Magic Software Continues On The Comeback Trail

August 13, 2012 Dan Burger

IBM i development tool maker Magic Software Enterprises turned over some good-looking cards last week when it announced its first half of 2012 financial results. From a product standpoint, the company was most pleased with the extension of its mobile development offerings to include support for Apple iOS and Google Android platforms for both smartphones and tablets. But the emphasis was clearly on improved financial footing.

Revenues for the first half of 2012 increased 10 percent to $58.1 million compared to $52.9 million in the same period last year. Operating income for the same six month period increased 23 percent to $8 million compared to $6.5 million in 2011. Non-GAAP operating income jumped 50 percent to $9 million, quite a rise from $6 million just a year earlier.

Non-GAAP figures do not include amortization of purchased intangible assets, in-process research and development capitalization and amortization, equity-based compensation expense and related tax effect. It should be noted that non-GAAP financial measures are not in accordance with generally accepted accounting principles, but they are often an indicator of the relative strength of the underlying business.

Net income for the first half of 2012 increased 17 percent to $7.8 million compared to $6.7 million in the first half of 2011. Non-GAAP net income for the first half of 2012 increased 41 percent to $8.6 million compared to $6.1 million in the same period last year. Operating cash flow for the first half of 2012 totaled $13 million, while total net cash, cash equivalents and short-term investments amounted to $43.7 million.

The highlights from the second quarter of 2012 were not quite as marvelous as the first half numbers. During Q2, revenues increased just 2 percent to $28 million compared to $27.4 million in the same period last year. Operating income for the second quarter increased from $3.4 million to $3.8 million, a 12 percent gain from 2011. The non-GAAP numbers again looked impressive with second quarter operating income increasing 39 percent based on a climb from $3.1 million to $4.3 million.

Net income for the second quarter nudged upward 2 percentage points on an increase from $3.5 million to $3.6 million. Non-GAAP net income for the second quarter increased a nifty 24 percent, which reflected a gain from $3.3 million to $4.1 million. The company noted that net income for the second quarter 2012 was affected by $300,000 of expenses related to the devaluation of the euro versus the U.S. dollar.

Since the first of the year, Magic Software has established distribution agreements with vendors in Spain and Poland. Both distribution companies, along with Magic Software, are subsidiaries of the Asseco Group, a collection of IT companies that operate throughout most of Europe as well as in Israel, the United States, Japan, and Canada. Asseco Group is listed on the Warsaw Stock Exchange, Tel-Aviv Stock Exchange as well as on the American NASDAQ Global Markets. And since September 2010, it has actually owned a controlling stake in Magic Software.

For those who are unfamiliar with Magic Software, several years ago the IBM midrange vendor struggled to be profitable and hold revenues. Its recent turnaround has been dramatic.