Magic Software Reports Financial Slide, Seeks to Regain Form in Europe

Published: August 28, 2006

by Dan Burger

Magic Software Enterprises, the Israeli-based provider of business integration technology, stumbled to losses in its second quarter. Application and licensing fees were unable to keep up with comparable categories from a year earlier, even though those numbers were also down from the previous year totals. The company, in June, sold its customer relationship management software assets to eContact Software.

Magic had total revenues of $15.2 million for the second quarter ended June 30 a decline of 3 percent compared to the same quarter of 2005. License sales for the quarter accounted for $3.9 million, which was an 11 percent decrease compared to a year earlier and application sales were off 5 percent totaling $1.8 million. Revenue from maintenance and support held steady at $3.8 million, while consulting and other services revenue showed a 2 percent increase to $5.6 million. Magic reported a somewhat deeper net loss of $1.337 million hit the books, compared to a $1.16 million loss in the same quarter during 2005.

Magic said the largest portion of its business (37 percent) originates in North America, with Europe chipping in 35 percent. Japan accounts for 16 percent and the rest of the world combined adds up to 12 percent.

First Half 2006 Compared to 2005

Total revenue reached $30.4 million in the first half of 2006, but that was still a 3 percent decline from a year earlier. License sales were off 5 percent at $8.8 million and application sales took a 22 percent fall to $3.2 million. Maintenance and support revenue totaled $7.3 million, which was a 1 percent drop, but revenue from consulting and other services increased 7 percent reaching $11.1 million. Net losses of $1.506 million were significantly higher in the first half of 2006, up from $996,000 for the first six months of 2005.

In the first half of 2006, Europe and North America both contributed 35 percent for a combined total of 70 percent of the revenue stream, while the Japanese market kicked in 18 percent, leaving the remaining 12 percent accountable to all other geographies. Compared to the first six months of 2005, this shows a decline in European revenue being almost in balance with a gain in revenue from North America. Other areas remained nearly the same with regard to the percentage of revenue contributed to the total.

Commenting on the quarter results, David Assia, Magic's chairman and chief executive officer said: "Our disappointing results this quarter can be attributed, to a large degree, to serious management problems at one of our major European subsidiaries, which has forced us to make a thorough re-structuring of our branch." Magic appointed new local management and consolidated its southern European operations, which Assia anticipates will have a positive effect beginning in the fourth quarter.

He made note of Magic adding more than 20 partners this quarter, and also pointed to the promising outlook of its SAP Partners Program, an increase in iBOLT SE (its business integration suite) partners, and the introduction of eDeveloper V10 (its environment for creating composite applications). Magic has inked an OEM agreement with IBM involving DB2 embedded inside eDeveloper V10 development tools.