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  1. Technology
February 1, 1998

ILOG RESULTS SHOW RETURN TO PROFIT AND TELECOMS GROWTH

By CBR Staff Writer

Paris-based Ilog S.A’s record second-quarter results showed a return to profit, following its acquisition of Cplex Optimization Inc last August, and significant growth in telecoms and other optimization applications. Ilog, a leading provider of advanced C, C++ and Java software components for graphics and resource optimization, reported revenues of $15m in its second quarter, ended December 31, 1997, an increase of 55% on last year. After writing off the $1.3m in assets acquired from Cplex, Ilog reported net income of approximately $144,000, up from only $3,000 in the December 1996 quarter. Earnings per share (diluted) for the December 1997 quarter, excluding the write-off of acquired intangibles, were $0.10 on 14.2 million shares, compared to $0.09 on 9.1 million shares in the December 1996 quarter. The second-quarter revenue increase continued the pace established in Ilog’s first fiscal 98 quarter, and the positive net marked Ilog’s absorption of Incline Village, Nevada-based Cplex. Cplex, a world leader in linear optimization software, was acquired in exchange for 1.7 million Ilog shares, $15m and four-year promissory notes totaling $5m. In the second quarter, Cplex accounted for 10% of revenues. During the quarter Ilog announced that Rockville, Maryland-based Manugistics signed to integrate Cplex’s Linear Optimizer into its supply chain management software. Sales of Ilog products into the telecom sector continue to dwarf other sectors. In a single quarter, from the end of its fiscal year 97 on June 30 to the end of first quarer 98 on September 30, sales to telecom customers jumped from 38% of total revenues to 44%, says Laasri Hassan, Ilog’s director of telecom marketing. Although figures are not yet available for the second quarter just reported, Hassan said he believes the telecom percentage will be up again. Ilog has two main markets, says Hassan. One is technical, optimization, where we have no competition, and the other is an application market, telecoms, which we know well and which is in a high growth mode. The growth in Ilog’s telecom revenues, Hassan said, is due to the ever-greater proportion of software required for network operation. Equipment makers like Lucent, Nortel and Alcatel can no longer sell their equipment to operators without the software to manage it remotely, he said. Overall, he says, our objective is to have telecoms account for 50% of revenues by the end of 1998. According to market research supplied to Hassan by France Telecom that was conducted by a firm called Sagatel, telecom operators worldwide will spend $720bn in 1998, of which $610bn will go to software/services. In Europe alone, operators will spend $255bn, of which $220bn will buy software and services. Specifically, says another American research firm Insight Research Corp, operators will spend $3.032bn on network management systems this year, and $4.025bn in 2000. Billing and customer care systems will cost them $7.468bn this year, and $9.439bn in 2000. Ilog’s telecom deals in the second quarter included American Management Systems, which is using Ilog components to develop a telecoms workforce management application, and Telefonica, which is testing all Ilog products for six months. It’s like a rental, they renew every six months. It’s the first time an operator has taken every Ilog product to use in its application development activity, said Hassan. By the first of March, Hassan expects to make an announcement of several major suppliers of network management systems choosing Ilog components for integration into their platforms. Ilog is also working to get the Network Management Forum to approve its Telecommunications Graphical Objects (TGO) product as the standard for visualization of the network. Packages today visualize the network, but in a manner that is difficult for the operator to understand, they’re very generic, he said, adding that Ilog already has the endorsement of Nortel and HP with NMF, and is discussing with Lucent as well. While Ilog faces competition in the telecom sector from companies like Neuro

n Data, TSET, Vertel, Netmansys (France), SLGMS (California) and Talarian, it sees no real competition for optimization applications, Hassan said.

By Marsha Johnston

Ilog’s optimization product SOLVER, which represents 25% of revenues, was selected in the first quarter by JD Edwards for inclusion in its enterprise resource planning (ERP) software. Ilog sources say similar product integration partnerships with other major vendors of ERP products are in the works. In the second quarter, Ilog also announced the availability of a new release of Ilog Planner, which is the first product integrating Cplex algorithms into Ilog’s constraint-based libraries, and a new library called Ilog Dispatcher, for vehicle routing and technician dispatching. These developments are delivering on our promise to become the dominant provider of optimization engines, said CEO Pierre Haren. Ilog Dispatcher is a software component that solves vehicle routing and technician dispatching problems, known in the trade as vehicle routing problems (VRPs). The dispatcher is assisted in planning service rounds at the lowest possible cost while accommodating business constraints such as customer orders, visit time windows, fleet capacity and other characteristics, drivers’ timetables and work- hour regulations. As a C++ software library component, Ilog Dispatcher is fully portable across the leading operating platforms (Unix and Windows 95 and NT) and can be used with any database, geographic information system or management application. Ilog Dispatcher was developed under the European Union’s GreenTrip (Global, Reactive and Environmentally Friendly Transportation Logistics) project, which focused on making the European transportation industry more efficient and less damaging to the environment. While Ilog’s overall revenues in the quarter grew by 55%, license and service revenues increased by 36% and 99% respectively over the same quarter in the preceding year. The near-doubling in service revenues, which cost more to deliver, caused a slight drop in overall gross margins for the quarter, to 78% from 82% for the same period in the preceding year. Services comprised 38% of revenues in the quarter, compared to 29% in the same period of the preceding year. Operating expenses for the quarter increased by 27% over the same period in the prior year, reflecting the acquisition of Cplex business, continuing investment in the sales organization, and higher sales compensation and travel costs associated with the growth in revenues. Indeed, Ilog established operations in Tokyo in November with the incorporation of Ilog K.K. Research and development expenses for the quarter, outside of government funding, increased by 29% over the same period in the prior year. The increase was due to an increase in R&D staff from 44 to 59 between December 31, 1996 and 1997, including six from Cplex. Government R&D funding in the quarter was $183,000 compared to $70,000 for the same period in the preceding year.

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