ILOG Reports 2004 Third Quater Results

U.S. Business Rules Revenue Growth at 33%

ILOG® (NASDAQ: ILOG; Euronext: ILO, ISIN: FR0004042364) today announced revenues of $28.3 million for its fiscal third quarter ended March 31, 2004, an increase of 4% compared with revenues of $27.2 million same quarter last year. Earnings per share were $0.06 compared with $0.21 last year.

“Good execution and an improving global economy contributed to another profitable quarter, at the high end of our guidance,” said ILOG Chairman and CEO Pierre Haren. “The decrease in upfront royalties from a large European ISV, which we had anticipated, impacted the revenue and earnings of the quarter. However, strong sales of business rules management systems in the US and in Europe, a high percentage of maintenance renewals and consulting revenue growth compensated for that decrease, and enabled us to achieve the $100 million revenue mark in the trailing 12 months. With a good pipeline for the coming quarter, and signs of recovery in the European market, I am confident in our ability to improve our revenue growth and profitability”.

ILOG’s growth and market share in the business rules market were affirmed both by customer activity and several recent analyst reports. IT industry analysts in the U.S. and Europe covering business rules, BPM and enterprise architecture strategies have confirmed that deployment of business rule management systems are increasing worldwide, driven by businesses’ desire to modernize aging legacy architectures. This trend also favors business process management projects – further driving business rules adoption.

Quarterly Sales Highlights

Demand for ILOG’s business rule management systems (BRMS) in the fiscal third quarter led to 18% overall growth year over year, with 33% growth in the U.S. In Europe, business rules revenues grew 28% compared with 2003. Strong demand for BRMS in the U.S. continued to come from financial services, insurance and healthcare companies. ILOG’s BRMS sales in other sectors including manufacturing, e-government, transportation and entertainment increased ILOG’s market diversification and penetration. For example, a large secondary mortgage lender increased its usage of ILOG JRules related to loan underwriting. IBM Global Services has selected ILOG JRules for implementing process automation for a leading rental car company. In Europe, demand was also diverse. A large deal with system integrator Syntegra calls for ILOG JRules™ to automate health care records management as part of the UK’s National Health Services IT initiative. The French National Railway (SNCF) also selected ILOG JRules for streamlining and automating decision making and improving operational efficiency.

Excluding the European ISV royalty decrease, revenues were constant in the manufacturing and supply chain management (SCM) markets. Moreover, two other major SCM vendors renewed multiyear agreements to deploy ILOG technology in their offerings.

Underscoring ILOG’s reputation as a software technology leader and innovator, two of ILOG’s products received special recognition this quarter. ILOG JRules won the Jolt Product Excellence Award from Software Development magazine, while ILOG JViews was honored by the magazine with a Productivity Award.

Business Outlook

ILOG believes it will continue to benefit from a strengthening economy in the U.S. and a good pipeline especially in the JRules product. However, the company remains cautious due to the impact of the strong euro on the company’s profitability, and the improving, but still challenging business environment in Europe. For the fourth quarter of fiscal 2004, management expects revenues between $26.5 million and $29.5 million and loss/earnings per share between $(0.04) and $0.12, compared to revenues of $23.5 million and earnings per share of $0.01 in the fourth quarter of fiscal 2003.

Conference Call

ILOG management will be hosting a conference call today at 10 a.m. Eastern Daylight Time or 4 p.m. European Daylight Time to discuss the contents of this release. To listen, please visit http://www.ilog.com/corporate/investor and utilize the WebCast link, or to participate, contact Taylor Rafferty. A recording of the call will be available afterward.

Investor contact:
Jérôme Arnaud
+33 (1) 49 08 35 16
jarnaud@ilog.fr

Taylor Rafferty Associates
(212) 889-4350 (USA)
+44 -20 7936 0400 (London)

Press contact:
Susan Peters, ILOG
+1 (650) 567-8109
speters@ilog.com