Magic Software Reports Results for the Third Quarter of 2009

Company Maintaining Profitability Despite Challenging Economic Conditions


OR YEHUDA, Israel, Nov. 4, 2009 (GLOBE NEWSWIRE) -- Magic Software Enterprises Ltd. (Nasdaq:MGIC), a provider of application platforms and business and process integration solutions, today announced its financial results for the third quarter ended September 30, 2009. All references to $ are to U.S. Dollars.

Financial Highlights for the Quarter

  • Revenues for the third quarter were $13.5 million compared to $13.6 million in the second quarter of 2009.
  • Operating income in the third quarter was $0.8 million compared to $1.0 million in the second quarter of 2009.
  • Net income for the third quarter was $0.9 million, compared to $1.1 million in the second quarter of 2009.
  • Total cash, cash equivalents and short-term investments as of September 30, 2009 were $37 million, compared to $33 million as of December 31, 2008.

Financial Highlights for the First Nine Months

  • Cash flow from operations for the first nine months of 2009 amounted to $4.3 million.
  • Revenues reached $40.9 million, compared to $46.9 million for the first nine months of 2008.
  • Operating income was $2.5 million, compared to $3.1 million for the first nine months of 2008.
  • Net income was $2.7 million, compared to $3.4 million for the first nine months of 2008.

Comments of Management

Guy Bernstein, Chairman of Magic Software, commented on the results: "We are pleased to report an eleventh consecutive quarter of profitability for the company, which comes despite the continuing challenges in the global economy. Notwithstanding these challenges, we have been successful in obtaining new business this year, including twenty new customers in the U.S. alone. While cautiously encouraged by the reviving markets in the U.S. and Japan, we continue to exercise fiscal and operational restraint. To ensure ongoing stability and profitability, we continue to invest in our core growth engines."

Summary of the Quarter

  • Eyal Pfeifel has been appointed as the company's new CTO. Eyal brings with him previous Magic Software experience and 20 years in planning and managing large-scale and innovative technology projects.
  • The company's U.S. branch continues to gain new customers, and increased revenues and profits this quarter.
  • The company's Japanese branch also showed improved revenues and profitability thanks to careful planning, and provides a basis for cautious optimism in the Japanese market recovery.
  • The uniPaaS application platform continues to be adopted worldwide. The company is now implementing close to 100 uniPaaS RIA projects in Japan alone.
  • Other significant uniPaaS deals include uniPaaS RIA for KLAFS, Europe's leading sauna and spa manufacturer; and Bank Leumi, Israel's leading commercial bank, which is migrating 60 of its applications to uniPaaS.
  • The company has won a number of new iBOLT deals, including a SaaS/on-premise integration for Clinical Financial Services in the U.S.; a Lotus Notes integration for MintWave in Japan; a Salesforce.com/SAP R/3 integration for AVL in Austria; and a SAPR/3 integration for KLAFS in Germany. The company also entered into a new partnership agreement with nefos GmbH, a leading consulting partner for Salesforce.com, based in Zurich, Switzerland.
  • The company was ranked 250 among the World's Largest Software Companies by Software Magazine.

Non-GAAP Financial Measures

This release includes non-GAAP operating income, net income, basic and diluted earnings per share and other non-GAAP financial measures. These non-GAAP measures exclude the following items:

  • Amortization of purchased intangible assets;

  • In-process research and development capitalization and amortization and;

  • Equity-based compensation expense.

Magic Software's management believes that the presentation of non-GAAP measures provide useful information to investors and management regarding financial and business trends relating to the Company's financial condition and results of operations as well as the net amount of cash generated by its business operations after taking into account capital spending required to maintain or expand the business.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Magic Software believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Magic Software's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Magic Software's results of operations in conjunction with the corresponding GAAP measures.

Please refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.

About Magic Software

Magic Software Enterprises Ltd. (Nasdaq:MGIC) is a global provider of multiple-mode application platform solutions -- including Full Client, Rich Internet Applications (RIA) or Software-as-a-Service (SaaS) modes -- and business and process integration solutions. Magic Software has offices in 10 countries and a presence in over 50, as well as a global network of ISV's, system integrators, value-added distributors and resellers, and consulting and OEM partners. The company's award-winning code-free solutions give partners and customers the power to leverage existing IT resources, enhance business agility and focus on core business priorities. Magic Software's technological approach, product roadmap and corporate strategy are recognized by leading industry analysts. Magic Software has partnerships with global IT leaders including SAP AG, salesforce.com, IBM and Oracle. For more information about Magic Software and its products and services, visit www.magicsoftware.com, and for more about our industry related news, business issues and trends, read the Magic Software Blog.

The Magic Software Enterprises Ltd. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5524

Except for the historical information contained herein, the matters discussed in this news release include forward-looking statements that may involve a number of risks and uncertainties. Actual results may vary significantly based upon a number of factors including, but not limited to, risks in product and technology development, market acceptance of new products and continuing product conditions, both here and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in the Company's most recent annual report and other filings with the Securities and Exchange Commission.

 MAGIC SOFTWARE ENTERPRISES LTD.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 U.S. dollars in thousands (except per share data)
 (Unaudited)

                                              Three      
                              Three months    months     Nine months 
                                  ended       ended        ended
                             September 30,   June 30,   September 30,
                           ----------------- -------- -----------------
                             2009     2008     2009     2009     2008
                           -------- -------- -------- -------- --------
                                               
 Revenues                   13,504   15,809   13,595   40,869   46,909
 Cost of Revenues            6,625    6,648    6,443   19,805   20,216
                           -------- -------- -------- -------- --------
 Gross profit                6,879    9,161    7,152   21,064   26,693
                           -------- -------- -------- -------- --------
 Research and
  development, net             358      676      260      957    1,697
 Selling, general and
  administrative expenses    5,709    6,873    5,937   17,600   21,922
 Total operating
  expenses, net              6,067    7,549    6,197   18,557   23,619
                           -------- -------- -------- -------- --------
 Operating income              812    1,612      955    2,507    3,074
                           -------- -------- -------- -------- --------
 Financial income
  (expenses), net              154      123      (78)     140      482
 Other income (expenses),
  net                          (63)      42      286      223       24
                           -------- -------- -------- -------- --------
 Income before taxes on
  income                       903    1,777    1,163    2,870    3,580
 Taxes on income                 1       70       76      167      145
                           -------- -------- -------- -------- --------
 Income after taxes on
  income                       902    1,707    1,087    2,703    3,435
 Minority interest              --       (1)      --       --       (3)
 Equity in losses of
  affiliates                    --       --       --       --       (8)
                           -------- -------- -------- -------- --------
 Net income                    902    1,706    1,087    2,703    3,424


 Basic net earnings per
  share                       0.03     0.05     0.03     0.08     0.11
 Diluted net earnings per
  share                       0.03     0.05     0.03     0.08     0.11

 Weighted average number
  of shares used in
  computing net earnings
  per share

   Basic                    31,894   31,829   31,894   31,894   31,727
                           ======== ======== ======== ======== ========

   Diluted                  32,169   32,159   32,009   32,038   32,039
                           ======== ======== ======== ======== ========
 MAGIC SOFTWARE ENTERPRISES LTD.
 RECONCILIATION BETWEEN GAAP AND NON-GAAP
 STATEMENTS OF OPERATIONS FOR COMPARATIVE PURPOSES
 U.S. dollars in thousands (except per share data)


                                        Three months     Nine months
                                           ended           ended
                                        September 30,   September 30,
                                         (Unaudited)     (Unaudited)
                                       --------------- ---------------
                                        2009    2008    2009    2008
                                       ------- ------- ------- -------

 GAAP operating income                    812   1,612   2,507   3,074
 Amortization of intangibles              950     767   2,700   1,817
 Capitalization of software
  development                            (771)   (421) (2,356) (2,031)
 Stock-based compensation                  64    (168)    189     412
                                       ------- ------- ------- -------
 Total adjustments to GAAP                243     178     533     198
                                       ------- ------- ------- -------
 Non-GAAP operating income              1,055   1,790   3,040   3,272
                                       ======= ======= ======= =======


 GAAP net income                          902   1,706   2,703   3,424
 Total adjustments to GAAP as above       243     178     533     198
 Non-GAAP net income                    1,145   1,884   3,236   3,622
                                       ======= ======= ======= =======


 Non-GAAP basic net earnings per
  share                                   0.04    0.06    0.10    0.11
                                       ======= ======= ======= =======
 Weighted average number of shares
  used in computing basic net
  earnings per share                    31,894  31,829  31,894  31,727
                                       ======= ======= ======= =======

 Non-GAAP diluted net earnings per
  share                                  0.04    0.06    0.10    0.11
                                       ======= ======= ======= =======
 Weighted average number of shares
  used in computing diluted net
  earnings per share                    32,276  32,159  32,115  32,039
                                       ======= ======= ======= =======
 MAGIC SOFTWARE ENTERPRISES LTD.
 CONSOLIDATED BALANCE SHEETS
 U.S. dollars in thousands

                                         September 30,   
                                             2009        December 31,
                                         (Unaudited)         2008
                                        --------------  --------------

 ASSETS

 CURRENT ASSETS:
   Cash and cash equivalents                    20,392          27,309
   Short-term bank deposits                     12,557           1,810
   Available for sale marketable
    securities                                   3,905           3,469
   Trade receivable, net                        11,935          13,140
   Other accounts receivable and
    prepaid expenses                             2,567           1,933
   Current assets of discontinued
    operation                                       32              31
                                        --------------  --------------
 Total current Assets                           51,388          47,692
                                        --------------  --------------

 LONG-TERM INVESTMENTS:
   Severance pay fund                              385             316
   Long-term lease deposits                        267             235
                                        --------------  --------------
 Total long-term investments                       652             551

 Property and equipment, net                     4,911           5,436
 Goodwill                                       16,900          16,829
 Other intangible assets, net                   10,311          10,656
                                        --------------  --------------

 TOTAL ASSETS                                   84,162          81,164
                                        ==============  ==============

 LIABILITIES AND SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES:
   Short-term credit and current
    maturities of long term loans                   76             147
   Trade payables                                2,845           2,988
    Deferred revenues                            3,664           1,643
   Accrued expenses and other
    accounts payable                             6,616           8,691
   Current liabilities of
    discontinued operation                         391             372
                                        --------------  --------------
 Total current liabilities                      13,592          13,841
                                        --------------  --------------

 Long-term loans                                    17              33
 Accrued severance pay                             598             535
                                        --------------  --------------
 Total non-current Liabilities                     615             568
                                        --------------  --------------

 SHAREHOLDERS' EQUITY                           69,955          66,755
                                        --------------  --------------

 TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY                          84,162          81,164
                                        ==============  ==============

            

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