26.20		44,000	26.14
27.73		—	27.73		311,649	5.60	27.73		—	—
28.82		—	30.92		13,750	1.69	30.35		13,750	30.35
32.33		—	32.33		176,250	0.74	32.33		176,250	32.33
32.53		—	34.69		96,565	3.81	33.89		39,750	33.07
39.97		—	39.97		133,530	2.82	39.97		92,095	39.97
48.12		—	66.21		87,000	3.39	50.30		83,500	49.67
66.39		—	66.39		151,199	3.71	66.39		74,579	66.39
Total shares/average price					1,274,397	3.13	$	35.40	770,628	$	35.29

Summary of RSU activity

The following table sets forth a summary of RSU activity for the six months ended June 30, 2016:

	Awards		Weighted- Average Grant Date Price
Balances, beginning of year	850,228		$	45.53
RSUs granted	579,938		26.96
RSUs vested	(257,007	)	45.99
RSUs forfeited	(80,132	)	39.71
RSUs outstanding	1,093,027		36.00

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DERIVATIVES (Tables)

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule Of Derivative Notional Amount And Fair Value

The following table summarizes the notional amount and fair value of the Company’s outstanding currency contracts at June 30, 2016 and December 31, 2015, respectively (in thousands):

	USD Equivalent Notional Amount
	June 30, 2016		December 31, 2015
Euro	$	3,317	$	3,275
Japanese Yen	1,752		1,495
South African Rand	355		347
US Dollar	150		150
Total	$	5,574	$	5,267
	Fair Value USD(1)
	June 30, 2016		December 31, 2015
Derivative Asset	$	22	$	32

___________

(1) The fair value measurement of these derivative contracts falls within Level 2 of the fair value hierarchy as defined in FASB ASC 820. See Note 4 - Investments for further information.

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CONVERTIBLE NOTES (Tables)

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Schedule of Debt Conversions

If converted, holders of the Notes will receive, at the Company's election, cash, shares of the Company's common stock or a combination of cash and shares. The initial conversion terms are as follows:

	Initial Conversion Rate per $1,000 Principal Amount	Initial Conversion Price per Share
1.25% Convertible Senior Notes	16.3303	$	61.24

Schedule of Long-term Debt Instruments

The Notes consisted of the following (in thousands):

	As of
	June 30, 2016			December 31, 2015
Liability component:
1.25% Convertible Senior Notes (1)	$	150,000		$	150,000
Less: debt discount, net (2)	(25,697		)	(28,554		)
Less: debt issuance costs (2)	(3,071		)	(3,424		)
Net carrying amount	$	121,232		$	118,022

___________ 

(1) The effective interest rate of the Notes is 6.25%. The interest rate is based on the interest rates of similar liabilities at the time of issuance that did not have an associated convertible feature.

(2) Included in the condensed consolidated balance sheet as of June 30, 2016 and December 31, 2015 within convertible notes and is amortized over the term of the Notes using the effective interest rate method.

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SUMMARY OF CERTAIN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Accounting Changes and Error Corrections [Abstract]
Capitalized costs related to development	$ 0.2	$ 5.2	$ 1.2	$ 10.8
Capitalized costs related to internal use software	$ 0.4	$ 2.1	$ 0.8	$ 3.0

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NET LOSS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Earnings Per Share [Abstract]
Net (loss), as reported	$ (10,159)	$ (5,084)	$ (23,411)	$ (8,543)
Weighted average shares of common stock outstanding (shares)	22,053	21,504	22,059	21,519
Dilutive effect of employee stock options and RSUs	0	0	0	0
Common stock and common stock equivalents (shares)	22,053	21,504	22,059	21,519
Basic (A/B) (in dollars per share)	$ (0.46)	$ (0.24)	$ (1.06)	$ (0.40)
Diluted (A/C) (in dollars per share)	$ (0.46)	$ (0.24)	$ (1.06)	$ (0.40)
Stock options and RSUs excluded from diluted net income (loss) per share (shares)	716	269	1,600	643

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INVESTMENTS (Financial Assets Measured At Fair Value) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	$ 106,872	$ 94,808
Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Maturity period	1 year
Investments, Total	$ 58,906	64,182
Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Maturity period	3 years
Investments, Total	$ 32,469	30,503
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	106,872	94,808
Quoted Prices in Active Markets for Identical Assets (Level 1) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	0	0
Significant Other Observable Inputs (Level 2) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	58,906	64,182
Significant Other Observable Inputs (Level 2) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	32,469	30,503
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	0	0
Significant Unobservable Inputs (Level 3) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Significant Unobservable Inputs (Level 3) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Cash
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	85,185	76,966
Cash | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	85,185	76,966
Cash | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	0	0
Cash | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	0	0
Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	21,687	17,842
Money market funds | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	21,687	17,842
Money market funds | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	0	0
Money market funds | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash & cash equivalents, Total	0	0
Corporate notes | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	30,733	27,105
Corporate notes | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	25,735	29,504
Corporate notes | Quoted Prices in Active Markets for Identical Assets (Level 1) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Corporate notes | Quoted Prices in Active Markets for Identical Assets (Level 1) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Corporate notes | Significant Other Observable Inputs (Level 2) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	30,733	27,105
Corporate notes | Significant Other Observable Inputs (Level 2) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	25,735	29,504
Corporate notes | Significant Unobservable Inputs (Level 3) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Corporate notes | Significant Unobservable Inputs (Level 3) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
US Treasury and Government [Member] | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	12,016	3,896
US Treasury and Government [Member] | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	5,026
US Treasury and Government [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
US Treasury and Government [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0
US Treasury and Government [Member] | Significant Other Observable Inputs (Level 2) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	12,016	3,896
US Treasury and Government [Member] | Significant Other Observable Inputs (Level 2) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	5,026
US Treasury and Government [Member] | Significant Unobservable Inputs (Level 3) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
US Treasury and Government [Member] | Significant Unobservable Inputs (Level 3) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0
Commercial paper | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	5,977	1,498
Commercial paper | Quoted Prices in Active Markets for Identical Assets (Level 1) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Commercial paper | Significant Other Observable Inputs (Level 2) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	5,977	1,498
Commercial paper | Significant Unobservable Inputs (Level 3) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Agency bonds | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	5,497	27,002
Agency bonds | Quoted Prices in Active Markets for Identical Assets (Level 1) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Agency bonds | Significant Other Observable Inputs (Level 2) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	5,497	27,002
Agency bonds | Significant Unobservable Inputs (Level 3) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Asset-backed securities | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	4,683	4,681
Asset-backed securities | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	1,708	999
Asset-backed securities | Quoted Prices in Active Markets for Identical Assets (Level 1) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Asset-backed securities | Quoted Prices in Active Markets for Identical Assets (Level 1) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Asset-backed securities | Significant Other Observable Inputs (Level 2) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	4,683	4,681
Asset-backed securities | Significant Other Observable Inputs (Level 2) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	1,708	999
Asset-backed securities | Significant Unobservable Inputs (Level 3) | Short-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	0	0
Asset-backed securities | Significant Unobservable Inputs (Level 3) | Long-term investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, Total	$ 0	$ 0

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ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK (Details) $ in Millions	6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) customer	Jun. 30, 2015 customer	Dec. 31, 2015 USD ($) customer
Concentration Risk [Line Items]
Unbilled accounts receivable | $	$ 5.6		$ 9.6
Deferred Revenue | $	$ 133.9		$ 135.4
Accounts Receivable | Customer Concentration Risk
Concentration Risk [Line Items]
Number of customers or partners with significant holding	0		0
Percentage of concentration risk	10.00%		10.00%
Accounts Receivable | Top Five Partners
Concentration Risk [Line Items]
Number of customers or partners with significant holding	5		5
Percentage of concentration risk	19.00%		14.00%
Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Number of customers or partners with significant holding	0	0
Percentage of concentration risk	10.00%	10.00%

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STOCK-BASED COMPENSATION (Details) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
	May 18, 2016 shares	Jun. 30, 2016 USD ($) $ / shares shares	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) item stock_option_type $ / shares shares	Jun. 30, 2015 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of types of stock options | stock_option_type				3
Total intrinsic value of options exercised | $				$ 1,200
Aggregate intrinsic value of options outstanding | $		$ 11,800		11,800
Aggregate intrinsic value of options currently exercisable | $		$ 7,000		$ 7,000
Company's closing stock price per share | $ / shares		$ 40.99		$ 40.99
Total unrecognized compensation cost related to non-vested stock options | $		$ 7,500		$ 7,500
Weighted average remaining vesting period				2 years 8 months 19 days
Time-Based Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of equal annual installments | item				4
Award vesting period				1 year
Performance-Based Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of equal annual installments | item				4
Award vesting period				1 year
Director Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period				1 year
Period of recognizing compensation expense				1 year
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted (shares)				380,310	0
Total number of in-the-money options exercisable		770,628		770,628
Weighted average exercise price (dollars per share) | $ / shares		$ 35.29		$ 35.29
In the Money Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total number of in-the-money options exercisable		612,549		612,549
Weighted average exercise price (dollars per share) | $ / shares		$ 29.54		$ 29.54
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted (shares)				579,938
Weighted average remaining vesting period				2 years 10 months 24 days
Total unrecognized compensation cost related to non-vested RSUs | $		$ 35,900		$ 35,900
Capitalized software, net
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, capitalized amount | $		$ 16	$ 570	$ 122	$ 1,200
2006 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional shares available for issuance	2,600,000
Shares available for delivery	11,650,933
Shares of stock available for issuance for equity compensation awards		2,964,501		2,964,501

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STOCK-BASED COMPENSATION (Allocation of Stock-Based Compensation Expense) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 5,128	$ 3,876	$ 9,097	$ 6,869
Effects of Stock-based compensation: Basic (dollars per share)	$ (0.23)	$ (0.18)	$ (0.41)	$ (0.32)
Effects of Stock-based compensation: Diluted (dollars per share)	$ (0.23)	$ (0.18)	$ (0.41)	$ (0.32)
Costs of recurring revenues
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 472	$ 512	$ 865	$ 944
Costs of license and hardware revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	25	20	55	42
Costs of services revenues
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	268	164	542	293
Sales and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	1,548	1,154	2,365	1,715
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	1,640	963	3,394	1,782
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 1,175	$ 1,063	$ 1,876	$ 2,093

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STOCK-BASED COMPENSATION (Schedule of Valuation Assumptions) (Details)	6 Months Ended
	Jun. 30, 2016
Time-Based Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	0.00%
Expected volatility, minimum	54.70%
Expected volatility, maximum	57.26%
Risk-free interest rate, minimum	1.14%
Risk-free interest rate, maximum	1.29%
Expected life of option (in years)	4 years 3 months
Performance-Based Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	0.00%
Expected volatility, minimum	54.70%
Expected volatility, maximum	57.26%
Risk-free interest rate, minimum	1.14%
Risk-free interest rate, maximum	1.29%
Expected life of option (in years)	4 years 3 months
Director Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	0.00%
Expected volatility	55.95%
Risk-free interest rate	1.25%
Expected life of option (in years)	4 years

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STOCK-BASED COMPENSATION (Summary of Stock Option Activity) (Details) - Stock Options - $ / shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option price range, lower limit (dollars per share)	$ 6.66
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 13.03
Options
Balances, beginning of year (shares)	1,060,858
Options granted (shares)	380,310	0
Exercise of stock options (shares)	(137,425)
Options cancelled, forfeited or expired (shares)	(29,346)
Options outstanding at end of period (shares)	1,274,397
Option price range, upper limit (dollars per share)	$ 66.39
Options exercisable (shares)	770,628
Weighted-Average Exercise Price
Weighted-Average Exercise Price, Balance, beginning of year (dollars per share)	$ 35.85
Weighted-Average Exercise Price, Options granted (dollars per share)	28.64
Weighted-Average Exercise Price, Options exercised (dollars per share)	20.47
Weighted-Average Exercise Price, Options cancelled, forfeited or expired (dollars per share)	34.12
Weighted-Average Exercise Price, Options outstanding (dollars per share)	35.40
Weighted-Average Exercise Price, Options exercisable (dollars per share)	$ 35.29

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STOCK-BASED COMPENSATION (Summary of Stock Options Outstanding and Exercisable) (Details)	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options outstanding, number (shares) | shares	1,274,397
Options outstanding, weighted-average remaining contractual life (in years)	3 years 1 month 17 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 35.40
Options exercisable, number | shares	770,628
Options exercisable, weighted-average exercise price (dollars per share)	$ 35.29
Range 1
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	6.66
Option price range, upper limit (dollars per share)	$ 22.92
Options outstanding, number (shares) | shares	37,325
Options outstanding, weighted-average remaining contractual life (in years)	7 months 17 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 18.83
Options exercisable, number | shares	37,325
Options exercisable, weighted-average exercise price (dollars per share)	$ 18.83
Range 2
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	24.50
Option price range, upper limit (dollars per share)	$ 24.50
Options outstanding, number (shares) | shares	220,629
Options outstanding, weighted-average remaining contractual life (in years)	1 year 8 months 23 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 24.50
Options exercisable, number | shares	209,379
Options exercisable, weighted-average exercise price (dollars per share)	$ 24.50
Range 3
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	25
Option price range, upper limit (dollars per share)	$ 27.53
Options outstanding, number (shares) | shares	46,500
Options outstanding, weighted-average remaining contractual life (in years)	1 year 9 months 29 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 26.20
Options exercisable, number | shares	44,000
Options exercisable, weighted-average exercise price (dollars per share)	$ 26.14
Range 4
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	27.73
Option price range, upper limit (dollars per share)	$ 27.73
Options outstanding, number (shares) | shares	311,649
Options outstanding, weighted-average remaining contractual life (in years)	5 years 7 months 6 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 27.73
Options exercisable, number | shares	0
Options exercisable, weighted-average exercise price (dollars per share)	$ 0.00
Range 5
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	28.82
Option price range, upper limit (dollars per share)	$ 30.92
Options outstanding, number (shares) | shares	13,750
Options outstanding, weighted-average remaining contractual life (in years)	1 year 8 months 9 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 30.35
Options exercisable, number | shares	13,750
Options exercisable, weighted-average exercise price (dollars per share)	$ 30.35
Range 6
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	32.33
Option price range, upper limit (dollars per share)	$ 32.33
Options outstanding, number (shares) | shares	176,250
Options outstanding, weighted-average remaining contractual life (in years)	8 months 27 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 32.33
Options exercisable, number | shares	176,250
Options exercisable, weighted-average exercise price (dollars per share)	$ 32.33
Range 7
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	32.53
Option price range, upper limit (dollars per share)	$ 34.69
Options outstanding, number (shares) | shares	96,565
Options outstanding, weighted-average remaining contractual life (in years)	3 years 9 months 22 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 33.89
Options exercisable, number | shares	39,750
Options exercisable, weighted-average exercise price (dollars per share)	$ 33.07
Range 8
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	39.97
Option price range, upper limit (dollars per share)	$ 39.97
Options outstanding, number (shares) | shares	133,530
Options outstanding, weighted-average remaining contractual life (in years)	2 years 9 months 26 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 39.97
Options exercisable, number | shares	92,095
Options exercisable, weighted-average exercise price (dollars per share)	$ 39.97
Range 9
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	48.12
Option price range, upper limit (dollars per share)	$ 66.21
Options outstanding, number (shares) | shares	87,000
Options outstanding, weighted-average remaining contractual life (in years)	3 years 4 months 21 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 50.30
Options exercisable, number | shares	83,500
Options exercisable, weighted-average exercise price (dollars per share)	$ 49.67
Range 10
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Option price range, lower limit (dollars per share)	66.39
Option price range, upper limit (dollars per share)	$ 66.39
Options outstanding, number (shares) | shares	151,199
Options outstanding, weighted-average remaining contractual life (in years)	3 years 8 months 16 days
Options outstanding, weighted-average exercise price (dollars per share)	$ 66.39
Options exercisable, number | shares	74,579
Options exercisable, weighted-average exercise price (dollars per share)	$ 66.39

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STOCK-BASED COMPENSATION (Summary of RSU Activity) (Details) - Restricted Stock Units (RSUs)	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balances, beginning of year (shares) | shares	850,228
RSUs granted (shares) | shares	579,938
RSUs vested (shares) | shares	(257,007)
RSUs forfeited (shares) | shares	(80,132)
Options outstanding at end of period (shares) | shares	1,093,027
Weighted-Average Exercise Price, Balance, beginning of year (dollars per share) | $ / shares	$ 45.53
Weighted-Average Exercise Price, RSUs granted (dollars per share) | $ / shares	26.96
Weighted-Average Exercise Price, RSUs vested (dollars per share) | $ / shares	45.99
Weighted-Average Exercise Price, RSUs forfeited (dollars per share) | $ / shares	39.71
Weighted-Average Exercise Price, Options outstanding (dollars per share) | $ / shares	$ 36.00

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INCOME TAXES (Details) - USD ($)	3 Months Ended			6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Mar. 31, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Tax Disclosure [Abstract]
Effective tax rate without the effect of discrete item	(8.20%)	0.90%		(5.00%)	(7.50%)
Discrete items		$ 29,000	$ (1,900,000)	$ 0	$ (1,700,000)
Effective income tax rate		(11.70%)			10.40%
Federal statutory tax rate				35.00%

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COMMITMENTS AND CONTINGENCIES (Narrative) (Details) ft² in Thousands		1 Months Ended	3 Months Ended	6 Months Ended
	Mar. 06, 2015 USD ($)	Apr. 30, 2016 building	Jun. 30, 2016 USD ($)	Jun. 30, 2016 ft² building
Operating Leased Assets [Line Items]
Standard Product Warranty Period				1 year
Other Commitment | $	$ 5,000,000
Verint Agreement, Term	5 years
Loss Contingency Accrual, Provision | $			$ 2,100,000
Number Of Office Buildings				4
Size Of Building | ft²				425
Expires September, 2016 [Member] | Duke Realty Limited Partnership [Member]
Operating Leased Assets [Line Items]
Number Of Office Buildings		1
Expires June, 2027 [Member] | Duke Realty Limited Partnership [Member]
Operating Leased Assets [Line Items]
Number Of Office Buildings		3

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ACQUISITIONS (Fair Value Of The Intangible And Other Assets Acquired And Liabilities Assumed) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Business Acquisition [Line Items]
Goodwill	$ 42,220	$ 41,848

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DERIVATIVES (Details)	1 Months Ended	3 Months Ended		6 Months Ended
	May 31, 2015 USD ($) $ / shares $ / unit	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)
Derivative [Line Items]
Hedging gains (losses)		$ (178,000)	$ (57,000)	$ (485,000)	$ 434,000
Payment for capped call premiums				$ 0	$ 12,750,000
Convertible Debt | Convertible 1.25% Senior Notes
Derivative [Line Items]
Outstanding debt	$ 150,000,000
Interest rate	1.25%
Call Option | Convertible Debt | Convertible 1.25% Senior Notes
Derivative [Line Items]
Payment for capped call premiums	$ 12,800,000
Strike price (usd per share) | $ / shares	$ 61.24
Initial cap price (usd per share) | $ / unit	79.38

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DERIVATIVES (Schedule Of Derivative Notional Amount And Fair Value) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Derivatives, Fair Value [Line Items]
Notional Amount	$ 5,574	$ 5,267
Derivative Asset
Derivatives, Fair Value [Line Items]
Derivative Asset	22	32
Euro
Derivatives, Fair Value [Line Items]
Notional Amount	3,317	3,275
Japanese Yen
Derivatives, Fair Value [Line Items]
Notional Amount	1,752	1,495
US Dollar
Derivatives, Fair Value [Line Items]
Notional Amount	150	150
South African Rand
Derivatives, Fair Value [Line Items]
Notional Amount	$ 355	$ 347

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CONVERTIBLE NOTES (Details)	1 Months Ended	6 Months Ended
	May 31, 2015 USD ($) trading_days $ / shares $ / unit	Jun. 30, 2016 USD ($) $ / shares	Jun. 30, 2015 USD ($)
Debt Instrument [Line Items]
Payment for capped call premiums		$ 0	$ 12,750,000
Company's closing stock price per share | $ / shares		$ 40.99
Common Stock
Debt Instrument [Line Items]
Company's closing stock price per share | $ / shares		$ 40.99
Convertible Debt | Convertible 1.25% Senior Notes
Debt Instrument [Line Items]
Aggregate principal amount	$ 150,000,000
Redemption price in event of change of control, percentage	100.00%
If-converted value amount below principal		$ 49,600,000
Convertible Debt | Convertible 1.25% Senior Notes | Calendar quarter ending on September 30, 2015
Debt Instrument [Line Items]
Number of trading days, whether or not consecutive | trading_days	20
Number of consecutive trading days	30 days
Percentage of the conversion price	130.00%
Convertible Debt | Convertible 1.25% Senior Notes | Measurement period
Debt Instrument [Line Items]
Number of trading days, whether or not consecutive | trading_days	5
Number of consecutive trading days	5 days
Percentage of the conversion price	98.00%
Call Option | Convertible Debt | Convertible 1.25% Senior Notes
Debt Instrument [Line Items]
Payment for capped call premiums	$ 12,800,000
Strike price (usd per share) | $ / shares	$ 61.24
Initial cap price (usd per share) | $ / unit	79.38
Significant Other Observable Inputs (Level 2) | Convertible Debt | Convertible 1.25% Senior Notes
Debt Instrument [Line Items]
Fair value of notes		$ 138,500,000

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CONVERTIBLE NOTES (Schedule of Debt Conversions) (Details) - Convertible Debt - Convertible 1.25% Senior Notes	1 Months Ended
	May 31, 2015 $ / shares
Debt Instrument [Line Items]
Initial Conversion Rate per $1,000 Principal Amount	16.3303
Initial Conversion Price per Share (dollars per share)	$ 61.24

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CONVERTIBLE NOTES (Convertible Debt) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Convertible Debt | Convertible 1.25% Senior Notes
Debt Instrument [Line Items]
Par Value Outstanding	$ 150,000	$ 150,000

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CONVERTIBLE NOTES (Schedule of Long-term Debt Instruments) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Less: debt discount, net	$ (25,697)	$ (28,554)
Less: debt issuance costs	(3,071)	(3,424)
Convertible notes	121,232	118,022
Convertible Debt | Convertible 1.25% Senior Notes
Debt Instrument [Line Items]
Par Value Outstanding	$ 150,000	$ 150,000
Effective interest rate	6.25%