Telelogic Interim report, July - September 2004

Telelogic Reports Profitable Growth for Third Quarter 2004

MALMÖ, Sweden – October 20, 2004 – Telelogic (Stockholm Exchange: TLOG), the leading global provider of solutions for advanced systems and software development, today announced third quarter revenues of US$34.2 million (SEK 257.3 million). This is a 16 percent increase, in local currency, compared to Q303 when Telelogic revenues were US$28.2 million (SEK 228.2 million). Pre-tax profit for the third quarter increased significantly to US$5.1 million (SEK 38.2 million) compared to US$0.6 million (SEK 5.1 million) for Q3 2003. Cash flow for the quarter was also positive at US$2.4 million (SEK 18.0 million). Sales of new licenses and maintenance agreements were particularly strong, showing continued growth, totalling US$28.1 million (SEK 211.6 million). This is a 16 percent increase, in local currency, compared with Q303. Services revenue for the third quarter amounted to US$6.1 million (SEK 45.7 million), an 17 percent increase in local currency, compared with the same quarter last year. “The third quarter was very strong,” said Anders Lidbeck, president and CEO for Telelogic. “Growing revenues coupled with cost efficiency, resulted in a 16 percent operating margin, taking us one step closer to the long term objective of a operating margin of 20 percent. We continue to build a solid financial platform on top of a strong and a very good market position, for continued earnings improvements in 2004.” Telelogic’s operation in the US realized 16 percent growth compared with the same quarter 2003. And in Asia/Pacifc, Telelogic showed strong growth with 48 percent year-over-year growth, as a result of continued strong license sales. Profitability in both regions continues. In Europe, revenues have increased 7 percent compared with the same period last year. The contribution margin in Europe increased exponentially, from 26 percent for the third quarter 2003 to 36 percent for the third quarter this year. Telelogic's business in finance, bank & insurance segment delivered a strong quarter with 110 percent revenue growth, thus doubling it’s share of sales to 11 percent. The aerospace/defense segment grew with 17 percent, retaining its position as the company's largest vertical market with 34 percent of sales. Sales in the telecommunications sector declined with 20%, partly due to no major agreements signed during the quarter. In addition, sales in the automotive segment remained strong with a growth of 20 percent, especially in Asia/Pacific. Sales of Telelogic’s change and configuration management tool Telelogic SYNERGY™ increased 41%, especially in Asia/Pacific. This increase is closely related to Telelogic’s success in the finance segment during the quarter. The market-leading requirements management tool, DOORS®, increased 7 percent, while revenues for TAU® increased by 4 percent. Sales of next generation of TAU tools have on the more than doubled in all market divisions during the quarter. Telelogic’s Application Lifecycle Management (ALM) offering and the tools supporting ALM have been praised in a ‘Technology Audit’ written by leading U.K. industry analyst firm Butler Group. According to Butler Group, Telelogic has put together a mature and skillfully combined technology offering. “This is a great validation not only of the strengths of each individual tool suite, but of our ALM vision as a whole,” said Anders Lidbeck, president and CEO of Telelogic. “More and more companies are seeing the value of our requirements-driven lifecycle solution as well as the in-depth and unique capabilities of our standalone systems and software solutions.” Outlook for 2004 The underlying demand in the marketplace is assessed as good. Telelogic expects that demand will continue to develop favorably now that the investment climate is gradually stabilizing and improving. Telelogic’s forecast is unchanged in comparison with previous interim reports. The Company’s goal during the coming years is to increase sales by at least 10% per year in local currency. During 2004, this goal will only apply to the Company’s operations in the Americas and Asia. Within the framwork of this goal, Telelogic also intends to strongly improve its market position in Asia, and during the next three years, double its operations there. For operations in Europe during 2004, attainment and consolidation of the long-term goals for productivity and profitability are prioritized. When these goals have been achieved, the Company’s growth objectives will also include the European operations. During 2004, the Company will focus on further improving operating income so as to be able to enduringly attain its goal of a 20 percent operating margin, excluding goodwill depreciations, which was set in 1999. The forecast is that this goal will be attained towards the end of 2004. It is the Company’s intention that pre-tax profit and cash flow for 2004 shall improve significantly in comparison to the previous year. Note: The results presented are based on Swedish Accounting Principles. This report has not been subject to special review by Telelogic’s auditors. During the quarter, there has been no modification of the accounting principles.

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Telelogic is a leading global provider of solutions for advanced systems and software development. Telelogic's intuitive, best-in-class software tools automate and support best practices throughout the development lifecycle, leaving development teams free to concentrate on core competencies and apply their skills and energy to value-added tasks. By optimizing each phase of development, Telelogic enables companies to deliver higher quality systems and software with greater predictability, reduced time-to-market and lower overall costs. To ensure interoperability with third-party tools, Telelogic's products are built on an open architecture and standardized languages.

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