"ILOG's 14% year-over-year revenue growth is noteworthy, but the year over year 6% drop in license sales had an immediate impact on our profitability this quarter. The summer credit crisis led many of our banking customers to postpone investment decisions. Maintenance and consulting revenues, on the other hand, grew very well. Further, as many of the delayed opportunities have matured, we enter the current quarter with a solid sales pipeline. The strong Euro also hindered our profitability in the quarter, but contributed to the strengthening of our cash position to $62 million," said ILOG Chairman and CEO, Pierre Haren. "While our costs were on target, we are taking further steps to reduce their growth in order to maintain our fiscal year guidance."

Haren added, "I'm very encouraged by customer response to the latest versions of our products released in the September quarter such as a JRules(TM) 6.6 trial that we believe will accelerate the penetration of our business rule management systems (BRMS) within Global 2000 corporations and with systems integrators, and the recent release of CPLEX(R) 11 with a significant performance increase."

Other product-related events are expected to create new business opportunities for ILOG in the coming quarters. The Company recently entered into a reseller agreement with Adobe for ILOG Elixir(R), a new add-on graphics toolkit developed specifically for Adobe's next-generation Flex platform that capitalizes on market demand for rich Internet applications.

ILOG was also just added to Microsoft's exclusive list of Global ISV partners, which will increase support and partnering opportunities connected with Microsoft's Office business applications strategy.

Revenue Trends

While license growth across all geographies and product lines was weaker compared with the same quarter last year, consulting revenues grew 38% and maintenance revenues grew 24% as a result of the large installed base, driving revenue growth in the Amerericas and Europe at 13% and 23%, respectively. Asia revenues were down 11%; however, the well-attended ILOG Asia Pacific User Conference held in August in Singapore demonstrated growing interest in and support for ILOG's products in the region.

License and maintenance revenues for BRMS products grew a modest 3% and were characterized by smaller deals and some delayed purchases. Notable BRMS deals in the quarter included a U.S.-based global logistics company, which will use ILOG JRules as part of a legacy modernization project, and the largest Dutch civil servant pension fund for a retirement computation application.

Optimization product revenues, which include ILOG's vertical applications business, grew 9% due to high-profile deals with Airbus for a custom planning and scheduling application connected with the new Airbus 380 aircraft and with a soft drink's Mexican distributor for supply chain network design and inventory optimization applications. Other optimization revenues included royalty proceeds from supply chain ISV partners.

Highlights for visualization revenues, which grew 6% in the first quarter, included the renewal of a large OEM deal with Oracle for ILOG JViews(R). The product line also continued to benefit from the increasing adoption of Ajax as a key technology enabler for Web 2.0 and "mashups" of Web content.

Business Outlook

"Having fallen short of the license growth we had hoped for this quarter will make reaching our full-year guidance more challenging. Nonetheless, we stand behind our target of in excess of 20% full year revenue growth, along with our U.S. GAAP operating profit to over $10 million, assuming average euro-dollar exchange rate of 1.35 to 1.40 for the year," said Haren.