âThe strength of our business model, which relies on geographic and channel diversity, helped license revenue growth in Europe, but was not enough to offset the impact of the U.S. economic slowdown on the sales cycles in this region,â said ILOG Chairman and CEO, Pierre Haren.
ILOG had anticipated a weak level of Business Rule Management System (BRMS) opportunities in the banking industry, especially in the U.S. However, a number of large deals in the healthcare, transportation and insurance industries also failed to materialize in a timely manner in the third quarter. âThe difficulties in the banking industry now generate more general concerns over the economy, and our customers are taking more time to launch their new projects powered by ILOG technology,â added Haren. âIncreased delays in the signature of these deals have also impacted ILOGâs professional services margin, which is severely affected by underutilisation of our resources in the U.S.â
Despite the strength of the euro, preemptive cost-saving measures and strict hiring restraints enabled ILOG to achieve break-even at the operating income level in the third quarter. The Companyâs cash position exceeded the $70 million mark at the end of the quarter.
Positive indicators in ILOGâs third quarter included overall revenue growth at 15% year over year, and license growth at 18%. Geographically, Europe was noteworthy, growing at 23%, with 10% growth at constant currency rate. The Americas grew below expectations at 7% due to the economic slowdown, which deferred some IT spending across industries.
License and maintenance revenues for the Companyâs optimisation tools and engines grew 23%, reflecting royalties received from several OEM partners and good demand for ILOG CPLEXÂ®. Key customers included a leading U.S. cable broadcasting company, which is using ILOG CPLEX for advertising scheduling, and the distribution arm of the worldâs leading diamond provider.
The BRMS product line grew 10% driven mostly by demand in Europe and highlighted by large deals with IBM for a high-profile UK public sector program and Groupama, a leading French insurer, for several CRM applications. In the quarter, ILOG was named a resounding leader in the April 2008 report âThe Forrester WaveTM: Business Rules Platforms, Q2 2008â from Forrester Research, a leading IT research firm. ILOG also shipped its ILOG Rules for .NET 3.0 product, with unparalleled integration with MicrosoftÂ® platforms and products including Microsoft OfficeÂ® 2007, Microsoft Visual StudioÂ® and Microsoft .NETÂ® 3.0, and was named the sole leader in Business Rule Platforms vendor for .NET developers by Forrester.
Highlights for the Companyâs vertical applications business was the closing of a deal with a major U.S. pharmaceutical company for ILOG Plant PowerOpsÂ® production planning and scheduling solution. The company also launched the Carbon Footprint Extension for LogicNet Plus XE, which is expected to capitalise on the growing demand for products that allow users to evaluate the impact of various supply chain network configurations and transportation strategies on their carbon footprint, allowing companies to quickly and easily implement green supply chain initiatives.
LogicTools co-founder and MIT professor David Simchi-Levi was named Chief Science Officer of ILOG. As Chief Science Officer, Simchi-Levi will be charged with monitoring scientific and emerging technology trends to ensure the maintenance of company leadership in the competitive landscape. He will also oversee the links between ILOG and the academic world, conduct periodic technical evaluations of ILOG technology and participate in product strategy decisions.
Due to the shortfall in license revenues in the third quarter as well as expected continued pressure on licenses for the remainder of the year, ILOG is now unlikely to meet its full-year target of 20% revenue growth, but expects to achieve a double-digit increase in full-year revenues. Furthermore, with lower margin from professional services and the continued weakness of the dollar against the euro compounding the direct impact of the license revenue shortfall on profitability, ILOG now expects to break even at the operating income level, rather than achieve the $6 million operating income previously expected.