Cognos Q2 '96
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Cognos Q2 '96
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Cognos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: COGNF)") else Response.Write("(NASDAQ: COGNF)") end if %> BACKGROUND Cognos provides business intelligence software to satisfy enterprise-wide data access and analysis needs. Cognos develops, markets and supports -- both directly and through resellers worldwide -- client/server tools for data access, reporting, analysis and application development on a wide range of open and proprietary computing platforms. Cognos is a publicly held company with dual headquarters in Ottawa, Canada and Burlington, MA. FINANCIALS
Second Quarter and Six Month Results Three Months Ended Six Months Ended
August 31, August 31,
1996 1995 1996 1995
(Cdn $000) (Cdn $000)
Revenue $63,144 $48,526 $121,165 $94,940
Operating expenses 50,663 43,737 100,398 86,802
Operating income 12,481 4,789 20,767 8,138
Income before taxes 13,909 6,094 23,513 10,612
Net income 10,292 4,645 17,399 7,853
Net income per share 0.24 0.11 0.41 0.19
(Note: Analyst consensus estimates were given in US dollars and were expected to be $0.16 per share. The above figures are reported in Canadian dollars, making the comparison difficult. But, the percentage change from the same quarter a year ago was expected to be 100%. Therefore, the company beat consensus estimates by 18%.) UNION CITY, Ca., October 3, 1996/FOOLWIRE/ --- Cognos reported a record-breaking Q2 late last week with revenues at an all-time high of $63.1 million, up 30% from Q2 a year ago. License sales rose by 34%, support revenue grew 10% and services grew 76%. The growth continued to be driven by their business intelligence tools, PowerPlay and Impromptu, and they achieved revenue of $37.6 million, double that of a year earlier. Within this business they saw the number of large deals, those over $50,000, continue to increase with 125 orders compared to 60 in Q2 last year. They are also pleased to have added over 75 resellers to their third party channels for these products. In their application development tools business, PowerHouse and Axiant generated revenue of $25.6 million compared to $29.7 million a year ago. This level of performance was expected and consistent with the decline experienced in Q1. Looking at their total revenue geographically, North America represented 59%, Europe was 35%, and Asia/Pacific the remaining 6%. Operating expenses were in line with their expectations and reflect an increase in headcount to 1135 at the end of the quarter. They added about 50 people during the quarter, split between R&D and sales and services resources. Within the R&D expense reported of $9.3 million, they capitalized no expense and amortized exactly $1 million. Total operating expenses were $50.7 million, an increase of 16% over Q2 last year. Productivity gains in the quarter were substantial. Sales productivity as measured by license sales were up 37% and overall revenue per employee was 19% higher than a year ago. These productivity gains resulted in pretax profit of $13.9 million and a margin rate of 22%, matching the previous record set in the seasonally strong 4th quarter of last fiscal year. They continue to provide taxes this quarter at a rate of 26% and had earnings per share of $0.24, more than double the $0.11 per share reported in Q2 last year. The balance sheet also continued to strengthen this quarter. Receivables performance was very good with 64 days outstanding as measured by average balances. Cash flow for the quarter was $13.9 million and they did not repurchase any shares during the quarter under the program they announced on July 30th. They made one further announcement this morning in a separate press release -- they will adopt US dollar and US GAAP reporting as their primary means of communicating their financial results. Over 90% of their float and trading volumes are US-based and they have seen US-based research on their company where it is awkward to show their results in Canadian dollars and earnings estimates converted in US dollars. The change will eliminate any confusion over currency differences and will eliminate differences in reporting methods between themselves and other companies in the industry. Their plan is to commence reporting under this change in the upcoming Q3 and at that time they will restate the first two quarters of the year and all prior reportable years. They achieved another 100% growth quarter for their business intelligence tools. They really didn't expect to double this quarter, so they are delighted to have done it. They believe it says a lot about the market and their position within it. They believe the market is reaching critical mass proportions. Customers are recognizing the value of business intelligence, data warehousing, and the like. At this point in the market cycle, they believe it is absolutely vital to be in the lead and they believe that is exactly where Cognos is. Half of their software sales this quarter were to new accounts and, almost by definition, were heavily contested deals. So they are winning more than their fair share, particularly in North America where they feel they are dominant. North American business intelligence revenues at $23.5 million or some 62% of the total were terrific. The list of competitors hasn't changed much and examples of some of the wins this quarter includes the Defense Logistics Agency, the Defense Security Agency of the US Government, the US Marine Corp, Cigna Insurance, Amerigas, Carrier Corp, GTE, Blue Cross -- all 6-figure deals. But they feel that winning the market is not just about direct sales to end users. Their North American field operations are crushing the competition in the third party channels. They added another 70 resellers in the quarter as well. In the UK they passed all of their competitors and took the leadership position in that market. Some significant wins included Marks and Spencer, Barclay's Bank, Mercedes Benz Finance, and United Distillers. They began shipping PowerPlay 5 in the latter part of August and believe that they are now the only company that can scale from 1 to thousands of users. Impromptu 3.5 is in beta and will probably ship by the end of this quarter. The key and unique feature of this release will be the drill-through to detail from PowerPlay which will provide the ability to drill down in PowerPlay and, at any point, automatically form a phrase created to Impromptu to deliver the detailed transactions. This will complete the full functional integration between PowerPlay and Impromptu. Their data mining tool is coming along well and will enter beta at the end of this quarter and ship before the end of the fiscal year. This product will act to broaden their business intelligence portfolio, increase their order size, and reset the bar again on what users should expect from a business intelligence tools provider. This quarter they also articulated their Web strategy and it was received warmly by the press, their customers, and industry analysts. They will be releasing Web products and releases over the next few quarters. In their application development business, they would like more Axiant revenue and think they will see more with Axiant 2.0. Early looks at this product are very encouraging with greatly improved migration strategies and a common repository with real objects. This product will ship before the end of the fiscal year and they will gear their marketing spending to that release. That said, the overall trend for their 4GL products in the second quarter was the same as in the first quarter and they are quite satisfied with the way the model for this business is performing. They have been developing a new product in this area called Real Objects. Version 1.0 of this product was reached at the very end of the quarter and industry analyst feedback has been very positive. It is their intention to move slowly with this product and add around 10-50 customers this quarter, concentrating on helping them bring their applications to production to provide a strong reference base for their 1.1 and 2.0 releases. The 1.1 release is on track for production delivery before the end of the fiscal year. This product will have attractive features for both their business intelligence customers and their PowerHouse Axiant customers. They will hold off any significant sales and marketing investments until then. Real Objects 2.0 which will exploit Microsoft DCom and the Microsoft Viper technology will be out about a year from now. Overall they think this quarter represented significant progress with their strategies and a large increase in their market share. Operationally it was a great quarter -- 22% pretax margins, 20% operating margins, 16% net margins, 30% overall growth, 100% business intelligence growth, and increased productivity all throughout the company. They are now comfortable with the overall business model for the company. They have to make sure they continue to invest wisely in the right things to build and maintain their market position and increase their market share. That will mean they will continue to hire more R&D people, service people, and sales resources. They will also market heavily in the coming quarter with the PowerPlay 5 and Impromptu 3.5 launches and both their UK and North American user conferences. However, it is now becoming apparent that they have a chance to shoot for $1.00 in earnings per share this year and they believe that is a worthy goal. In Q3, although they won't see business intelligence at 100% growth, they do have a lot of sales activity and feel comfortable with revenue around $66-67 million and earnings around $0.26 per share. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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