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Sunday July 30, 5:20 am Eastern Time
Magic Software Enterprises Reports Second Quarter 2000 Results
Company Remains Confident Over 40 Percent Annual Growth Rate Over 1999
OR YEHUDA, Israel--(BUSINESS WIRE)--Aug. 3, 2000--Magic Software
Enterprises, Ltd. (Nasdaq:MGIC - news), a leading provider of
enterprise-level e-commerce, customer service management (CRM) and
other business solutions, Thursday reported results for the second
quarter ended June 30, 2000.
The results are in line with an earlier announcement by the
company stating that revenues and earnings would fall short of
analysts' expectations for the quarter.
In addition, Magic Thursday announced that its board of directors
has authorized the repurchase of up to $5 million of its shares of
common stock. In approving the stock buyback, the company stated that
it believes its stock is significantly undervalued given current
initiatives in the e-commerce and CRM arenas and that it remains
confident that it can deliver a 40 percent annual growth rate over
1999.
Second Quarter Results
Total revenues for the second quarter 2000 were $20,060,000 as
compared with $15,320,000 for the comparable three-month period in
1999, an increase of 30.9 percent over last year, but a 7.3 percent
decrease over revenues posted in the first quarter of 2000.
Net income for the quarter dropped to $1,910,000 ($0.06 earnings
per share) from the $2,280,000 ($0.10 earnings per share) posted for
the corresponding period of 1999.
Software license sales, which include the Magic core technology
and applications, were $9,770,000 for the second quarter, representing
48.7 percent of total revenues. Application license sales, at
$3,210,000 for the period, accounted for 32.9 percent of total
software sales, up from the 25.5 percent of software sales recorded in
the first quarter of 2000.
These results demonstrate the company's continuing transition into
the solutions arena, despite a longer-than-anticipated application
sales learning curve and lower-than-expected results from its Japanese
and North American operations.
"We did not realize the complexity involved in turning an
organization of many hundreds of employees dedicated to developing,
selling and supporting tools into a service-oriented business focused
on application sales issues," said Jack Dunietz, chief executive
officer of Magic.
"It requires a major retooling and re-education process. We were
not prepared to aggressively go after the Japanese and North American
markets until it was too late in the quarter to close deals in our
e-commerce and CRM pipelines, which continue to expand rapidly."
The company plans to make a sizeable acquisition, preferably in
North America, in order to quickly gain the solutions sales expertise
and geographic coverage necessary to have an impact in this highly
competitive market. According to Dunietz, purchase of a systems
integrator or service provider, with strong distribution channels and
a seasoned sales force, could occur as early as third quarter 2000.
Maintenance and support revenues, representing 13.6 percent of
total revenues for the quarter, were up 7.4 percent when compared with
the same period last year, while consulting and training revenues were
up 90.5 percent compared with the second quarter of 1999, representing
37.7 percent of total revenues.
Operating income declined to 1.3 percent of revenue compared with
17.4 percent of revenue in the same period last year, while net income
fell to 9.5 percent of revenue, compared with 14.9 percent of revenue
in the same period of 1999. The decreases are mainly due to the
decrease in software license sales.
"Obviously, there is always room for improvement, especially when
you have the strong portfolio of quality products and pool of talented
people that Magic has," added Dunietz. "That is why we are taking all
necessary steps to build Magic's solutions selling knowledge base and
add even greater depth to our sales force. We are confident we can
still show a 40 percent annual growth rate over 1999."
Stock BuyBack
With respect to the stock buyback, Magic plans to repurchase $5
million of its shares of common stock from time to time in the open
market subject to, among other things, general market conditions and
the market price of its ordinary shares, as well as the provisions of
Israeli corporate law and U.S. securities law.
Magic indicated it will reassess its decision if the market price
for its ordinary shares changes materially.
Dunietz stated: "Magic believes its shares represent an attractive
investment for the company, especially at its present market value.
The stock repurchase program reflects management's confidence in the
company's long-term prospects and is being implemented to support our
public stockholders."
Second Quarter Developments Partnerships
During the quarter, Magic announced a strategic partnership with
InterSystems Corp., a leading provider of high-performance database
systems for Web applications. The company plans to leverage
InterSystems' extensive distribution channels to increase sales of
Magic's e-commerce and CRM applications and services.
In addition, Magic established a joint venture with U.K. software
specialist and Magic Solutions Partner, FMIS Limited, to develop an
innovative technology for deploying Internet solutions. Named
eNABLERSTM, the technology will allow non-technical business
specialists to quickly build and deploy Internet applications.
Fifty percent of the initial project costs are being provided by
BRITECH, a joint British and Israeli government-supported fund
established to support commercial and technical collaboration between
U.K. and Israeli companies.
Deals
Magic participated in several important deals signed during the
second quarter, including agreements with Compass Group PLC, a major
worldwide food service organization, the state of Nebraska, and Marconi
Mobile, a global company specializing in the design, development and
integration of private mobile and strategic communications solutions.
For Compass Group France, Magic's French subsidiary is delivering
an e-procurement solution built using Magic eMerchant. The
e-procurement solution provides an intranet data infrastructure for
Compass Group to better manage and follow the procurement of food in
each of its restaurants.
Magic subsidiary, Access Data Corp., is using the Magic technology
to provide a comprehensive public safety records management solution
for all agencies within Nebraska. The solution, which will give
agencies the ability to integrate records, court, jail and CAD
functions, will include a centralized database of criminal activity to
be created using statistical and investigative information.
Magic Solutions Partner, e-Carisma, is working with Marconi Mobile
to implement Magic eServiceTM, Magic's entirely Web-based,
enterprise-level customer service management system. The plan is to
customize and install the solution across three divisions and 14 sites
at Marconi.
Other solutions sales during the quarter included:
- Magic eMerchant - Nissei Hitachi Denshi Services Corp. (Japan),
a member of the Hitachi Group of companies, to create a
Web-based computer parts purchasing solution; Brancher (France),
a leading provider of printer inks in France, to implement an
e-commerce solution for their new plant and premises; Titanox
(France), a leading bindings distributor to the aircraft
industry, and Nadeau Impro (Canada), a manufacturer of
insulation products, to enable both companies to sell online;
and John Menzies (U.K.), a wholesale distributor of newspapers,
magazines and stationary, to support merchandise distribution
and tracking throughout their retail network.
- Magic eService - TIS (Israel), a document imaging company, and
Teleknowledge (Israel), to create Web-based customer management
centers; and Philips Lighting (U.K.), to implement customer
service management as part of Philips' new B2B e-commerce
strategy.
- Magic eContact - SPID Distribution (France), to embed Magic
eContact in their travel agency management solution.
Conference Call
Magic will host a conference call Wednesday, Aug. 3, 2000, at 11
a.m. EST (8 a.m. PST), to discuss the company's second quarter
financial results. To participate, interested parties should call the
appropriate number listed below five to 10 minutes prior to the start
of the call:
- North America - 800/230-1951
- International - 612/288-0329
Callers should reference "Magic Software Q2 Earnings Conference
Call" with the AT&T operator.
A replay of the conference call will be available from 2:30 p.m.
EST, Aug. 3, 2000, through 11:50 a.m. EST, Aug. 10, 2000. Interested
parties should call the appropriate number below:
- North America - 800/475-6701
- International - 320/365-3844
Callers should reference Access Code No. 531011.
Investors also will have the opportunity to listen to the
conference call over the Internet through Vcall, a service of the
Investor Broadcast Network, at http://www.vcall.com. To listen to the
"live" call, investors should go to the Web site at least 15 minutes
early to register, and download and install any necessary audio
software.
For those who cannot listen to the live Internet broadcast, a
replay of the conference call will be available for up to 90 days on
the Vcall Web site.
About Magic
Magic Software Enterprises, a member of the Formula Group (Nasdaq: FORTY - news), develops, markets and supports software development and
deployment technology that enables enterprises to accelerate the
process of building and deploying applications that can be rapidly
customized and integrated with existing systems.
Magic technology, applications and professional services are
available through a global network of subsidiaries, distributors and
Magic solutions partners in approximately 50 countries. The company's
North American subsidiary is located at 1642 Kaiser Avenue, Irvine,
Calif., 92614, telephone 949/250-1718, fax 949/250-7404,
http://www.magic-sw.com.
The Formula Group is an international information technology
company principally engaged, through its subsidiaries and affiliates,
in providing software consulting services, developing proprietary
software products and producing computer-based solutions.
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.
Unaudited Consolidated Statement of Operations
(U.S. Dollars in Thousands)
Three Months ended Six Months ended
June 30, June 30,
2000 1999 2000 1999
Revenues
Software sales $ 6,566 $ 8,815 $16,273 $16,419
Applications 3,207 - 6,534 -
Maintenance 2,727 2,540 5,589 4,525
Consultancy & other services 7,559 3,968 13,314 8,010
Total Revenues 20,059 15,323 41,710 28,954
Cost of Revenues
Software sales 985 1,021 1,926 1,817
Applications 479 - 904 -
Maintenance 1,056 861 2,159 1,659
Consultancy & other services 4,712 2,777 8,353 5,377
Total Cost of Revenues 7,232 4,659 13,342 8,853
Gross Profit 12,827 10,664 28,368 20,101
Research & development, net 1,587 679 2,591 1,294
Sales, marketing, and general 9,855 6,870 18,466 13,464
& administrative expenses
Depreciation 386 301 842 526
Amortization 748 143 1,083 288
Operating Income 251 2,671 5,387 4,529
Financial (income) expenses, net (1,258) 239 (1,407) 530
Income (Loss) before taxes 1,509 2,433 6,794 3,999
Taxes on income 149 20 251 62
Income (Loss) before minority 1,360 2,412 6,543 3,937
Interest
Minority interest in losses 606 (154) (570) (290)
(income) of subsidiaries
Equity in earnings (losses) of (57) 22 (57) 46
Affiliate
Net Income $ 1,909 $ 2,281 $ 5,916 $ 3,693
Basic Earnings per Share $ 0.06 $ 0.10 $ 0.21 $ 0.16
Diluted Earnings per Share $ 0.06 $ 0.09 $ 0.20 $ 0.14
Weighted Average Number of 29,963 23,838 28,677 23,730
Shares Outstanding (000)
Diluted Weighted Average Number 31,281 25,539 29,994 25,569
of Shares Outstanding (000)
Magic Software Enterprises Ltd. -- Unaudited Balance Sheets
(U.S. Dollars in Thousands)
June 30 December 31
2000 1999
Assets
Current Assets
Cash and cash equivalents $ 74,899 $ 8,298
Accounts receivable :
Trade receivables 22,145 16,111
Related parties 505 45
Other receivables and prepaid 8,227 4,958
Expenses
Inventory 266 188
Total Current Assets $106,042 $29,600
Severance pay fund $ 1,867 $ 1,507
Investments in affiliated companies 64 376
Fixed assets, net 9,669 8,649
Other assets, net 34,434 16,762
Total Assets $152,076 $56,894
Liabilities
Current Liabilities
Short-term bank debt $ 3,157 $ 628
Trade payables 4,262 4,518
Accrued expenses and other 18,587 14,787
Liabilities
Total Current Liabilities $ 26,006 $19,933
Long-term loans $ 483 $ 295
Accrued severance pay 2,328 1,899
Minority interests 408 973
Shareholders' Equity
Share capital 813 712
Capital surplus 116,122 34,413
Retained earnings 5,916 (1,331)
Total Shareholders' Equity $122,851 $33,794
$152,076 $56,894
Contact:
Magic Software Enterprises Ltd., Irvine
Katharine Hanley, 949/250-1718 ext. 220
khanley@magic-sw.com
or
Magic Software Enterprises Ltd., Or Yehuda
Israel Teiblum, +972-3-538-9311 or 9489
iteiblum@magic-sw.com
 
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