PARIS and SUNNYVALE, Calif., Oct. 30 /PRNewswire-FirstCall/ -- ILOG(R)
(Nasdaq: ILOG; Euronext: ILO, ISIN: FR0004042364) today announced results for
the first quarter of fiscal 2009, ended September 30, 2008. IFRS revenues for
the quarter were euros 34.3 million compared with euros 29.6 million for the
first quarter last year. IFRS diluted earnings per share were euros 0.19 for
the quarter compared to a diluted loss per share of euros 0.09 in last year's
first quarter.
"While battling an unfavorable dollar-euro exchange rate and a challenging
IT spending climate, we were able to deliver 16% revenue growth and saw strong
demand across all our product lines," said ILOG Chairman and CEO, Pierre
Haren. "We benefited from a strong sales pipe going into the quarter for all
of our products and a very favorable response from customers and prospects to
our proposed acquisition by IBM. We also gained from a high renewal rate from
both end-users and Independent Software Vendors (ISV) customers."
Revenue Trends
Geographically, the U.S. led ILOG's revenue growth in the fiscal first
quarter, growing 26%, driven by strong demand for the company's optimization
and business rule management system (BRMS) products, as well as many contract
renewals across product lines. Europe also grew well at 6%.
From a product standpoint, license and maintenance revenues for
optimization tools and engines grew 46% highlighted by several significant
wins with ISV customers, such as Oracle and Manhattan Associates, along with a
large deal with a leading U.S. financial firm for a strategic investment
portfolio planning application. Solid royalty revenues also contributed to the
increase.
BRMS grew 27% (license and maintenance) due to an important activity with
leading banks and insurers, including a major deal with a leading European
financial services group for customer relationship management. Insurance deals
figured prominently in the first quarter, with new business from Travelers and
the branch of one of the largest health benefits companies in the U.S. Other
significant business in the banking sector included a major Swiss investment
bank for several projects and a leading U.S. bank, which expanded the use of
ILOG JRules for its mortgage lending operations.
Visualization license and maintenance revenues grew 13%. Significant deal
activity included a renewal with a leading telecom equipment company, which
uses ILOG visualization technology for network management. ISV renewal and new
business also helped boost visualization revenues.
ILOG's supply chain applications business grew 116% year over year driven
by large deals with a leading international oil company and the world's sixth-
largest food company which expanded its use of ILOG LogicTools Inventory
Analyst to set safety stock targets in its SAP SCM system. Similarly, in
another large deal, Miller Coors expanded its use of ILOG LogicNet Plus XE
along with ILOG services for the redesign of their supply chain for both due
diligence and post acquisition work, as well as for ongoing use for network
planning.
About ILOG
ILOG delivers software and services that empower customers to make better
decisions faster and manage change and complexity. Over 3,000 corporations and
more than 465 leading software vendors rely on ILOG's market-leading business
rule management systems (BRMS), supply chain planning and scheduling
applications as well as its 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 approximately 850 people worldwide. For more information,
please visit http://www.ilog.com.
Forward-looking Information
Many 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 behalf of us, constitute or are based on forward-looking statements
within the meaning of the U.S. Private Securities Litigation Reform Act of
1995, specifically Section 27A of the U.S. Securities Act of 1933, as amended,
and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts, including, among others,
statements regarding the successful completion of the IBM tender offer and the
impact on the Company's business, the implementation of the Company's business
strategy, trends in the software industry, the Company's financial outlook,
liquidity and working capital, the creation of co-selling and co-marketing
relationships and strategic alliances, the increased penetration of the
Company's existing customers, the sale of the Company's service packages, the
market risks associated with exchange rates, changes in the balance of the
classes of the Company's business and other statements relating to the
Company's plans, objectives, expectations, intentions, future business
development and economic performance are or may be forward-looking. In
addition to statements that are forward-looking by reason of context, other
forward-looking statements generally may be identified by the use of words
such as "may", "will", "should", "expect", "estimate", "anticipate", "intend",
"plan", "believe", "continue", "outlook", "judgment", "predict" or other
similar expressions, although the absence of such words does not necessarily
mean that a statement is not forward-looking.
These forward-looking statements involve a number of known and unknown
risks, uncertainties and other factors that could cause the Company's actual
results and outcomes to be materially different from historical results or
from any future results expressed or implied by such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the sections entitled "Item 3. Key Information
-- Risk Factors," "Item 4. Information on the Company" and "Item 5. Operating
and Financial Review and Prospects" of ILOG's most recent Annual Report on
Form 20-F filed with the Securities and Exchange Commission including risks
relating to IBM public tender offers; quarterly fluctuations in our operating
results and the price of our Shares or ADSs; factors adversely affecting any
one of our three product lines; the need to have sufficient consultants
available to staff unpredictable demand for our consulting services; lost
revenues due to consultants with specialized technical expertise occupied on
competing consulting engagements; our investments in vertical products which
carry high implementation costs that we discount in order to promote customer
purchases; intense competition and consolidation in our industry; the extended
length and variability of our sales cycle and concentration of transactions in
the final weeks of a quarter, which could result in substantial fluctuations
in operating results and may prevent accurate forecasting of financial
results; the increasing number of consulting engagements, which are exposed to
greater risk of non-payment; our dependence on certain major independent
software vendors; changing market and technological requirements; our ability
to provide professional services activities that satisfy customer
expectations; the impact of currency fluctuations on our profitability;
changes in tax laws or an adverse tax audit; 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; the impact of intellectual property infringement disputes; our
heavy dependence on our proprietary technology; risks related to consummation
and integration of acquisitions and minority investments; the incurrence of
debt and contingent liabilities and write-off of expenses resulting from
acquisitions or minority investments; the impact of dilutive share issuances;
the limitations imposed by French law or our bylaws that may prevent or delay
an acquisition by ILOG using its Shares; changes in accounting principles that
could affect our operating profits and reported results; 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, which reflect management's views only as of the date hereof.
Unless required by law, ILOG undertakes no obligation to revise these forward-
looking statements to reflect new information or events, circumstances,
changes in our expectations or otherwise that arise after the date hereof.
Readers should carefully review the events and other matters described in the
other documents we file or submit from time to time with the SEC, including
reports on Form 6-K submitted by us.
The circulation, publication or distribution of this press release is
subject to legal or regulatory restrictions in certain countries. This press
release is not addressed, either directly or indirectly, to persons who are
subject to such restrictions. This press release does not constitute an offer
to purchase securities. The offers are comprised of a French Offer and a U.S.
Offer. The French Offer will be made to holders of shares and warrants in
France. The U.S. Offer will be made to U.S. holders (within the meaning of
Rule 14d-1(d) under the United States Securities Exchange Act of 1934, as
amended) of shares and warrants as well as to all holders of ADSs wherever
located. You will need to determine which of the offer you are eligible to
participate in. The terms and conditions of the U.S. Offer are set forth in
the U.S. Offer to Purchase dated October 14, 2008, and the related
documentation, as amended, that International Business Machines Corporation
("IBM") and its subsidiary, CITLOI S.A.S. ("CITLOI"), filed with the U.S.
Securities and Exchange Commission (the "Commission") on Schedule TO and the
solicitation/recommendation statement on Schedule 14D-9, as amended, that ILOG
filed with the Commission. The terms and conditions of the French Offer are
set forth in the Note d'Information, as amended, that IBM and CITLOI filed
with the French stock market authority, the Autorite des Marches Financiers
(the "AMF"), and the Note en Reponse, as amended, that ILOG filed with the
AMF. The AMF granted its visa on the Note d'Information and the Note en
Reponse on September 12, 2008. CITLOI and ILOG have also made publicly
available documents supplementing the Note d'Information and the Note en
Reponse, respectively, which provide additional legal, financial and
accounting information on these entities. ILOG security holders and other
investors can obtain copies of these tender offer materials and any other
documents filed with the Commission from the Commission's website
(http://www.sec.gov) and with the AMF from the AMF's website
(http://www.amf-france.org), in both cases without charge. Such materials
filed by IBM and CITLOI, and ILOG will also be available for free on IBM's
website (http://www.ibm.com), and on ILOG's website (http://www.ilog.com),
respectively.
Holders of ILOG securities, stock options and free shares should consult
their own tax advisors as to the particular tax consequences to them of
exercising their stock options, selling their shares, participating in the
Offers, and any payments in respect of their stock options of free shares,
including the application of French, United States federal, local and other
tax laws and possible changes in tax laws.
ILOG S.A.
Consolidated Income Statements (unaudited)
In IFRS in thousands of euros and thousands of shares, except per share data
Three Months Ended
September 30 September 30
2008 2007
(in euros) (in euros)
Revenues:
License fees 17,863 11,063
Maintenance 9,445 9,389
Professional services 6,998 9,187
Total revenues 34,306 29,639
Cost of revenues:
License fees 265 247
Maintenance 951 871
Professional services 5,533 7,653
Total cost of revenues 6,749 8,771
Gross profit 27,557 20,868
Operating expenses:
Marketing and selling 12,686 11,875
Research and development 6,125 7,018
General and administrative 5,578 4,028
Total operating expenses 24,389 22,921
Income (loss) from operations 3,168 (2,053)
Net interest income and other 725 423
Income (loss) before taxation 3,893 (1,630)
Income taxes expense 184 108
Net income of fully consolidated subsidiaries 3,709 (1,738)
Equity (loss) in earnings of affiliates (73) 31
Net income 3,636 (1,707)
Earnings per share
- Basic 0.19 (0.09)
- Diluted 0.19 (0.09)
Share and share equivalents used in per share
calculations
- Basic 18,846 18,539
- Diluted 18,728 18,447
Operational expenses 31,138 31,692
Professional services margin 21% 17%
Gross margin 80% 70%
ILOG S.A.
Condensed Consolidated Balance Sheets (unaudited)
In IFRS in thousands of euros
September 30 June 30
2008 2008
(in euros) (in euros)
Assets
Current assets:
Cash and cash equivalents 59,114 47,113
Short-term investments - -
Accounts receivable 27,368 24,706
Other receivables and prepaid expenses 11,439 8,721
Total current assets 97,921 80,540
Long-term assets:
Tangible and intangible assets - net 10,117 10,189
Other long-term assets 18,555 16,820
Total long-term assets 28,672 27,009
Total assets 126,593 107,549
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and other current
liabilities 24,332 20,509
Current portion of capital lease obligations (2) 12
Deferred revenue 24,353 23,729
Total current liabilities 48,683 44,250
Long-term liabilities:
Long-term portion of capital lease
obligations - -
Other long-term liabilities 2,227 2,137
Total long-term liabilities 2,227 2,137
Total liabilities 50,910 46,387
Shareholders' equity:
Paid-in capital 61,788 53,244
Treasury stock (7,624) (8,414)
Retained earnings and other 21,519 16,332
Total Shareholders' equity 75,683 61,162
Total liabilities and shareholders'
equity 126,593 107,549
ILOG S.A.
Condensed Consolidated Statements of Cash Flow (unaudited)
In IFRS in thousands of euros
September 30 June 30
2008 2008
(in euros) (in euros)
Cash flows from operating activities:
Net Income 3,636 128
Depreciation/amortization & sales of
fixed assets 823 2,804
Share-based compensation 405 1,775
Deferred income taxes - (37)
Unrealized (gain) loss on derivative
instruments (15) 44
(Gain) loss of equity in affiliates 73 36
Change in working capital (288) 7,132
Net cash provided (used) by operating
activities 4,635 11,882
Cash flows from investing activities:
Acquisition of fixed assets and business (273) (2,848)
Loans to related parties (400) (700)
Sale (Purchase) of short term investments, net - -
Net cash (used in) provided by investing
activities (673) (3,548)
Cash flows from financing activities:
Repayment of capital lease obligations (15) (153)
Cash proceeds from issuance of shares 5,710 835
Sale (Purchase) of treasury stock 790 (1,502)
Net cash provided by financing activities 6,485 (820)
Impact of exchange rate changes on
cash and cash equivalents 1,554 (1,182)
Net increase (decrease) in cash, cash
equivalents 12,001 6,332
Cash and cash equivalents, beginning
of period 47,113 40,781
Cash and cash equivalents, end of period 59,114 47,113
Discussion of Income Statement for the Quarter Ended September 30, 2008
(In IFRS and in euros)
Revenues and Gross Margin
Revenues in the quarter increased to euros 34.3 million from euros 29.6
million, or by 16%, compared to the same quarter in the previous year. Because
of a stronger euro, at an average exchange rate of euros 1 = $1.50 compared to
euros 1 = $1.37 in the same quarter last year, revenues expressed at prior
period constant currency rates increased by a higher percentage of 22%.
Revenues by region were as follows (in thousands):
Three Months Ended Change
September 30 September 30 As
2008 2007 Reported Constant
(in euros) (in euros) (in euros)
North America 18,285 14,469 26% 36%
Europe 13,349 12,539 6% 9%
Asia Pacific 2,672 2,630 2% 2%
Total revenues 4,306 29,638 16% 22%
The revenue growth was mainly driven by the U.S. with significant increase
of license revenues. Activity in Europe and Asia was also good and mainly
driven by license revenues. The 61% increase in license revenues over the same
quarter from last year was primarily attributable to high demand for ILOG
products, good renewal rates of agreements with customers and the positive
impact of the IBM announcement, related to the contemplated acquisition of
ILOG.
Maintenance revenues grew 1% in the quarter compared to the same quarter
last year. This stability is attributable to exchange rate fluctuations and
the stronger euro in particular. ILOG still experiences a growth of its
installed base, and a very good rate of customer contract renewal.
Professional services revenues decreased by 24% compared to the same
quarter last year and further decreased, compared to previous quarters, in
order to take into account the lower demand for ILOG services. This decrease
is mainly the result of the continuing impact of the crisis in the banking
sector impacting the use of our consultants for BRMS implementations and
continued support for existing ILOG customers. Related gross margin for the
quarter was 21% in line with the previous quarter and better than the average
of 16% observed in fiscal year 2008. The number of consultants and third-party
sub-contractors has decreased between the same quarter of last year and the
first quarter of the current fiscal year, to adapt to the current activity
and, as a consequence, the utilization rate of ILOG resources was improved.
Operating Expenses
The 6% increase in operating expenses over the same quarter last year is
primarily due to exceptional costs relating to the IBM tender offer and in
particular legal fees in the amount of euros 1.9 million recorded as general
and administrative expenses. The reduction of our headcount and the quarterly
accrual of the research tax credit helped offset the impact of salary
increases that were applied in the second quarter of last year.
On September 30, 2008, the Company had 835 employees, compared to 864 a
year earlier. This decrease occurred in the last fiscal year with 847 people
at the end of June and is mainly attributable to an effort to reduce headcount
and save costs. The number of consultants was particularly affected by these
decreases and was reduced to 142 from 159 last year.
Non Operating Income
Non operating income was particularly strong this quarter thanks to an
increase in the interest rate received on a record cash level with significant
stock option exercises and foreign exchange gains on hedging activities to
protect royalty flows from a weak U.S. dollar. Income tax expense amounted to
euros 0.2 million compared to euros 0.1 million, in the same quarter last
year, as a result of tax liabilities in the quarter in countries where ILOG
doesn't benefit from tax loss carryforwards.
Balance Sheet and Cash Flow Discussion
ILOG's cash position totaled euros 59.1 million at September 30, 2008, up
from euros 47.1 million at June 30, 2008. Operating activities generated euros
4.6 million as a result of the strong profitability in the quarter in spite of
a longer days sales outstanding (DSO) from 72 days at the end of June 2008 to
76 days mainly as a result of slightly longer terms of payment granted to our
customers. Investing activities for the quarter amounted to euros 0.7 million
for IT equipment purchases and an additional loan advance to Prima Solutions
in an amount of 400 thousand of Euros. Cash provided by financing activities
netted euros 6.5 million and is mainly attributable to the proceeds from the
issuance of shares pursuant to the exercise of stock options in the amount of
euros 5.7 million and the sale on the market of the treasury shares held under
the liquidity contract for euros 0.8 million subsequent to its termination on
September 5, 2008. An additional amount of euros 2.4 million was received in
October 2008 subsequent to the September close date and was related to the
exercise of stock options in September 2008. On the other hand, cash was
increased by euros 1.6 million corresponding to the impact of the stronger
dollar against the euro at the end of September 2008 compared to June 2008 on
our cash balances denominated in U.S. dollars.
As of September 30, 2008, shareholders' equity was euros 75.7 million, an
increase of euros 14.5 million from euros 61.2 million at June 30, 2008,
mainly as a result of the issuance of 1.1 million shares upon exercise of
stock options during the quarter and the result of the sale of the treasury
shares held under the liquidity contract entered into with Oddo Corporate
Finance, and also as a result of the profit realized in the quarter. On
September 30, 2008, the Company had 20,303,827 shares issued and outstanding,
compared to 19,208,848 as of June 30, 2008, due to the exercise of 1,094,979
stock options.
Internal Control
In October 2008, ILOG was advised by Ernst & Young Audit, its independent
accountants that they had identified, while reviewing the first quarter
accounts for the year ended June 30, 2009, a matter involving internal control
over financial reporting and its operation. ILOG's independent accountants
identified this matter while planning and performing their not-yet-completed
audit of the consolidated financial statements of ILOG and its subsidiaries
for the year ended June 30, 2009 and internal control over financial reporting
as of June 30, 2009 that they consider to be a material weakness under
standards established by the Public Company Accounting Oversight Board (United
States). To improve the effectiveness of its internal control, ILOG has
determined to increase the level of scrutiny when reviewing certain unusual
terms in customer contracts in light of most recent guidelines issued by its
auditors around revenue recognition accounting literature.
Constant Exchange Rates
Non-GAAP Financial Measures
In this earnings release, we disclose selected figures that are non-GAAP
financial measures. Under SEC rules, a non-GAAP financial measure is a
numerical measure of our historical or future financial performance, financial
position or cash flows that excludes amounts, or is subject to adjustments
that have the effect of excluding amounts, that are included in the most
directly comparable measure calculated and presented in accordance with GAAP
in our consolidated income statement, consolidated balance sheet or
consolidated statement of cash flows; or includes amounts, or is subject to
adjustments that have the effect of including amounts, that are excluded from
the most directly comparable measure so calculated and presented. In this
regard, GAAP refers to IFRS.
Constant Currency Rates
Where constant exchange rates are referred to in the above discussion,
current period results for entities reporting in currencies other than Euros
are converted into Euros 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.
Press Release for French Shareholders
A translation of this press release in the French language is also
available.
ILOG, ILOG JRules, ILOG LogicTools Inventory Analyst, ILOG LogicNet Plus
are registered trademarks of ILOG. All other trademarks referenced herein are
the trademarks or registered trademarks of their respective owners.
