In an announcement sure to please its expected parent company, IBM, business performance management software provider Cognos Inc. yesterday reported third-quarter financial results that outpaced its year-ago performance across nearly all measures.
This week, IBM's nearly $5 billion takeover plan for Cognos cleared another hurdle, as Canadian officials signaled their acquiescence; the U.S. Federal Trade Commission earlier this month paved the way for the merger. IBM and Cognos must receive shareholder and court approval and also satisfy the remaining regulatory requirements before the deal can be made official.
Still, the results of Cognos' third fiscal quarter of 2008, ended Nov. 30, prove that the BI specialist isn't resting on its laurels. Overall revenue grew to $288.2 million, up 16% from $247.8 million in the prior-year quarter. Of that total, license revenue accounted for $108.9 million, a 16% improvement over the $93.9 million reported a year earlier. Support revenue grew 15% to $124.2 million, while services jumped 19% to $54.9 million.
The top-line improvements trickled down to the bottom line as well, as Cognos' $30.9 million in third-quarter net income nearly doubled last year's $16.5 million, both measured on a GAAP basis. The company managed to keep in check — and in some cases lower — its costs for providing software and services.
Dave Kasabian, a research director at AMR Research, called it a good quarter for Cognos. He said it was interesting that the company's average deal size did not move much year over year, noting that the number of deals for less than $50,000 rose (to 983 from 806), offsetting the effect of an increased number of deals worth more than $1 million (up to 18, compared with 11 last year).
"They have started to target the mid-market a little more," Kasabian told Managing Automation. That has likely created an uptick in sales for Cognos Planning (a forecasting and planning tool for finance users), as well as the company's on-demand offerings.
Cognos has seen much of its overall revenue come from its installed base, which accounted for 74% of its third-quarter sales.
"You could look at that as a bad thing, but I don't," Kasabian said. The vendor's expanded portfolio of products — the result of acquisitions such as Applix — likely played a significant role in that equation, he said. Another probable factor for the strong performance from the installed base is the traction experienced by the Cognos 8 product, to which many users are migrating from older versions of the BI tool.
Kasabian believes the predilection for selling to existing customers will bode well for the IBM acquisition, which will give Cognos access to a vast customer roster. "There's a lot of revenue to be had there," he added.
The geographic sales mix for Cognos has changed little over the past year, with more than 90% of sales coming from the United States and Europe (55% and 36%, respectively). The remaining 9% derives from the Asia-Pacific region.
At the end of the third period, Cognos' balance sheet showed $167.5 million in cash and cash equivalents.
Cognos officials did not hold a conference call to discuss the quarterly results. The company has scheduled a Jan. 12 meeting to present the IBM proposal to shareholders.
Kasabian characterized the pending acquisition as the one with the least amount of product overlap among recent business intelligence mergers, including SAP's takeover of Business Objects and Oracle's consumption of Hyperion.
"IBM wasn't really focused on the BI/performance management space," he said. "So they're not going to have as much product rationalization to do."
He said he is tuned in to see whether the marriage will allow Cognos to expand its vertical strategy, which to date has involved "blueprint" templates for specific industries.
"The question I will have going forward is: do they take those blueprints to the next level and start to productize them a little bit more? Or, do they stay with the blueprint approach of saying, 'Here's your starter kit,'" and customizing the rest of the needed functionality.