Investors Cheer Cognos' Quarter

Updated from March 31

Cognos(COGN Quote) delivered the blowout fourth quarter Wall Street was expecting, but the software vendor's earnings projection for the first quarter was disappointing.

The stock slipped in Thursday's after-hours session, but was recently up $1.07, or 2.6%, to $42.82 in early Friday trading.

Net income in the quarter was $54.3 million, or 58 cents per diluted share, an increase of 18% compared with $46.1 million, or 50 cents per diluted share, for the same period last fiscal year. Revenue for the fourth quarter was $256.3 million, an increase of 27%, compared with $202.1 million.

Analysts polled by Thomson First Call were expecting a 48-cent profit on revenue of $240.49 million.

License revenue, an indicator of new business, was up 39% to $129.9 million, well above most estimates. However, discounting the impact of currency effects on the top line, and the contribution from Frango, a Swedish firm acquired late last year, organic license growth was about 32%, said Tom Manley, chief financial officer of the Ottawa-based company.

Revenue from services had a gross margin of 16% in the quarter and 20% for the year, well below the company's own target of 25%. Even so, Cognos expects margins to expand, as it moves toward its goal of $1 billion in annual revenue.

Guidance for the first, or May, quarter of fiscal 2006 called for EPS of 22 cents to 25 cents a share with revenue ranging from $202 million to $210 million. Analysts were projecting a 27-cent profit on sales of $204.71 million.

Asked why the guidance was off the mark, Manley said that the first quarter was generally sluggish, and he added that the Canadian dollar has appreciated by 13% against the U.S. dollar. Because roughly one-third of the company's expenses, and very little of its revenue, was in Canadian dollars, the currency effect hurt the company's bottom line, Manley said.