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Business Objects Reports Third Quarter 2005 Results

Total Revenues Up 19 Percent Year over Year
Non-GAAP Operating Income up 62 Percent; US GAAP Operating Income up 81 percent
Full Year Guidance Raised

San Jose, California; Paris, France – October 27, 2005 – Business Objects (Nasdaq: BOBJ; Euronext Paris ISIN code FR0004026250 - BOB), the world’s leading provider of business intelligence (BI) solutions, today announced results for the third quarter ended September 30, 2005.

For the third quarter of 2005, the company reported total US GAAP revenues of $261.4 million, an increase of 19 percent year over year. US GAAP diluted earnings per share were $0.21 and non-GAAP diluted earnings per share were $0.30 in the third quarter of 2005. The US GAAP and non-GAAP diluted earnings per share were in line with or above the high end of the company’s guidance range for the quarter. The company’s guidance range was US GAAP $0.19 to $0.22 per share and non-GAAP $0.25 to $0.28 per share, respectively.

Operating income improved significantly on both a US GAAP and non–GAAP basis during the third quarter of 2005. On a US GAAP basis, income from operations was $30.1 million or 12 percent of total revenues, up 81 percent year over year. On a non-GAAP basis, income from operations was $41.9 million or 16 percent of total revenues, up 62 percent from the third quarter of 2004.

All figures referred to herein are stated in US dollars unless otherwise indicated. Third quarter of 2005 non-GAAP results as defined in the section “Use of Non-GAAP Financial Measures” below differ from results measured under US GAAP as they exclude $2.4 million of in-process research and development costs, $7.8 million of amortization of intangible assets and $1.6 million of stock-based compensation expense. Reconciliations of US GAAP to non-GAAP results are included at the end of this press release.

“Business Objects is now over $1 billion in trailing four quarter revenues, marking an important breakthrough in the history of the company and the Business Intelligence industry,” said Bernard Liautaud, chairman of the board. “I am really pleased to have John Schwarz succeed me at the post of chief executive officer. I am looking forward to having John lead the company through its next phase of expansion and partnering with him in my new role.”

“In Q3 we continued to generate strong customer demand, execute well in our sales channels, and improve our new product adoption as well as maintenance renewals, all of which contributed to significant market share gains and to our strengthening financial results,” said John Schwarz, president and chief executive officer. “This is the third sequential quarter of accelerating license growth which reflects the rapid adoption of BusinessObjects XI, the most advanced version of our flagship product, and the industry’s leading Business Intelligence solution. In addition to license growth we had very strong growth in our services businesses as Business Objects continued to assume an increasing role as a strategic business intelligence solution provider.”

Business Objects Gained Momentum and Market Share in the Quarter

Since the launch of BusinessObjects XI in January 2005, license growth accelerated to 14 percent year over year, increasing from 1 percent in the first quarter of 2005 and 7 percent in the second quarter of 2005.
This growth rate is more than double that of the second and third place BI providers in the most recent quarter.

Broader Customer Adoption Reflected in the Increase in Large Deals and Customer Wins

There were 10 transactions over $1 million in license revenues in the third quarter of 2005, up from 4 transactions over $1 million in the third quarter of 2004.
Notable customer wins included Auchan, Grupo Santander, Kohl’s Department Stores, and T-Mobile, many of which were driven by BusinessObjects XI.

The Americas and EMEA Reported Accelerating Growth

Revenues in the Americas reached $137.6 million in the third quarter of 2005, up 21 percent year over year, accelerating from 19 percent in the second quarter of 2005. The region closed 4 transactions over $1 million in license revenues.
Revenues in EMEA (Europe, Middle East, and Africa) totaled $104.9 million, up 20 percent year over year (up 19 percent at 85.8 million in euros), accelerating from 17 percent in the second quarter of 2005. EMEA closed 6 transactions over $1 million in license revenues.
Revenues in Asia Pacific, including Japan, totaled $18.9 million, up 4 percent year over year.

Strong Demand Across Software and Services Due to New Products

Software license revenues totaled $120.3 million in the third quarter of 2005, with growth in each major product area.
Sales of core business intelligence products including query, reporting and analysis resulted in $104.9 million in license revenues, up 9 percent year over year.
Enterprise performance management applications led license growth, reaching $7.9 million in license revenues, up 110 percent year over year.
Data integration products reached $7.6 million in license revenues, up 35 percent year over year.
Services revenues totaled $141.1 million in the third quarter, up 24 percent year over year with strong growth in both consulting and maintenance.

Profits Continued to Grow; Earnings per Share Up Year over Year

On a US GAAP basis, operating income was $30.1 million in the third quarter of 2005, up 81 percent year over year, representing a US GAAP operating margin of 12 percent. In the third quarter of 2005, US GAAP net income was $19.6 million and US GAAP diluted earnings per share were $0.21 per share.
On a non-GAAP basis, operating income was $41.9 million in the third quarter of 2005, up 62 percent year over year, representing a non-GAAP operating margin of 16 percent. In the third quarter of 2005, non-GAAP net income was $27.8 million and non-GAAP diluted earnings per share were $0.30 per share.

Balance Sheet Remains Strong

Total cash and investments (cash, cash equivalents, restricted cash and short-term investments) were $369 million at September 30, 2005, up 19 percent year to date. This $58 million year to date net increase in cash reflects approximately $178 million of cash inflows, less acquisitions and other capital investment outflows of approximately $120 million.
Deferred and long-term deferred revenues totaled $196.1 million at September 30, 2005, up 16 percent year over year.
Days sales outstanding (DSOs) were 69 days as of September 30, 2005, within the company’s target range of 60 to 75 days.

BusinessObjects XI Momentum Remains Strong

BusinessObjects XI license revenues totaled more than $65 million in the third quarter of 2005, up 21 percent versus the previous quarter.
Customer acceptance of BusinessObjects XI continued to ramp with over $136 million in license revenues in its first three quarters since availability.

Business Outlook

Business Objects has raised guidance for the fourth quarter and fiscal year 2005 to reflect the performance in Q3, the benefit from the strategic acquisitions made this year, and overall strength in the underlying business.

Business Objects offers the following guidance for the quarter ending December 31, 2005:

Total revenues are expected to range from $287 million to $292 million.
US GAAP diluted earnings per share are expected to range from $0.30 to $0.33.
Non-GAAP diluted earnings per share are expected to range from $0.37 to $0.40.
This guidance does not include the impact of the proposed Infommersion, Inc. acquisition which is expected to close in the fourth quarter of 2005.

The non-GAAP diluted earnings per share guidance for the quarter ending December 31, 2005 excludes amortization of intangible assets and stock-based compensation expense of approximately $10.7 million, which accounts for the difference of approximately $0.07 per share. Assumptions for the fourth quarter guidance assume a US GAAP and non-GAAP tax rate of 38 percent and a US dollar to euro exchange rate of $1.22 per €1.00.

Business Objects offers the following updated guidance for the year ending December 31, 2005:
Total revenues are expected to range from $1.060 billion to $1.065 billion.
US GAAP diluted earnings per share are expected to range from $0.93 to $0.97.
Non-GAAP diluted earnings per share are expected to range from $1.24 to $1.27.
This guidance does not include the impact of the proposed Infommersion, Inc. acquisition which is expected to close in the fourth quarter of 2005.

The non-GAAP diluted earnings per share guidance for the year ending December 31, 2005 excludes a write off of in-process research and development (IPR&D) of $2.4 million, and amortization of intangible assets and stock-based compensation expense of approximately $39.0 million, which represents an impact of approximately $0.30 per share. The outlook for the full year 2005 assumes a US dollar to euro exchange rate of $1.22 per €1.00 and an effective US GAAP tax rate of 40 percent, and a non-GAAP tax rate of 38 percent for the full year 2005.

The above information concerning our forecast for the fourth quarter and full year 2005 represents our outlook only as of the date hereof, and we undertake no obligation to update or revise any financial forecast or other forward looking statements, as a result of new developments or otherwise.