Magic Software Reports Financial Results for Q1 2008


Sharp Rise in Cash & Equivalents to $32 million; 9% Revenue Growth with Continued Strong Gross Margin


Or Yehuda, Israel, May 21, 2008 -- Magic Software Enterprises Ltd. (NASDAQ: MGIC), a leading provider of business integration, application development and deployment tools, today announced financial results for the first quarter ended March 31, 2008.

Results for the First Quarter 
Revenues for the first quarter increased by 9% to $15.1 million compared with $13.8 million in the first quarter of 2007. Gross margin for the quarter rose to 55% from 51% in the first quarter of 2007.
On the basis of U.S. GAAP, net profit for the quarter totaled $52,000, or $0.0 per share. This compared with a net profit of $1.0 million, or $0.03 per share, for the first quarter of 2007, which included a $0.5 million contribution from discontinued operations. 
GAAP results include amortization expense as well as non-cash charges taken for the capitalization of intangible assets and stock-based compensation. Excluding these expenses, non-GAAP net profit for the quarter was $0.3 million, or $0.01 per share compared to $0.6 million, or $0.03 per share, in the first quarter of 2007.
As of the end of the quarter, the Company’s net cash equivalents (including cash, short term bank deposits and marketable securities) totaled $32.2million compared to $16.4 million at the end of the fourth quarter of 2007. The increase reflected the contribution of approximately $4 million from the Company’s operations, with the remainder derived from the payment received in respect of the Company’s sale of its wholly-owned subsidiary, Advanced Answers On Demand (AAOD) in the fourth quarter of 2007. In accordance with U.S. GAAP (Generally Accepted Accounting Principles), AAOD’s results have been recorded as discontinued operations in the first quarter of 2007, with operating results excluding AAOD’s contribution.

Comments of Management
Commenting on the results, Guy Bernstein, Active Chairman of Magic Software Enterprises, said, “Our first quarter results represent a solid beginning for 2008. Our divestment of AAOD in the fourth quarter has strengthened our cash position significantly while allowing us to increase our focus on core activities. 

“On the product development front, we have just announced our exciting Rich Internet Application Platform, a comprehensive platform designed to accelerate the development of complex, advanced-functionality client/server and rich internet applications. We have also been active in the Software-as-a-Service (SaaS) field, a market niche that has entered a rapid growth phase. We officially entered this market a few weeks ago at Dreamforce Europe when we launched a special edition of our flagship iBOLT business integration solution for users, a significant market on its own,” concluded Bernstein.

Highlights of the First Quarter

  • Announcement of the application development roadmap for the Company’s next-generation eDeveloper composite application platform.
  • Introduction of iBOLT for, the Company’s first offering for the Software-as-a-Service (SaaS) market. Introduced at Dreamforce Europe 2008 conference.

Non-GAAP Financial Measures 
This release includes non-GAAP basic and diluted earnings per share and other non-GAAP financial measures, including cost of service, research and development, selling, general and administrative, operating income, income taxes and net income. These non-GAAP measures exclude the following items:

  • Amortization of purchased intangible assets;
  • In-process research and development capitalization and;
  • Equity-based compensation expense.

Magic’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.
For its internal budgeting process and in monitoring the results of the business, Magic’s management uses financial statements that do not include amortization of purchased intangible assets, in-process research and development capitalization and equity-based compensation expense. Magic’s management also uses the foregoing non-GAAP financial measures, in addition to the corresponding GAAP measures, in reviewing the company’s financial results. 
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 believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Magic’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Magic’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 in the link below.

Conference Call
Magic Software’s management will also host a conference call today at 10:00 am EDT and 5:00 pm in Israel.

To participate in the conference call, please call the appropriate number listed below at least five to ten minutes prior to the start of the call:

From the US: 1-800-994-4498
From Canada: 1-866-485-2399
From UK: 0800-0323367
From Israel: 1-800-270-345
All others: +972-3-9180620

Callers should reference the Magic Software Earnings Conference Call.

For those unable to listen to the conference call, there will be a replay available from the investor relations part of Magic's web-site at:

Click here to download Magic Software Enterprises Q1 08 Results

About Magic Software Enterprises
Magic Software Enterprises Ltd. (NASDAQ: MGIC) has been a leader in enterprise application development, deployment and integration technology for more than two decades. The company's service-oriented (SOA) platforms are used by companies worldwide to develop, maintain, and deploy both legacy and new business solutions, while integrating these applications across both internal and external, heterogeneous environments. Magic Software's platform-independent methodology lets companies achieve agility by quickly assembling composite applications, allowing programmers to create services and architects and business analysts to orchestrate and reuse these services to enable business processes. Through partnerships with industry leaders such as IBM and SAP and more than 2500 ISVs worldwide, Magic Software technology is used by more than 1.5 million customers around the globe.

For more information on Magic Software Enterprises Ltd. and its products and services, visit

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.

David Zigdon
Chief Financial Officer
Magic Software Enterprises Ltd. 
Tel: +972 (0)3 538 9600