Record Sales Extend Magic Software's Growth Spurt

Published: November 19, 2007

by Dan Burger

The resurgence of Magic Software, an application development tool vendor with strong ties to the IBM System i user base, remains on track as indicated by the financial reports the company turned in for its third quarter, which ended September 30. The Yehuda, Israel, software company reported record sales of $17.6 million, which follow three consecutive quarters of financial gains. Compared to the third quarter of 2006, revenues were up 17 percent. On the basis of generally accepted accounting principles (GAAP) methods, operating income for the third quarter was $1.1 million. That's good enough to qualify as a resurgence when compared to the $3.6 million operating loss recorded in the third quarter of 2006.

The difference between Magic Software this year versus last year is quite a contrast. Non-GAAP operating income for the third quarter was $1.3 million, an increase of 44 percent compared to $0.9 million in Q2 2007. A year ago, the operating loss for the third quarter totaled $3 million. Non-GAAP net income for the period was $0.9 million, or $0.03 per share, an increase of 29 percent compared to the previous quarter. Non-GAAP net loss for the third quarter of 2006 was $2.9 million, or $0.09 per share.

Magic Software's revenues for the first nine months of 2007 were up 12 percent to $50.8 million, which figures out as a 12 percent increase compared to $45.5 million in the first nine months of 2006. Making a comparison using the GAAP basis, operating income for the nine-month period reached $3.2 million compared to an operating loss of $5.2 million in the first nine months of 2006. Net profit for the period on a GAAP basis was $2.6 million, or $0.08 per share, compared to a net loss of $5 million, or $0.16 per share, recorded in the first nine months of 2006.

On a non-GAAP basis, operating income for the first nine months of 2007 was $3.3 million, compared to a non-GAAP operating loss of $4.9 million during that same time frame in 2006. Net income on a non-GAAP basis for the nine-month period was $2.8 million, or $0.09 per share, compared to non-GAAP net loss of $4.7 million, or $0.15 per share, for the first nine months of 2006.

This was the first quarter of reporting since Eitan Naor took over as president and chief executive officer. Naor noted that in addition to setting record revenue levels in the third quarter, the company also has been on a roll with four consecutive quarters of growth. Other highlights Naor cast into the spotlight included "significant" cross sales into the customer and partner bases and increased traction in the Oracle (JD Edwards), SAP, and BMC Software communities.

Magic Software also announced last week that Guy Bernstein has replaced David Assia as chairman of the board. Assia, who is a co-founder of the company, served as chairman from the company's inception until 2000 and then resumed that role three years ago. From 1986 until 1997 and from 2005 until 2007, he also served as the company's chief executive officer. Bernstein was a member of Magic Software's board of directors and was previously the chief financial officer at the company.

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