Cognos Reports Increased Profit Despite Warning

The business intelligence software company saw fiscal first-quarter net income rise year-to-year to $23.8 million from $20.1 million.

Despite warning earlier this month that it would miss revenue and earnings targets, Cognos Inc. on Thursday reported a gain in net income in its fiscal first quarter, which ended May 31, exceeding analysts consensus estimates and the companys own reduced guidance.

The Ottawa, Ontario-based business intelligence software company saw fiscal first-quarter net income rise year-to-year to $23.8 million from $20.1 million.

At 25 cents a share, those earnings met Cognos original earnings estimates issued in March, rather than the downgraded earnings of 21 cents to 23 cents per share issued earlier this month.

The disparity was caused by Cognos having to pay a lower tax rate than expected, according to Neal Hill, senior vice president of corporate development at the company.

Revenues increased from $173.6 million in last years fiscal first quarter to $200.1 million in line with reduced revenue forecasts given this month.

Cognos originally forecast a revenue range of $202 million to $210 million. License revenue increased from $66.1 million to $71.1 million over the same period.

"We ended up with a 15 percent growth rate in revenues, and our earnings grew at 18 percent, which is not at all bad," said Hill.

"But we still cant get away from the fact that we didnt deliver what we said we were going to. Were disappointed, and were going to make every effort to deliver what we say were going to in the coming quarters."

Hill said the revenue drop-off was caused more by execution issues in Cognos sales force than external or competitive forces.

/zimages/1/28571.gifRead more here about Cognos earnings for the quarter ending Feb. 28.

He said that of 17 to 20 $1-million-plus deals in Cognos sales pipeline late in the quarter, only six closed. The company had expected to close at least 12 of those deals. The deals that didnt close remain in the pipeline, Hill said.

Still, he acknowledged that as BI software deals grow larger, moving beyond department deals into enterprise standardization deals, sales cycles will grow longer, too, and deals will slip.

"As the average deal size gets bigger, it becomes a harder decision for the customer with more levels of sign-off required," said Hill. "But I dont see any change in that in the past quarter versus the quarter before.

"Its become a more complex consideration cycle, but thats no different today than it was six months ago."

For its fiscal second quarter, Cognos is expecting revenues of $207 million to $215 million and earnings per share of 28 cents to 32 cents.

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