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ILOG Announces 2006 Third Quarter Results
Record Revenues, License Growth and Profitability Highlighted
PARIS, France and MOUNTAIN VIEW, Calif. - April 27, 2006 - ILOG® (NASDAQ:
ILOG; Euronext: ILO, ISIN: FR0004042364) today announced results for its fiscal 2006
third quarter, ended March 31, 2006. Revenues were at a record level of $37.4 million,
representing 19% growth over last year’s third quarter revenues of $31.4 million. The
company posted a net profit of $2.8 million with earnings per share (EPS) at $0.14 for
the quarter, compared with a net profit of $1.1 million and EPS of $0.06 for the third
quarter of fiscal 2005.
The net profit this quarter includes a non-cash expense related to stock-based
compensation of $0.3 million, or $0.02 per share. Stock-based compensation was not
required to be expensed under GAAP in the same quarter last year, accordingly, in order
to compare the year over year EPS excluding stock-based compensation expenses, the
Company’s non-GAAP earnings per share for the third quarter were $0.16, on a fully
diluted basis, as compared to $0.06 for the third quarter of fiscal 2005. (See “GAAP to
non-GAAP Reconciliation” below for further information on non-GAAP measure).
“Our results this quarter illustrate improving sales execution in a receptive IT market. At
constant currency rates, overall revenues grew 26% in the U.S. and 30% in Europe,
driven by strong product license revenue growth,” said Pierre Haren, Chairman and CEO
of ILOG. “The strategic value of our rules and optimization products to our customers is
reflected not only in our license revenue growth, but also in the increased number of
larger deals. Our business strategy is delivering the revenue growth we need to reach
satisfactory profitability levels.”
Company-wide, year over year license and maintenance revenues grew 18%, led by
33% growth for ILOG’s Business Rule Management System (BRMS) and 22% for the
Company’s Optimization products. The Visualization product line experienced a 16%
decline.
ILOG solutions continue to deliver business value for large strategic initiatives at leading
Global 2000 companies, such as IT modernization based on service-oriented
architectures (SOA), and for major planning and scheduling projects. Seven of the top
10 deals were for ILOG’s BRMS products and included business from Essilor, the
world’s leading provider of corrective lenses, which selected ILOG Rules for .NET as the
standard rules platform for its SOA initiative. Other large BRMS deals were from a
leading information management system provider, and from an online retailing giant, which
extended its commitment to ILOG JRules and added ILOG Rules for .NET for several
key corporate initiatives aimed at improving consistency, automation and security.
Major optimization customers this quarter included the U.S. Postal Service, which
expands its use of ILOG CPLEX for a new transportation planning and scheduling
solution being built by IBM Global Services. In addition, after a month of successful
testing, one of ILOG’s PowerOps optimization solutions was accepted at a 300
millimeter semiconductor manufacturing plant.
ILOG also achieved 23% year over year growth in revenues from professional services,
driven largely by BRMS engagements that leverage ILOG’s proprietary methodology for
lowering risk and accelerating the deployment of BRMS applications.
In a significant move this quarter, ILOG launched the latest release of its flagship BRMS
product, ILOG JRules. By providing strong support for both business and IT users,
JRules 6 eliminates important trade-offs imposed by current BRMS products. This
represents a major leap forward in business user empowerment and business-IT
alignment. “We believe JRules 6, with its many innovative, industry-first features,
combined with our leadership position and the increasing support of our Business
Process Management (BPM) partners, place us in a favorable position to expand the
business rules market,” added Haren.
Business Outlook
Given the current sales pipeline and assuming the continuation of a favorable IT
environment, ILOG management is forecasting revenues in the range of between $34
million and $37 million, and earnings per share of between $0.00 and $0.10 for the
fourth quarter of fiscal 2006. These results are compared to revenues of $32.6 million
and earnings per share of $0.08 in the fourth quarter of fiscal 2005.
Conference Call
ILOG management will be hosting a conference call today at 10 a.m. Eastern Time or 4
p.m. European Time to discuss the contents of this release. To listen or participate,
please visit http://www.ilog.com/corporate/investor. A replay of the call will be available
later.
About ILOG
ILOG delivers software and services that empower customers to make better decisions
faster and manage change and complexity. Over 2,500 corporations and more than 465
leading software vendors rely on ILOG's market-leading business rule management
system (BRMS), optimization and visualization software components, to achieve
dramatic returns on investment, create market-defining products and services, and
sharpen their competitive edge. ILOG was founded in 1987 and employs more than 730
people worldwide. For more information, please visit http://www.ilog.com.
Forward-looking Information
All of the statements included in this release, as well as oral statements that may be
made by us or by officers, directors or employees acting on our behalf, that are not
statements of historical fact, constitute or are based upon "forward-looking statements"
within the meaning of the United States Securities laws that involve risks and
uncertainties that could cause actual results to differ materially from those expressed or
implied in the forward-looking statements. Among the factors that could cause our actual
results to differ materially are those risks identified in “Item 3. Key Information—Risk
Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial
Review and Prospects” of the Company’s most recent Annual Report on Form 20-F filed
with the U.S. Securities and Exchange Commission (the “SEC”) and its other filings and
submissions with the SEC, including, without limitation, quarterly fluctuations in our
operating results; competition in our industry; the extended length of our sales cycle
which impacts our ability to forecast product lines; our dependence on certain major
independent software vendors; our investments in vertical markets; the increasing
number of fixed price consulting agreements; whether our investment in our sales and
marketing forces is adequate under the circumstances; changing market requirements;
our ability to provide professional services activities that satisfy customer expectations;
errors in our software products; the loss of key personnel; logistical difficulties, cultural
differences, product localization costs, import and tariff restrictions, adverse foreign tax
consequences and fluctuations in currencies resulting from our global operations;
changes in tax laws or an adverse tax audit; our significant dependence on our
proprietary technology; the impact of intellectual property infringement disputes; the
impact of dilutive share issuances or the incurrence of debt and contingent liabilities and
write-offs resulting from acquisitions; changes in accounting principles; and other
matters not yet known to us or not currently considered material by us. All written and
oral forward-looking statements attributable to us, or persons acting on our behalf, are
qualified in their entirety by these cautionary statements. Readers are cautioned not to
place undue reliance on these forward-looking statements. Unless required by law, the
Company undertakes no obligation to revise these forward-looking statements to reflect
new information or events, circumstances, changes in expectations or otherwise that
arise after the date hereof.
Discussion of Income Statement for the Quarter Ended March 31, 2006
Revenues and Gross Margin
Revenues in the quarter increased to $37.4 million from $31.4 million, or by 19%,
compared to the same quarter in the previous year. Expressed at prior year constant
currency rates, revenues increased by 24%.
Revenues by region were as follows:
License fee revenues increased by 23% compared to the same quarter last year. This
increase was driven by significant growth in Europe and the US, with both rules and
optimization license revenues posting strong increases. Maintenance revenues grew by
9% in the quarter compared to the same quarter last year, due to the growing installed
base of ILOG customers.
BRMS combined license and maintenance revenue represents 44% of the total license
and maintenance revenue, optimization 39%, and visualization 17%, as compared to
39%, 37% and 24%, respectively, last year.
Professional services revenues continued to grow, with an increase of 23% in the
quarter compared to the same quarter last year. Growth has benefited from the first
result of the implementation of a real-time planning and scheduling application for a
major customer in the semi-conductor industry. Professional services gross margin for
the quarter is 15% compared to 18% in the same period in the preceding year and close
to the average 16% rate observed during fiscal 2005. This slightly lower margin derives
from a lower utilization of staff consultants.
Operating Expenses
Operating expenses increased 12% over the same quarter in the prior year is primarily
due to an increase in hiring, salary adjustments and the impact of stock-based
compensation as a result of the implementation of SFAS 123R. This increase was offset
by the 8% strengthening of the dollar against the euro year over year, as over half of the
Company’s expenses are denominated in euros. Marketing and selling expenses for the
quarter were impacted by high incentive payments due to strong performance in the U.S.
and Europe.
On March 31, 2006, the Company had 729 employees, compared to 650 a year earlier.
One of the reasons for this increase is related to the hiring of 28 people in support of the
professional services organization.
Discussion of Income Statement for the Nine Months Ended March 31, 2006
Revenues and Gross Margin
Revenues in the nine-month period increased to $99.2 million from $92.7 million, or by
7%, compared to the same period in the previous year. Expressed at prior year constant
currency rates, revenues increased by 10%.
Revenues by region were as follows:
European revenue growth reflects the growing interest in BRMS, which has led to higher
license and consulting activity.
Overall combined license and maintenance revenues grew as compared to the first nine
months of last fiscal year, with increases of the optimization and BRMS product lines
offset by a decrease of the visualization product line. In the nine-month period, the
BRMS, optimization and visualization product lines represent 42%, 39% and 19%,
respectively, of the combined license and maintenance revenues, as compared to 38%,
37% and 25% a year ago.
Overall maintenance revenues increased by 11% compared to last year, reflecting the
growing installed base of ILOG licensees.
Professional services increased by 21%, year over year, reflecting the Company’s
promotion of more services to help customers develop applications with ILOG’s BRMS.
For the nine-month period, gross margin for professional services increased to 19%, as
compared to 18% last year.
Operating Expenses
The 6% increase, during the nine-month period, in operating expenses over the prior
year is primarily due to an increase in hiring, salary adjustments and the impact of stockbased
compensation as a result of the implementation of SFAS 123R. This increase was
partly offset by the 6% year-over-year strengthening of the dollar against the euro, as
more than half of the Company’s expenses are denominated in euros.
In addition to the above factors, the 5% increase in marketing and selling expenses for
the nine-month period was partially offset by a reduction in incentive payments due to
the lower performance in the U.S. in the first half of the fiscal year.
Research and development expenses for the nine-month period have been reduced by a
$1.5 million tax credit in France for research costs incurred in calendar 2004 and 2005.
General and administrative expenses increased by 15% for the nine-month period over
the same period in the prior year primarily due to the costs of the warrants granted to
ILOG directors and additional audit fees required by new regulations in the U.S. and in
France.
Income Taxes
The lower income tax expense amounted to $0.2 million compared to $0.9 million in the
prior year. The current nine-month period income tax expense is mainly due to the
profitability of the Company’s activity in Germany.
Balance Sheet and Cash Flow Discussion
Including short-term investments, ILOG’s cash position amounted to $64.3 million at
March 31, 2006 and was up from $61.7 million at the close of the last fiscal year on June
30, 2005. Net of amounts used to finance additional working capital needs, operating
activities provided $6.5 million of cash as a result of the profitability incurred for the ninemonth
period. Investing activities for the nine-month period, excluding short-term
investments in cash, amounted to $2.0 million and included an investment in a
partnership with Soft Computing in the first quarter of fiscal 2006 for an amount of $0.6
million. Cash used for financing activities netted $1.8 million and included the acquisition
of treasury stocks in the amount of $5.2 million partially offset by proceeds from the
exercise of stock options in the amount of $3.7 million. Accounts receivable as of March
31, 2006 were 68 days sales outstanding as opposed to 78 days one year earlier.
As of March 31, 2006, shareholders’ equity was $64.1 million, an increase of $5.7 million
from $58.4 million at June 30, 2005, mainly reflecting the Company’s profitability during
the nine-month period. On March 31, 2006, the Company had 18,453,296 shares issued
and outstanding, compared to 18,005,407 at June 30, 2005, due to the exercise of
447,889 stock options.
Accounting Principles
The Company’s financial statements in U.S. dollars are prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP). Figures
presented in euros have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) and therefore are not comparable with previous
publications in euros prepared in accordance with accounting principles generally
accepted in France. Following European regulation 1606/2002 dated July 19, 2002, all
EU-listed companies are required to apply IFRS in preparing their financial statements
for financial years commencing January 1, 2005 and thereafter.
Constant Exchange Rates
Where constant exchange rates are referred to in the above discussion, current period
results for entities reporting in currencies other than U.S. dollars are converted into U.S.
dollars at the prior year's exchange rates, rather than the exchange rates for the current
period. This information is provided in order to assess how the underlying business
performed before taking into account currency exchange fluctuations.
GAAP to non-GAAP Reconciliation
ILOG management evaluates and makes operating decisions using various operating
measures. These measures are generally based on the revenues of its products,
maintenance and services business operations and certain costs of those operations,
such as cost of revenues, research and development, sales and marketing and general
and administrative expenses. One such measure is non-GAAP net income (loss), which
is a non-GAAP financial measure under Section 101 of Regulation G under the
Securities Exchange Act of 1934, as amended. This measure consists of GAAP net
income (loss) excluding stock-based compensation expense. Non-GAAP net income
(loss) is adjusted by the amount of additional taxes or tax benefit that the company
would accrue if it used non-GAAP results instead of GAAP results to calculate the
company's tax liability.
Management believes it is useful in measuring ILOG's operations to exclude stockbased
compensation expense, which is a non-cash charge recorded in the income
statements for the first time this nine-month period ended March 31, 2006 as a result of
the implementation of SFAS 123 (revised 2004). Management believes that non-GAAP
net income (loss) provides useful supplemental information to management and
investors regarding the performance of the company's business operations and
facilitates comparisons to our historical operating results. Non-GAAP financial measures
should not be considered as a substitute for measures of financial performance prepared
in accordance with GAAP. Investors and potential investors are encouraged to review
the reconciliation of non-GAAP financial measures contained within this press release
with their most directly comparable GAAP financial results.
The following table reconciles the specific items excluded from GAAP in the calculation
of non-GAAP net income for the periods shown below:
Press Release for French Shareholders
A translation of this press release in the French language is also available.
ILOG and CPLEX are registered trademarks. BRMS, JRules, Rules for .NET and PowerOps are trademarks of ILOG.
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