##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED
May 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 1-15045
 INTERVOICE, INC.
 (Exact name of registrant as specified in its charter)
 TEXAS
(State or other jurisdiction of 
incorporation or organization)
    
    75-1927578
(I.R.S. Employer
Identification No.)17811 WATERVIEW PARKWAY, DALLAS, TX
(Address of principal executive offices)
    
    75252
(Zip Code)
 972-454-8000
(Registrants telephone number, including area code)
 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 þ No o
 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 o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
 The Registrant had 39,061,819 shares of common stock, no par value per share, outstanding as of
July 7, 2008.




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. ExhibitsSIGNATURESIndex to ExhibitsFiscal Year 2009 Sales Incentive PlanCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Rule 13a-14(b)Certification of CFO Pursuant to Rule 13a-14(b)    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 (In Thousands, Except Share and Per Share Data)May 31, 2008
    
    
    February 29, 2008ASSETSCurrent AssetsCash and cash equivalents
    
    $
    52,695
    
    
    $
    38,732Trade accounts receivable, net of allowance for
doubtful accounts of $489 in fiscal 2009 and
$634 in fiscal 2008
    
    
    34,403
    
    
    
    36,971Inventory
    
    
    14,805
    
    
    
    14,628Prepaid expenses and other current assets
    
    
    6,329
    
    
    
    5,141Income taxes receivable
    
    
    416
    
    
    
    608Deferred income taxes
    
    
    3,885
    
    
    
    3,360112,533
    
    
    
    99,440Property and Equipment, net of accumulated depreciation of
$67,209 in fiscal 2009 and $64,988 in fiscal 2008
    
    
    31,825
    
    
    
    32,524Other AssetsIntangible assets, net of accumulated amortization of $23,615
in fiscal 2009 and $22,944 in fiscal 2008
    
    
    6,409
    
    
    
    7,080Goodwill
    
    
    32,193
    
    
    
    32,193Long term deferred income taxes
    
    
    4,900
    
    
    
    6,078Other assets
    
    
    184
    
    
    
    183$
    188,044
    
    
    $
    177,498LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    10,134
    
    
    $
    10,516Accrued expenses
    
    
    11,831
    
    
    
    12,736Customer deposits
    
    
    9,433
    
    
    
    8,289Deferred income
    
    
    38,134
    
    
    
    32,708Deferred income taxes
    
    
    1,338
    
    
    
    1,06770,870
    
    
    
    65,316Stockholders EquityPreferred stock, $100 par value2,000,000
shares authorized: none issuedCommon stock, no par value, at nominal
assigned value62,000,000 shares
authorized: 39,037,741 issued and
outstanding in fiscal 2009 and 38,843,851 issued
and outstanding in fiscal 2008
    
    
    20
    
    
    
    19Additional capital
    
    
    109,302
    
    
    
    107,329Retained earnings
    
    
    7,845
    
    
    
    4,843Accumulated other comprehensive income (loss)
    
    
    7
    
    
    
    (9
    )117,174
    
    
    
    112,182$
    188,044
    
    
    $
    177,498
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(In Thousands, Except Per Share Data)Three Months EndedMay 31, 2008
    
    
    May 31, 2007SalesSolutions
    
    $
    23,912
    
    
    $
    21,702Recurring services
    
    
    27,600
    
    
    
    26,02951,512
    
    
    
    47,731Cost of goods soldSolutions
    
    
    15,632
    
    
    
    15,182Recurring services
    
    
    7,904
    
    
    
    7,29123,536
    
    
    
    22,473Gross marginSolutions
    
    
    8,280
    
    
    
    6,520Recurring services
    
    
    19,696
    
    
    
    18,73827,976
    
    
    
    25,258Research and development expenses
    
    
    4,757
    
    
    
    5,317Selling, general and administrative expenses
    
    
    18,889
    
    
    
    20,693Amortization of acquisition related intangible assets
    
    
    648
    
    
    
    695Income (loss) from operations
    
    
    3,682
    
    
    
    (1,447
    )Interest income
    
    
    386
    
    
    
    590Other income (expense)
    
    
    8
    
    
    
    (144
    )Income (loss) before taxes
    
    
    4,076
    
    
    
    (1,001
    )Income taxes (benefit)
    
    
    1,074
    
    
    
    (128
    )Net income (loss)
    
    $
    3,002
    
    
    $
    (873
    )Net income (loss) per share  basic
    
    $
    0.08
    
    
    $
    (0.02
    )Shares used in basic per share computation
    
    
    38,977
    
    
    
    38,807Net income (loss) per share  diluted
    
    $
    0.08
    
    
    $
    (0.02
    )Shares used in diluted per share computation
    
    
    39,349
    
    
    
    38,807
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(In Thousands)Three Months EndedMay 31, 2008
    
    
    May 31, 2007Operating activitiesNet income (loss)
    
    $
    3,002
    
    
    $
    (873
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,885
    
    
    
    3,035Stock-based compensation expense
    
    
    1,228
    
    
    
    1,008Change in accounts receivable
    
    
    2,572
    
    
    
    8,337Other changes in operating activities
    
    
    4,929
    
    
    
    2,573Net cash provided by operating activities
    
    
    14,616
    
    
    
    14,080Investing activitiesPurchases of property and equipment
    
    
    (1,527
    )
    
    
    (2,142
    )Net cash used in investing activities
    
    
    (1,527
    )
    
    
    (2,142
    )Financing activitiesExercise of stock options
    
    
    746
    
    
    
    601Net cash provided by financing activities
    
    
    746
    
    
    
    601Effect of exchange rates on cash
    
    
    128
    
    
    
    Increase in cash and cash equivalents
    
    
    13,963
    
    
    
    12,539Cash and cash equivalents, beginning of period
    
    
    38,732
    
    
    
    28,215Cash and cash equivalents, end of period
    
    $
    52,695
    
    
    $
    40,754
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Accumulated OtherCommon Stock
    
    
    Additional
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income(Loss)
    
    
    TotalBalances at February 29, 2008
    
    
    38,843,851
    
    
    $
    19
    
    
    $
    107,329
    
    
    $
    4,843
    
    
    $
    (9
    )
    
    $
    112,182Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,002
    
    
    
    
    
    
    
    3,002Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    16Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,018Exercise of stock options
    
    
    193,890
    
    
    
    1
    
    
    
    745
    
    
    
    
    
    
    
    
    
    
    
    746Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,228
    
    
    
    
    
    
    
    
    
    
    
    1,228Balances at May 31, 2008
    
    
    39,037,741
    
    
    $
    20
    
    
    $
    109,302
    
    
    $
    7,845
    
    
    $
    7
    
    
    $
    117,174
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2008
 Note A  Basis of Presentation
   Note B  Recent Accounting Pronouncements
 Fair Value Measurements
   Note C  Inventory
  May 31, 2008
    
    
    February 29, 2008Purchased parts
    
    $
    3,517
    
    
    $
    3,871Work in progress
    
    
    11,288
    
    
    
    10,757$
    14,805
    
    
    $
    14,628
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Note D  Stock-based Compensation
  Three Months Ended
    
    
    Three Months EndedMay 31, 2008
    
    
    May 31, 2007Cost of Goods Sold
    
    $
    356
    
    
    $
    201R&D
    
    
    168
    
    
    
    130SG&A
    
    
    704
    
    
    
    677Total
    
    $
    1,228
    
    
    $
    1,008Related deferred income tax benefit
    
    
    352
    
    
    
    342Decrease in net income
    
    $
    876
    
    
    $
    666Decrease in net income per share  basic
    
    $
    0.02
    
    
    $
    0.02
 Note E  Restructuring and other charges
  Cost of Goods
    
    Research and
    
    Selling, GeneralSold
    
    Development
    
    and Administrative
    
    TotalSeverance payments and
related benefits
    
    $
    709
    
    
    
    
    
    
    $
    849
    
    
    $
    1,558
  Accrued Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued BalanceFebruary 29, 2008
    
    Additions
    
    Payments
    
    Adjustments
    
    May 31, 2008Severance payments
and related benefits
    
    $
    182
    
    
    $
    1,558
    
    
    $
    (291
    )
    
    $
    (45
    )
    
    $
    1,404
  Note F  Income Taxes
   7




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Note G  Net Income Per Share
 Three Months Ended May 31,(in thousands, except per share data)
    
    2008
    
    
    2007Numerator:Net income (loss)
    
    $
    3,002
    
    
    $
    (873
    )Denominator:Denominator for basic earnings per share
    
    
    38,977
    
    
    
    38,807Dilutive potential common shares:Employee stock options
    
    
    372
    
    
    
    Denominator for diluted earnings per share
    
    
    39,349
    
    
    
    38,807Net income per share:Basic
    
    $
    0.08
    
    
    $
    (0.02
    )Diluted
    
    $
    0.08
    
    
    $
    (0.02
    )
  Note H  Operating Segment Information and Major Customers
  Three Months Ended May 31,2008
    
    
    2007Voice portal solution sales
    
    $
    14,771
    
    
    $
    13,249Messaging solution sales
    
    
    7,773
    
    
    
    6,526Payment solution sales
    
    
    1,368
    
    
    
    1,927Total solution sales
    
    
    23,912
    
    
    
    21,702Maintenance and related services revenues
    
    
    22,395
    
    
    
    21,275Hosted solutions revenues
    
    
    5,205
    
    
    
    4,754Total recurring services revenues
    
    
    27,600
    
    
    
    26,029Total sales
    
    $
    51,512
    
    
    $
    47,731
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Geographic Operations
  Three Months Ended May 31,2008
    
    
    2007North America
    
    $
    30,834
    
    
    $
    31,164Europe
    
    
    10,467
    
    
    
    8,251Middle East and Africa
    
    
    4,817
    
    
    
    4,931Central and South America
    
    
    2,942
    
    
    
    1,036Pacific Rim
    
    
    2,452
    
    
    
    2,349Total
    
    $
    51,512
    
    
    $
    47,731
 Concentration of Revenue
  Note I  Contingencies
 Intellectual Property Matters
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10




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Pending Litigation
 David Barrie, et al., on Behalf of Themselves and All Others Similarly Situated v.
InterVoice-Brite, Inc., et al.,
   Oscar Private Equity Investments v. Allegiance Telecom,
Inc.
 Phoenix Solutions, Inc. vs. Sony Electronics, Inc.,
 Phoenix Solutions, Inc. vs. Sony Electronics, Inc.,
 11




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Other Matters
        12




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13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Critical Accounting Policies.
 Sales.
 Three Months Ended May 31,% ChangeFrom2008
    
    
    Prior Year
    
    
    2007Voice portal solution sales
    
    $
    14,771
    
    
    
    11.5
    %
    
    $
    13,249Messaging solution sales
    
    
    7,773
    
    
    
    19.1
    %
    
    
    6,526Payment solution sales
    
    
    1,368
    
    
    
    (29.0
    )%
    
    
    1,927Total solution sales
    
    
    23,912
    
    
    
    10.2
    %
    
    
    21,702Maintenance and related services revenues
    
    
    22,395
    
    
    
    5.3
    %
    
    
    21,275Hosted solutions revenues
    
    
    5,205
    
    
    
    9.5
    %
    
    
    4,754Total recurring services revenues
    
    
    27,600
    
    
    
    6.0
    %
    
    
    26,029Total sales
    
    $
    51,512
    
    
    
    7.9
    %
    
    $
    47,731
  Three Months Ended May 31,% ChangeFrom2008
    
    
    Prior Year
    
    
    2007North America
    
    $
    30,834
    
    
    
    (1.1
    )%
    
    $
    31,164Europe
    
    
    10,467
    
    
    
    26.9
    %
    
    
    8,251Middle East and Africa
    
    
    4,817
    
    
    
    (2.3
    )%
    
    
    4,931Central and South America
    
    
    2,942
    
    
    
    184.0
    %
    
    
    1,036Pacific Rim
    
    
    2,452
    
    
    
    4.4
    %
    
    
    2,349Total
    
    $
    51,512
    
    
    
    7.9
    %
    
    $
    47,731
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Three Months Ended May 31,2008
    
    2007Sales from recurring services and support
contracts, including contracts for hosted
solutions
    
    
    53
    %
    
    
    55
    %Sales from beginning solutions backlog
    
    
    38
    %
    
    
    33
    %Sales from the quarters pipeline
    
    
    9
    %
    
    
    12
    %100
    %
    
    
    100
    %
   Quarter Ended
    
    BacklogMay 31, 2008
    
    $
    61,979February 29, 2008
    
    $
    65,741November 30, 2007
    
    $
    55,862August 31, 2007
    
    $
    64,463May 31, 2007
    
    $
    60,411
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Cost of Goods Sold.
 Three Months Ended May 31,2008
    
    2007Solutions COGS
    
    $
    15,632
    
    
    $
    15,182As percentage of solutions sales
    
    
    65.4
    %
    
    
    70.0
    %Services COGS
    
    
    7,904
    
    
    $
    7,291As percentage of services revenues
    
    
    28.6
    %
    
    
    28.0
    %Total COGS
    
    
    23,536
    
    
    $
    22,473As percentage of total sales
    
    
    45.7
    %
    
    
    47.1
    %
  Research and Development Expenses.
 Three Months Ended May 31,2008
    
    2007Research and development expenses
    
    $
    4,757
    
    
    $
    5,317As percentage of total sales
    
    
    9.2
    %
    
    
    11.1
    %
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Selling, General and Administrative Expenses.
 Three Months Ended May 31,2008
    
    2007Selling, general and administrative expenses
    
    $
    18,889
    
    
    $
    20,693As percentage of total sales
    
    
    36.7
    %
    
    
    43.4
    %
  Amortization of Acquired Intangible Assets.
 Income Taxes.
  Income/Loss from Operations and Net Income/Loss.
 Liquidity and Capital Resources.
   17




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Adequacy of Cash Reserves
  Impact of Inflation
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control.
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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
    
    Our operating results may fluctuate significantly from period to period, and this may
cause our stock price to decline.Our revenue and operating results have fluctuated in
the past and we expect further fluctuations in the future. Given these fluctuations, we
believe that quarter to quarter comparisons of our revenue and operating results are not
necessarily meaningful or an accurate indicator of our future performance. As a result, our
results of operations may not meet the expectations of securities analysts or investors in
the future, which could cause our stock price to decline. Factors that contribute to
fluctuations in our operating results and can preclude our ability to accurately forecast
our results include the following:
 
    
    variability in the time periods necessary to complete projects and achieve
project milestones in order to recognize revenue, which may be influenced by
volume, size, timing, contractual terms for new sales orders and cash basis
revenues;
    
    the components of our revenue that are deferred, including our
subscription-based hosted solutions and that portion of our sales revenue
attributable to support and maintenance;
    
    volume, timing and fulfillment of customer orders, particularly with respect to
large orders (sales of approximately $1.0 million or more), some of which are
completed in the same quarter in which they are ordered and some of which are
completed over several quarters, and fluctuations in demand for our products and
services;
    
    our ability to complete orders from our solutions backlog, subject to timing
changes requested by our customers, and projects accounted for on a percentage of
completion basis, including estimates based on a variety of factors and subject to
revision;
    
    our ability to convert our pipeline of opportunities into sales;
    
    the use of low pricing to win important customers, and the possible recognition
of loss contingencies for certain projects that we estimate will be delivered at a
negative gross margin;
    
    the lengthy sales cycle for our products, which typically involve comprehensive
solutions that may require detailed customer evaluations;
    
    the performance of our international business, which accounts for a significant
portion of our consolidated revenues, and fluctuations in foreign currency exchange
rates;
    
    the mix of products we sell and services we offer and whether our products are
sold through our direct sales force or through an intermediary;
    
    introduction of new products, product upgrades or updates by us or our
competitors, and any resulting customer delays in purchasing products;
    
    any increased price sensitivity by our customers, particularly due to increased
competition including open source or free software;
    
    periodic difficult economic conditions, particularly affecting the technology
industry, as well as economic uncertainties;
    
    higher than anticipated costs related to fixed-price contracts with our
customers;
    
    our ability to effectively manage our operating expense levels;
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
    
    timing of significant marketing and sales promotions, and expenses incurred
pursuing new product or market opportunities;
    
    stock-based compensation expense, which we began recognizing for our stock-based
compensation plans in the first quarter of fiscal 2007;
    
    costs and charges related to certain events, including Sarbanes-Oxley compliance
efforts, matters relating to our litigation and other potential loss contingencies;
    
    the structure, timing and integration of acquisitions of businesses, products
and technologies and related disruption of our current business;
    
    factors that lead to substantial declines in estimated values of long-lived
assets below their carrying value; and
    
    changes in generally accepted accounting principles.
  
    
    Our stock price has been and may continue to be subject to wide fluctuations.Our
stock price historically has been volatile and may continue to be volatile in the future.
Various factors contribute to the volatility of our stock price, including business
developments (such as new product introductions and acquisitions or dispositions),
litigation developments, quarterly variations in our financial results, our ability to meet
investors expectations, and general economic and market conditions. In addition,
third-party announcements by our partners and competitors may contribute to our stock price
volatility. Certain types of investors may choose not to invest in stocks with this level
of stock price volatility. Fluctuations in our stock price could cause increased risk of
shareholder litigation, which could result in substantial costs and divert managements
attention and resources.
    
    We are subject to potential and pending lawsuits and other claims.We are subject to
certain potential and pending lawsuits and other claims discussed in Note I in Item 1 of
Part I of this quarterly report on Form 10-Q. Furthermore, we may become subject to
additional claims. Any adverse judgment, penalty or settlement related to any lawsuit or
other such claim could have consequences that would be material to our financial position
or results of operations. We may be required to indemnify certain of our current and former
directors and officers under existing arrangements in connection with the defense, or
advancement of defense-related expenses we are currently providing to certain individuals
in connection with the class action lawsuit. Our insurance policies provide coverage for
certain losses and expenses incurred by us and our current and former directors and
officers in connection with claims made under the federal securities laws. These policies,
however, exclude losses and expenses related to the Barrie class action lawsuit discussed
in Note I or to other litigation based on claims that are substantially the same as the
claims in the Barrie class action and contain other customary provisions to limit or
exclude coverage for certain losses and expenses.
    
    We face intense competition based on product capabilities and we experience ever
increasing demands from our actual and prospective customers for our products to be
compatible with a variety of rapidly proliferating computing, telephony and computer
networking technologies and standards.Our success is dependent, to a large degree, on
our effectiveness in allocating resources to developing and improving products compatible
with those technologies, standards and functionalities that ultimately become widely
accepted by our current and prospective customers. Our success is also dependent, to a
large degree, on our ability to implement arrangements with vendors of complementary
product offerings so that we can provide our current and prospective customers greater
functionality. Our principal competitors include Avaya, Cisco, Nortel, Nuance
Communications, Comverse Technology, Unisys and Alcatel-Lucent. Many of our competitors
have greater financial, technological and marketing resources than we have, as well as
greater name recognition. Although we have committed substantial resources to enhance our
existing products and to develop and market new products, there is no assurance we will be
successful. In addition, it is possible that new entrants to the market and strategic
acquisitions and partnerships between existing companies could increase
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the competition in the markets in which we participate. An increase in such competition
could materially adversely affect our ability to sell our products, thereby adversely
affecting our business, operating results and financial condition.
 
    
    We may not be successful in selling and implementing our products and services in the
face of the new, standards-based market.Intervoice has historically provided complete,
bundled hardware and software solutions using internally developed components to address
our customers total business needs. The markets for our products have required a shift to
the development of products and services based on an open, standards-based architecture
utilizing VoiceXML standards. Such an open, standards-based approach allows customers to
independently purchase and combine hardware components, standardized software modules, and
customization, installation and integration services from individual vendors deemed to
offer the best value in the particular class of product or service. The standards-based
approach has and will continue to foster increased competition, including competition based
on price resulting in increased pressure on gross margins. In such an environment, we
believe we may sell less hardware and fewer bundled systems and may become increasingly
dependent on our development and sale of software application packages, customized software
and consulting and integration services. This shift places new challenges on us to hire and
retain the mix of personnel necessary to respond to this business environment, to adapt to
the changing expense structure that the new environment may tend to foster, to respond to
potentially different competitors, and to increase sales of services, customized software
and application packages to offset reduced sales of hardware and bundled solutions. Failure
to develop, enhance, acquire and introduce new products and services to respond to
continually changing market conditions or customer requirements, or lack of customer
acceptance of our products or services, will materially adversely affect the value of our
intellectual property, barriers to entry to our business, customer retention, gross
margins, and the results of operations and financial condition.
    
    We may not be able to retain our customer base, and, in particular, our more significant
customers.Our success is heavily dependent on our ability to retain our significant
customers. The loss of one of our significant customers could negatively impact our
operating results. Our installed base of customers generally is not contractually obligated
to place further solutions orders with us or to extend their services contracts with us at
the expiration of their current contracts.
    
    We will be harmed if we lose key business and technical personnel.We rely upon the
services of a relatively small number of key technical, project management and senior
management personnel, most of whom do not have employment contracts. If we were to lose any
of our key personnel, replacing them could be difficult and costly. If we were unable to
successfully and promptly replace such personnel, our business could be materially harmed.
    
    Our reliance on significant vendor relationships could result in significant expense or
an inability to serve our customers if we lose these relationships.Although we generally
use standard parts and components in our products, some of our hardware components are
available only from a small number of vendors. Likewise, we license speech recognition
technology primarily from Nuance Communications, Inc., the dominant vendor for this
technology. As we continue to migrate to open, standards-based systems, we will become
increasingly dependent on our component suppliers and software vendors. To date, we have
been able to obtain adequate supplies of needed components and licenses in a timely manner,
and we expect to continue to be able to do so. Nevertheless, if our significant vendors are
unable to supply components or licenses at current levels, we may not be able to obtain
these items from another source or at historical prices. In such instances, we would be
unable to provide products and services to our customers or generate historical operating
margins, and our business and operating results would suffer.
    
    If third parties assert claims that our products or services infringe on their
technology and related intellectual property rights, whether the claims are made directly
against us or against our customers, we could incur substantial costs.We believe
software and technology companies, including us and others in our industry, increasingly
may become subject to infringement claims. Such claims may require us to enter into costly
license agreements or result in even more costly litigation. To the extent a licensing
arrangement is required, the arrangement may not be available at all, or, if available, may
be very expensive or even prohibitively expensive. As with any legal proceeding, there is
no guarantee we will prevail in any litigation instituted against us asserting infringement
of intellectual property rights. To the extent we suffer an adverse judgment, we might have
to pay substantial damages, discontinue the use and sale of infringing products, repurchase
infringing products from our customers in
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accordance with indemnity obligations, expend significant resources to acquire
non-infringing alternatives, and/or obtain licenses to the intellectual property that has
been infringed upon. As with licensing arrangements, non-infringing substitute technologies
may not be available and, if available, may be very expensive, or even prohibitively
expensive, to implement. Accordingly, for all of the foregoing reasons, a claim of
infringement could ultimately have a material adverse effect on our business, financial
condition and results of operations.
 
    
    We are exposed to risks related to our international operations that could increase our
costs and hurt our business.Our products are currently sold in more than 80 countries.
Our international sales were 40% and 35% of total sales for the fiscal quarters ended May
31, 2008 and May 31, 2007, respectively. International sales, personnel and property are
subject to certain risks, including:
 
    
    terrorism;
    
    fluctuations in currency exchange rates;
    
    ability to collect on accounts receivable;
    
    the difficulty and expense of maintaining foreign offices and distribution
channels;
    
    tariffs and other barriers to trade;
    
    greater difficulty in protecting and enforcing intellectual property rights;
    
    general economic and political conditions in each country, including
nationalization of customers or channel partners;
    
    loss of revenue, property and equipment from expropriation;
    
    import and export licensing requirements; and
    
    additional expenses and risks inherent in conducting operations in
geographically distant locations, including risks arising from differences in
language and cultural approaches to the conduct of business.
 
    
    Our inability to meet contracted performance targets could subject us to significant
penalties.Many of our contracts, particularly for hosted solutions, foreign contracts
and contracts with telecommunication companies, include provisions for the assessment of
damages for delayed project completion and/or for our failure to achieve certain minimum
service levels. We have had to pay damages in the past and may have to pay additional
damages in the future. Any such future damages could be significant.
    
    Increasing consolidation in the telecommunications and financial industries could
adversely affect our revenues and profitability.The majority of our largest customers
are in the telecommunications and financial industries. These industries are undergoing
significant consolidation as a result of merger and acquisition activity. This activity
could result in a decrease in the number of customers purchasing our products and/or in
delayed purchases of our products by customers that are reviewing their strategic
alternatives in light of a pending merger or acquisition. If these results occur, our
revenues and profitability could decline.
    
    Our products are complex, and software defects could reduce our revenues and expose us
to litigation.The software products we offer are complex and may contain errors or
defects, even after extensive testing and quality control, particularly in early versions.
Furthermore, because our products increasingly are designed around an open standards-based
architecture incorporating elements developed by third parties, such errors or defects may
be outside of our direct ability to control or correct. Any defects or errors could
potentially result in loss of revenues, product returns or order cancellations, liquidated
damages or other claims for damages and could potentially hinder market acceptance of our
products and harm our reputation. Accordingly, any defects or errors could have a material
adverse effect on our business, results of operations and financial condition. Our customer
agreements typically contain provisions to limit our product warranty obligations and
exposure to potential liability claims.
    
    We have grown, and may continue to grow, through acquisitions, which could dilute our
existing shareholders and could involve substantial acquisition risks.As part of our
business strategy, we have in the past acquired, and expect to continue to acquire or make
investments in, other businesses and technologies. We may issue equity securities for
future acquisitions, which would dilute our existing shareholders, and we may incur debt in
connection with future acquisitions, which may include covenants or other restrictions that
hinder our ability to operate our business. Furthermore, our prior acquisitions required
substantial integration and management efforts. Acquisitions can involve a number of risks,
including:
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
    
    difficulty in transitioning and integrating the operations, facilities and
personnel of the acquired businesses, including different and complex order
processing, support and accounting and financial reporting systems;
    
    loss of key management, sales, research and development and other key employees
of the acquired company;
    
    difficulty in integrating acquired products into our product portfolio,
including engineering, sales and marketing integration;
    
    impairment of relationships with partners, suppliers and customers;
    
    difficulty in implementing and standardizing company-wide financial, accounting,
billing, information and other systems and the internal controls surrounding those
systems and processes;
    
    disruption of our ongoing operations and distraction of management and other
employees;
    
    difficulty in incorporating acquired technology and rights into our products and
technology;
    
    unanticipated expenses and delays in completing acquired development projects
and technology integration;
    
    difficulty in management of geographically remote operations in the United
States and internationally;
    
    delay of sales to customers pending resolution of product integration between
our existing and our newly acquired products; and
    
    difficulty entering new markets or businesses in which we have limited
experience.
  
    
    We are exposed to risks related to our channel program that could decrease our revenues
and hurt our business.A significant amount of our sales are made through intermediaries
such as distributors, system integrators and other strategic channel partners. We endeavor
to increase the percentage of sales through intermediaries as we continue to focus our
sales efforts through our channel and other partners. We anticipate future revenue growth
to depend in large part on our success in expanding relationships, and establishing new
relationships, with intermediaries. These intermediaries may sell their own products or
other vendors products that compete with our products, and may compete with our own direct
sales force in certain sales opportunities. While we have instituted programs designed to
increase sales of our products through intermediaries, certain intermediaries may give
greater priority to products of other suppliers, including competitors. Our ability to grow
sales through intermediaries depends on our investment in appropriate financial incentives,
support and sales tools for intermediaries, while effectively alleviating conflict with our
own sales force. Failure to effect this strategy appropriately may result in certain
intermediaries choosing to cease or reduce the sales of our products, resulting in a
material adverse change in our business, results of operations and financial condition.
    
    Unanticipated changes in our effective tax rates or exposure to additional income tax
liabilities could affect our profitability or increase our loss.We are a U.S.-based
multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. We are
generally required to account for taxes in each jurisdiction in which we operate, including
making assumptions, interpretations and judgments with respect to the applicable tax
requirements. Our provision for income taxes is calculated based on a mix of earnings,
statutory rates, and enacted tax rules by jurisdiction, including transfer pricing.
Significant judgment is required in determining our provision for income taxes and in
evaluating our tax positions on a worldwide basis. It is possible that these positions may
be challenged which may have a significant impact on our effective tax rate, which could
affect our results of operations and financial condition.
    
    Failure to maintain effective internal controls could have a material adverse effect on
our business, results of operations, financial condition, and our stock price.A failure
to maintain adequate internal control procedures as required by Section 404 of the
Sarbanes-Oxley Act of 2002 may preclude our managements ability to conclude that we have
effective internal controls over our financial reporting. These internal controls are also
required for us to produce management financial information, make determinations on revenue
recognition and other material accounting issues, and prevent financial fraud. If we are
unable to produce reliable financial reports, make appropriate determinations on revenue
recognition and material accounting policies or prevent fraud, our business, operating
results and financial condition could be adversely affected.
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
    
    We have sustained operating losses in the past, and may incur additional losses in the
future which may require us to raise additional capital on unfavorable terms.We cannot
be certain that our revenue will grow or that we will achieve or maintain profitable
operations in the future. If we are unable to maintain profitability, the market price for
our stock may decline, perhaps substantially. If we have significant operating losses, we
may be required to raise additional capital to maintain or grow our operations. Such
additional capital may only be available at unfavorable terms that could be dilutive to
existing shareholders, have a high interest rate, contain restrictive covenants, or contain
other unfavorable terms.
 
 Item 6. Exhibits
  3.1
    
    Articles of Incorporation, as amended, of Registrant. (1)3.2
    
    Amendment to Articles of Incorporation of Registrant. (2)3.3
    
    Amendment to Articles of Incorporation of Registrant. (3)3.4
    
    Fourth Amended and Restated Bylaws of Registrant. (4)4.1
    
    Third Amended and Restated Rights Agreement dated as of May 1, 2001
between the Registrant and Computershare Investor Services, LLC, as
Rights Agent. (5)4.2
    
    Registration Rights Agreement, dated as of May 29, 2002, between the
Registrant and each of the Buyers under a Securities Purchase Agreement.
(6)4.3
    
    First Amendment to Third Amended and Restated Rights Agreement dated as
of May 29, 2002, between Registrant and Computershare Investor Services,
LLC, as Rights Agent. (6)10.1
    
    Second Amendment to Employment Agreement dated December 1, 2004 between
Registrant and Robert E. Ritchey. (7)10.2
    
    Separation Agreement dated as of May 16, 2008 between Registrant and
Charles E. McDonald. (8)10.3
    
    Intervoice, Inc. Fiscal Year 2009 Annual Incentive Compensation Plan. (9)10.4
    
    Second Amendment to Employment Agreement dated March 1, 2007 between
Registrant and Michael J. Polcyn. (9)10.5
    
    Fiscal Year 2009 Sales Incentive Plan. (10)31.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a-14(a) or Rule 15d-14(a). (10)31.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a-14(a) or Rule 15d-14(a). (10)32.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*32.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*
 
 (1)
    
    Incorporated by reference to exhibits to the Companys 1995 Annual Report on Form 10-K for
the fiscal year ended February 28, 1995, filed with the SEC on May 30, 1995.(2)
    
    Incorporated by reference to exhibits to the Companys Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, filed with the SEC on October 14, 1999.(3)
    
    Incorporated by reference to exhibits to the Companys Quarterly Report on Form 10-Q for the
quarter ended August 31, 2002, filed with the SEC on October 15, 2002.(4)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on October 19, 2007.(5)
    
    Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May
9, 2001.(6)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on May 30, 2002.(7)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on March 3, 2008.(8)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on May 21, 2008.(9)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on June 3, 2008.(10)
    
    Filed herewith. 24




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*
    
    The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by
the
Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 25




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SIGNATURES
  INTERVOICE, INC.Date:  July 10, 2008
    By:
    /s/ CRAIG E. HOLMESCraig E. HolmesExecutive Vice President and
Chief Financial Officer 26




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Index to Exhibits
 Exhibit No.
    
    Description3.1
    
    Articles of Incorporation, as amended, of Registrant. (1)3.2
    
    Amendment to Articles of Incorporation of Registrant. (2)3.3
    
    Amendment to Articles of Incorporation of Registrant. (3)3.4
    
    Fourth Amended and Restated Bylaws of Registrant. (4)4.1
    
    Third Amended and Restated Rights Agreement dated as of May 1, 2001
between the Registrant and Computershare Investor Services, LLC, as
Rights Agent. (5)4.2
    
    Registration Rights Agreement, dated as of May 29, 2002, between the
Registrant and each of the Buyers under a Securities Purchase Agreement.
(6)4.3
    
    First Amendment to Third Amended and Restated Rights Agreement dated as
of May 29, 2002, between Registrant and Computershare Investor Services,
LLC, as Rights Agent. (6)10.1
    
    Second Amendment to Employment Agreement dated December 1, 2004 between
Registrant and Robert E. Ritchey. (7)10.2
    
    Separation Agreement dated as of May 16, 2008 between Registrant and
Charles E. McDonald. (8)10.3
    
    Intervoice, Inc. Fiscal Year 2009 Annual Incentive Compensation Plan. (9)10.4
    
    Second Amendment to Employment Agreement dated March 1, 2007 between
Registrant and Michael J. Polcyn. (9)10.5
    
    Fiscal Year 2009 Sales Incentive Plan. (10)31.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a-14(a) or Rule 15d-14(a). (10)31.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a-14(a) or Rule 15d-14(a). (10)32.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*32.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant to
Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*
 
 (1)
    
    Incorporated by reference to exhibits to the Companys 1995 Annual Report on Form 10-K for
the fiscal year ended February 28, 1995, filed with the SEC on May 30, 1995.(2)
    
    Incorporated by reference to exhibits to the Companys Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, filed with the SEC on October 14, 1999.(3)
    
    Incorporated by reference to exhibits to the Companys Quarterly Report on Form 10-Q for the
quarter ended August 31, 2002, filed with the SEC on October 15, 2002.(4)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on October 19, 2007.(5)
    
    Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May
9, 2001.(6)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on May 30, 2002.(7)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on March 3, 2008.(8)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on May 21, 2008.(9)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on June 3, 2008.(10)
    
    Filed herewith.*
    
    The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by
the
Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 27