After logging disappointing results in its third fiscal quarter of 2006, business intelligence software provider Cognos has bounced back slightly to cap off a promising year.
For the fiscal year ended February 28, Cognos posted strong revenue growth, with a total of $877.5 million, up from $825.5 million in 2005 on a GAAP basis. A corresponding surge in product support and services revenues more than offset a drop in license income.
Bottom-line results, however, dampened the revenue picture. Net income for the year reached only $124.8 million, down from the previous year's total of $136.6 million. Likewise, fourth-quarter income of $49.9 million trailed the $54.3 million tally in the year-earlier period.
For the quarter, Cognos posted only middling results. The $117.9 million in license revenue accumulated in quarter four was down $12 million year over year from $129.9 million in the fourth quarter of 2005. Total revenue in the quarter reached $253.1 million, off slightly from the $256.3 million registered in the year-prior period.
On a conference call to announce the results, Cognos CFO Tom Manley noted a number of factors that hampered quarterly revenue growth year over year, including an eight-figure deal in Europe -- still its largest to date -- that was inked during the fourth quarter of fiscal 2005. The absence of a deal that size in 2006, Manley noted, was felt in the license numbers reported yesterday.
Other mitigating factors for top- and bottom-line results, Manley said, included unfriendly foreign exchange rates for the Ottawa, ON-based company, and a tax rate of 20.3% in the most recent fourth quarter versus 11.1% in the final quarter of 2005.
Despite the slip, officials characterized the license performance of $117.9 million as "outstanding." The real story of the quarter, according to President and CEO Robert Ashe, was Cognos 8, which entered full release in November. The latest version of the company's flagship product, he said, is off to a "terrific start," and represents the target platform for all but a few of the company's peripheral products.
"With Cognos 8 now fully in the market," Ashe said, "we are beginning to see the potential that our markets-leading solutions represent." The product has attracted upgrades from existing customers as well as new business -- 73% of the quarter's license revenue came from existing customers and 27% came from new business, the company reported.
Slightly less than a quarter of Cognos's license revenue in Q4 was generated by sales partners, down from a high of 32% in the first quarter of 2006. SSA Global, Cognos's biggest reseller, has bundled Cognos 8 into its ERP products.
Ashe touted two particular direct competitive wins in the fourth quarter that he said drove the company's momentum. One, a BI standardization at an unnamed global food and beverage manufacturer, was a seven-figure deal that Ashe categorized as a "multi-year opportunity." The manufacturer, he said, would be replacing its existing BI solution with Cognos 8. The other deal involved a major retailer and represented Cognos's biggest deal in the quarter, coming in at more than $5 million.
For the coming year, Ashe said the pipeline looks good, pointing specifically to the potential growth in financial planning offerings as companies continue to replace legacy systems in deference to new compliance mandates. Reflecting on 2006, he said the strength of the company's product portfolio had grown with the introduction of Cognos Controllers, financial-planning tools that were acquired when Cognos bought Frango in late 2004.
The release of Cognos 8, according to Ashe, represents the linchpin of an incipient, strong product cycle. Cognos 8 received its first update, MR1, last week, with new features that include increased SAP support and better interoperability with Microsoft PowerPoint.
Another enhancement to the BI suite, to be released before the end of quarter one, is Cognos Go!, which Ashe called "true search applied to BI, not static prompts" and dated reports. Cognos Go! is based on the SOA capabilities in Cognos 8, allowing the BI application to act as a service to the search function.
Also in the first quarter, Cognos will debut Cognos 8 Workforce Performance, the first application based on the company's adaptive application framework. Ashe promised that the product will enhance customers' abilities to build and modify applications within the suite while reducing the size of the skillset needed for such tasks.
Ashe said he expected great results from a global strategic alliance with IBM, announced in early March, which features a team within IBM that will promote the interoperability of the companies' products. A spokesperson at IBM noted that while other vendors of business intelligence have formed strategic alliances IBM, that level of partnership itself is a rare feat, with only 100 companies out of IBM's stable of 100,000 partners signed to such alliances.
Ashe also announced plans to aggressively hire sales reps to bring the total team to 371 by the end of quarter one -- 20 more than were in place at the end of the fourth quarter.
Cognos's guidance for fiscal 2007 included first-quarter revenue of $210 million to $218 million, with earnings per share in the range of 15 cents to 19 cents. For the fiscal year, the revenue expectations are $940 million to $960 million, with earnings per share of between $1.20 and $1.27.
"I don't believe we're operating at our full potential yet, as FY 06 was a year of tooling our North American channel and gaining referencable customers in that market," Ashe said.