ILOG Reports Results for the Quarter Ended September 30, 1997

Business Wire, Oct 23, 1997

PARIS--(BUSINESS WIRE)--Oct. 23, 1997--ILOG S.A. (NASDAQ NMS: ILOGY), a leading provider of advanced software components, today reported revenues of $8.4 million for the quarter ended September 30, 1997, an increase of 50% compared to $5.6 million in the September 1996 quarter reflecting higher revenues from licenses and services, which grew by 47% and 55% respectively over the same quarter in the preceding year.

The loss from operations, before the write-off of acquired intangibles of $28.4 million, related to the CPLEX acquisition, was $1.6 million in the September 1997 quarter, compared to $2.6 million in the September 1996 quarter. Loss per share, before the write-off of acquired intangibles, for the September 1997 quarter was $0.14 on 11.6 million shares, compared to $0.36 on 6.9 million shares in the September 1996 quarter. The loss per share in the current quarter after the write-off of acquired intangibles was $2.58. The write-off of acquired intangible assets relates to in-process software and other intangible assets acquired from CPLEX during the quarter.

Revenues in the quarter grew by 50% over the same quarter in the previous year. "This was an important quarter for ILOG" said Pierre Haren, ILOG's President and CEO, "and I am very pleased that the CPLEX acquisition process did not affect the expected growth in our revenues. We reported in the quarter an excellent year-on-year growth of both product and service revenues, increased our penetration in the telecommunications market, and increased the market awareness of the ILOG Optimization Suite."

Overall gross margin for the quarter decreased to 77% from 78% for the same period in the preceding year due to a small increase in mix of lower-margin services revenues. Marketing and selling expenses for the quarter increased by 16% over the same period in the prior year reflecting continuing investment in sales and marketing personnel, particularly in North America and Japan. Research and development expenses, net of government funding, for the quarter increased by 14% over the same period in the prior year primarily due to the introduction of CPLEX product research and development following the CPLEX product acquisition. General and administrative expenses for the quarter increased by 15% over the same period in the prior year reflecting the on-going incremental costs associated with the Company having become publicly listed in February 1997.

Net interest income (expense) for the quarter decreased from $132,000 to $28,000 over the same period in the prior year reflecting increased interest expense arising on the $5.0 million of notes payable issued during the quarter in connection with the Company's acquisition of the CPLEX business.

Cash at September 30, 1997 decreased to $8.0 million from $26.0 million at June 30, 1997 reflecting $15 million paid on August 20, 1997 in connection with the CPLEX acquisition and recent operating losses. Intangible assets at September 30, 1997 of $3.2 million represent developed software and other intangible assets acquired from CPLEX Optimization, Inc., the majority of which will be written-off over the next six months.

Long-term debt during the quarter increased by $5.1 million to $ 6.2 million at September 30, 1997 reflecting the five-year notes payable issued in connection with the acquisition of the CPLEX business. At September 30, 1997 shareholders' paid-in capital increased to $48.9 million, from $38.4 million at June 30, 1997 reflecting the issuance of shares in connection with the Company's acquisition of the CPLEX business and the exercise of stock options; shareholders' equity decreased to $6.3 million, from $27.0 million at June 30, 1997 reflecting the net loss for the quarter, the increase in paid-in capital and a $1.3 million decrease in net equity due to currency translation of ILOG intercompany indebtedness upon consolidation. At September 30, 1997 the Company had 12.9 million shares issued and outstanding compared to 11.0 million at June 30, 1997. During the quarter 1.7 million shares were issued in connection with the Company's acquisition of the CPLEX and 0.2 million shares were issued in connection with the Company's employee stock option and purchase plans.

Business Developments in the Quarter

During the quarter a Java version of ILOG Views started shipping and was well received by the market. "We are now in a position where Java-based libraries can contribute to our long-term growth" commented Pierre Haren. "During the quarter JViews was selected by Hewlett-Packard as the graphic Java library for the development of the next generation of OpenView, their network management platform. ISR Global and Newbridge also selected JViews for Java-based network management graphics. With JViews, ILOG's offerings in the area of advanced graphics for telecommunications are now language-independent".

ILOG's continued focus on the telecommunications market was rewarded by new endorsements of the ILOG libraries by three major telecommunications players: Alcatel, Siemens and Hewlett-Packard as mentioned above. Alcatel plans to fund the integration of four ILOG libraries in an essential component of their ALMAP network management platform. Siemens will be licensing Views for use in their network management platforms. ILOG also enjoyed repeat business with Bellcore, IBM, Italsoft, Nortel, Siemens and Telefonica in the area of graphics for network management. The ILOG Server and ILOG Rules business grew with sales in the area of network management, alarm monitoring and customer care and billing. This demonstrates that ILOG's current success in the area of graphic libraries for network management can be leveraged in other areas of the telecommunications industry and to include the adoption of other ILOG libraries.