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Monday November 6, 9:05 am Eastern Time
Magic Software Enterprises Reports Third Quarter 2000 Results
Revenues up More Than 55% Over Last Year as Company Continues to Aggressively Invest in Worldwide Solutions Business
OR YEHUDA, Israel--(BUSINESS WIRE)--Nov. 6, 2000-- Conference Call to be Held Tuesday, Nov. 7, 2000
Magic Software Enterprises, Ltd.(Nasdaq:MGIC - news), a leading provider of state-of-the-art technology and business solutions, reported
results today for the third quarter ended Sept. 30, 2000. Despite
declining tools sales, significant growth in the Company's North
American revenues led the Company to post record sales for the
quarter.
Third Quarter Results
Total revenues for the third quarter 2000 were $25.46 million as
compared to $16.41 million for the comparable three-month period in
1999, an increase of 55.2% over last year and a 26.9% increase over
revenues posted in the second quarter of 2000. Approximately 40% of
total revenues was derived from North America, up from about 12% for
the same quarter of 1999.
Net income for the quarter dropped to $1.16 million ($0.04
earnings per share) from the $3.41 million ($0.14 earnings per share)
posted for the corresponding period of 1999. The drop in earnings was
the result of the Company's continued aggressive investment in growing
its worldwide presence in the e-commerce and customer relationship
management (CRM) solutions marketplaces.
"In today's economy, it takes more than a portfolio of
award-winning products to successfully enter a new marketplace.
Recognition and marketshare come at the price of some pretty
aggressive investment -- in people, in procedures and in promotion,"
said Dan Goldstein, chairman of Magic. "Through the end of this year,
we are committed to making whatever investment is necessary to ensure
Magic's long-term success as one of the world's leading solutions
providers. In spite of these investments, however, we will make every
effort to ensure that fourth quarter results are in line with those
posted in this quarter."
Software license sales, which include the Magic core technology
and applications, were $8.77 million for the third quarter,
representing 34.4% of total revenues. Application license sales, at
$3.72 million for the period, accounted for 42.4% of total software
sales. To date, Magic has closed more than 100 solutions sales around
the world.
Maintenance and support revenues, representing 11.0% of total
revenues for the quarter, were up 19.6% when compared to the same
period last year, while consulting and training revenues at $13.89
million were up 217.2% compared to the third quarter of 1999 and
represented 54.6% of total revenues. The increase in consulting and
training revenues is consistent with Magic's entry into the solutions
marketplace.
Operating income declined to 1.5% of total revenues, compared to
18.3% of total revenues in the same period last year, while net income
fell to 4.6% of revenue, compared to 20.8% of revenue in the same
period of 1999. According to Goldstein, these results were due mainly
to the growth in consulting revenues as a percentage of total
revenues, and the decrease in tool sales.
"We expect to see renewed strength in tool sales in early 2001
when we introduce the next revolutionary version of our core
technology," added Goldstein.
Entering the fourth quarter, Magic already has announced several
significant e-commerce and CRM solutions sales, which would indicate
that the Company's long-term strategy is beginning to take hold.
Third Quarter Developments
Management Changes
During the third quarter, Magic announced the appointment of Dan
Goldstein, chairman of Formula Systems Ltd. (Nasdaq:FORTY - news), as its
chairman. Formula Systems Ltd. is Israel's largest publicly traded
information technology company and a majority owner of Magic.
Goldstein replaced David Assia, who assumed the role of vice-chairman.
Acquisitions
With respect to acquisitions during the quarter, Magic completed
its purchase of 100% of CoreTech Consulting Group, Inc. (CoreTech), a
leading provider of e-business professional services in North America.
CoreTech adds depth to the Company's consulting and professional
services capabilities, as well as gives Magic access to an impressive
client base that includes several leading FORTUNE 500 and
middle-market companies.
Stock BuyBack
Also during the quarter, Magic announced plans to continue the
stock buyback program previously announced during the second quarter
of 2000. The Company has now concluded that buyback, resulting in
Magic's repurchase of 672,150 shares of the Company's common stock.
Deals
Magic signed several important deals, and completed several key
implementations, during the third quarter. Chief among them were
state-of-the-art solutions for Satyam, an international IT solutions
provider; Sunbooks Ltd., one of the largest book wholesalers in
Hungary; Toyo Information Systems Co., Ltd., a diversified information
services provider that specializes in supporting the IT requirements
of Japanese companies worldwide; PAC 2000A Coop. Associates s.r.l.,
one of Italy's largest food chains; and Proxima Informatica Srl, a
wholly-owned subsidiary of IBM and the largest ERP integrator in
Southern Europe.
Magic is using its Magic eService(TM) Web-based customer service
management system initially to provide internal support for Satyam's
European office. In addition, however, Satyam plans to promote Magic
eService to its customers as part of its ASP offerings.
For Sunbooks, Ltd., Magic is working with IBM to deliver the
largest Hungarian e-business project to date. The Sunbooks solution,
to be called Sunbooks Systems, will enable publishers, bookstores,
schools and other institutions to conduct business over the Web.
Using Magic eMerchant(TM), the Company's award-winning e-commerce
template, Magic has built an unique e-tailing solution for Toyo
Information Systems. Called TISTrade, the solution makes it easier and
more profitable for manufacturers and retailers outside of Japan to
sell to consumers in that country.
For PAC 2000A, Magic eMerchant has been used to develop Italy's
first Web-based solution for supply chain management. The solution
enables PAC 2000A to efficiently manage the more than 150 complex
promotional initiatives used to promote sales of the membership's
foodstuffs to more than 1,0000 supermarkets.
Under the terms of a partnership agreement signed with Proxima
Informatica Srl, Magic will use its state-of-the-art technology to
develop and implement a highly targeted salesforce automation
application for the Italian market that integrates with JD Edwards ERP
systems, as well as Magic's own CRM suite of products.
Other solutions sales during the quarter included:
- Magic eMerchant -- Betagro Holding Company Ltd., Better Pharma
Company Ltd. and Solution Corner Company Ltd. (Thailand)
- Magic eService -- Hospitality I.S. (Australia); Axoxs Co.
(USA); and Dakoda GmbH, Indecom and LCIG GmbH (Germany)
- Magic eContact(TM) -- Datamat Public Co., Ltd. (Thailand); and
Arval Service Lease Italia S.p.A. (Italy)
Conference Call
Magic will host a conference call Tuesday, Nov. 7, 2000, at 11:00
a.m. EST (8:00 a.m. PST) to discuss the Company's third quarter
financial results. To participate, interested parties should call the
appropriate number listed below five to ten minutes prior to the start
of the call:
North America 800/230-1766
International 612/332-0632
Callers should reference "Magic Software Q3 Earnings Conference
Call" with the AT&T Operator.
A replay of the conference call will be available from 2:30 p.m.
EST, Nov. 7, 2000, through 11:50 p.m. EST, Nov. 14, 2000. Interested
parties should call the appropriate number below:
North America 800/475-6701
International 320/365-3844
Callers should reference Access Code No. 545222.
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 Website at least fifteen
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 Website.
About Magic Software Enterprises
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 Ave., Irvine, Calif., 92614, telephone
949/250-1718, fax 949/250-7404, http://www.magicsoftware.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
(US Dollars in Thousands)
Three Months ended Nine Months ended
September 30, September 30,
2000 1999 2000 1999
Revenues
Software sales $ 5,050 $ 8,751 $21,322 $25,170
Applications 3,718 934 10,252 934
Maintenance 2,804 2,345 8,392 6,870
Consultancy & other
services 13,890 4,379 27,205 12,389
Total Revenues 25,462 16,409 67,171 45,363
Cost of Revenues
Software sales 836 784 2,761 2,601
Applications 556 282 1,460 282
Maintenance 1,047 911 3,206 2,570
Consultancy & other
services 8,743 2,705 17,096 8,082
Total Cost of
Revenues 11,182 4,682 24,523 13,535
Gross Profit 14,280 11,727 42,648 31,828
Research &
development, net 1,569 837 4,160 2,131
Sales, marketing,
and general
& administrative
expenses 10,846 7,371 29,484 20,834
Depreciation 384 303 1,054 829
Amortization 1,090 214 2,172 502
Operating Income 391 3,002 5,778 7,532
Financial (income)
expenses, net (698) (524) (2,105) 7
Income before taxes 1,089 3,526 7,883 7,525
Taxes on income 25 69 275 131
Income before
minority interest 1,064 3,457 7,608 7,394
Minority interest in
losses (income) of
subsidiaries 100 (128) (470) (417)
Equity in earnings
(losses) of -- 81 (57) 126
affiliate
Net Income $ 1,164 $ 3,410 $ 7,081 $ 7,103
Basic Earnings per
Share $ 0.04 $ 0.14 $ 0.24 $ 0.30
Diluted Earnings per
Share $ 0.04 $ 0.13 $ 0.23 $ 0.28
Weighted Average
Number of Shares
Outstanding (000) 29,996 24,159 29,055 23,841
Diluted Weighted
Average Number of
Shares
Outstanding (000) 31,127 25,755 30,441 25,224
Unaudited Balance Sheets (US Dollars in Thousands)
September 30 December 31
2000 1999
Assets
Current Assets
Cash and cash equivalents $ 54,596 $ 8,298
Accounts receivable:
Trade receivables 24,660 16,111
Related parties 267 45
Other receivables and prepaid expenses 8,160 4,958
Inventory 396 188
Total Current Assets $ 88,079 $ 29,600
Severance pay fund $ 1,975 $ 1,507
Investments in affiliated companies 60 376
Fixed assets, net 10,443 8,649
Other assets, net 52,592 16,762
Total Assets $ 153,149 $ 56,894
Liabilities
Current Liabilities
Short-term bank debt $ 2,824 $ 628
Trade payables 8,161 4,518
Accrued expenses and other liabilities 17,278 14,787
Total Current Liabilities $ 28,263 $ 19,933
Long-term loans $ 927 $ 295
Accrued severance pay 3,432 1,899
Minority interests 134 973
Shareholders' Equity
Share capital 800 712
Capital surplus 116,987 34,413
Treasury stock (3,144) --
Retained earnings 5,750 (1,331)
Total Shareholders' Equity $ 120,393 $ 33,794
$ 153,149 $ 56,894
Contact:
Magic Software Enterprises, Irvine
Katharine Hanley, 949/250-1718, ext. 220
khanley@magic-sw.com
Director, IR/PR
Israel Teiblum, +972-3-538-9311 or 9489
President and CFO
iteiblum@magic-sw.com
 
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