Magic Software Ekes Out a Profit in Q4

Published: March 5, 2007

by Timothy Prickett Morgan

Magic Software Enterprises, a provider of application development tools for i5/OS and OS/400 platforms, has begun to turn itself around financially after a restructuring of its operations that began in October 2006.

The Or Yeduda, Israel company reported its financial results for the fourth quarter of 2006, and says that it has returned to profitability. Sales in the fourth quarter increase by 8 percent to $16.2 million, and were up sequentially by 7 percent from the $15.1 million in sales the company reported in the third quarter that necessitated the October 2006 restructuring. The brightest spot in the quarter was a $2.5 million deal that Magic Software inked with Farm Mutual Reinsurance Plan; new releases of eDeveloper (V10) and iBOLT JDE Connect didn't hurt, either. During the quarter, software license sales were actually down 3 percent to $3.6 million compared to the year-ago quarter, but rose by 6 percent over the $3.4 million Magic Software booked in the third quarter of 2006. Revenue from maintenance and support revenues, at $3.7 million, fell by 5 percent compared to the third quarter of 2006, but rose by 9 percent against the year-ago quarter. Consulting and other services revenues were the other savior in the quarter, with $7 million, up 19 percent from a year ago.

With that increase in revenue, Magic Software managed to just barely eke out a profit of $30,000 in the quarter, which is a far cry better than the $3.53 million loss in the third quarter of 2006 and the $1.99 million net loss in the fourth quarter of 2006. To get back into the black, Magic Software sold assets and intellectual property of its CarPro Systems unit to one of its distributors in the Benelux region of Europe, which allowed it to post a one-time gain of $278,000. This more than offset the $269,000 in restructuring charges the company booked in the fourth quarter.

For the full year, Magic Software's sales rose by 1 percent to $61.7 million, with license revenues falling 5 percent to $15.9 million, maintenance and support sales up 3 percent to $14.9 million, and consulting and other services revenues up 13 percent to $24.4 million. Net losses came to $5 million, compared to a net loss of $4.6 million in 2005.

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