Bluephoenix Solutions Reports Q1 Record Revenues of $20 Million & $2 Million Non-GAAP Net Income

Ninth Quarter of Sequential Growth

Continued Strong Cash Flow

May 9 , 2007

HERZLIA, Israel, May 9 /PRNewswire-FirstCall/ -- BluePhoenix Solutions Ltd. (NASDAQ: BPHX - News), a leading provider of value driven modernization solutions for legacy information systems, today reported record financial results for the first quarter ending March 31, 2007.

For the first quarter of 2007, BluePhoenix reported record sales of $20 million, up 25 % from $16 million in the first quarter of 2006, and up 10 % as compared to $18.3 million in the prior quarter. This was the ninth quarter of sequential growth.

Operating income on a non-GAAP basis for the first quarter was a record $ 2.5 million, up 32% from $1.9 million in the first quarter of 2006 and up 13 % from $2.2 million in the prior quarter. The non-GAAP operating income excludes the amortization and capitalization of intangible assets, depreciation of property and the effect of Stock -Based compensation. As a percentage of revenues, the operating income for the first quarter was 12%. The operating expenses were slightly impacted by the devaluation of the US Dollar as compared to the Israeli Shekel.

Net income on a non-GAAP basis for the first quarter, excluding non-cash financial expenses mainly related to the convertible debentures, was a record high of $2 million, or $0.13 per share, as compared to $1.4 million, or $0.10 per share, in the first quarter of 2006, and $1.65 million, or $0.11 per share, in the prior quarter.

First quarter GAAP based net income, was materially affected by the non-cash expense related to the conversion of $3.2 million of the convertible debentures into shareholders capital thus reducing the overall debt of the company. The net GAAP based net income was $125,000, or $0.01 per share, as compared to $949,000, or $0.07 per share, in the first quarter of 2006.

"We are very proud of our results. The accelerated sequential growth of BluePhoenix is a constant proof and reassurance of our ability to identify the growing needs in the market and tailor our Company's structure to provide a unique combination of software tools and services that solve our customers' business problems through the implementation of our special software modernization solutions," stated Arik Kilman, Chief Executive Officer of BluePhoenix.

Kilman continued, "Our revenues grew from $58 million in 2005 to $68 million in 2006, and are expected to exceed $80 million in 2007. The first quarter had a strong cash flow: we generated a positive cash flow from operations of over $5 million. In order to increase the momentum of growing profitably, together with the expansion of the organization, we have started to implement a restructuring plan that is aimed at cutting the operational costs of the Company by approximately $3 million on an annual basis. The one time restructuring plan is expected to cost approximately $2 million. The implementation will include the reallocation of our delivery and Research and Development tasks to our low cost off-shore centers such as the one we are acquiring in St. Petersburg. This plan will gradually be further implemented, and start showing significant results in the second half of 2007. " BluePhoenix has scheduled a conference call on Wednesday, May 9th, 2007 at 10:00 A.M. EDT (17:00 Israel Time)
Arik Kilman, Chief Executive Officer, and Iris Yahal, Chief Financial Officer will discuss the First Quarter of FY 2007 and will be available to answer questions.
Interested parties are welcome to call the telephone numbers listed below, five to ten minutes prior to the start of the conference call.
In the US call: (800)-288-8975
Outside the US call: +1-(612)-332-0637
Callers should reference "First Quarter Results on May 9th, 2007" to the AT&T conference call operator.
An automated replay of the conference call will be available from May 9th 2:00 P.M. until May 11th at 11:59 P.M. (EST)

    To access the replay please call

    (USA) (800)-475-6701

    (International) +1-(320)-365-3844

    and enter BluePhoenix Solution's access code of 872414

The automated replay can also be accessed at any time through our Web site, under the investor relations section.

Click here to download BPHX Q1 07 Results

About BluePhoenix Solutions (www.bphx.com)
BluePhoenix Solutions (NASDAQ: BPHX - News) is a leading provider of value driven modernization solutions for legacy information systems. BluePhoenix's offering includes a comprehensive suite of tools and services from global IT asset assessment and impact analysis to automated database and application migration, rehosting and renewal. Leveraging over twenty years of best practice domain expertise, BluePhoenix works closely with its customers to ascertain which assets should be migrated, redeveloped or wrapped for reuse as services or business processes, to protect and increase the value of their business applications and legacy systems with minimized risk and downtime.

BluePhoenix's solutions serves companies from diverse industries and vertical markets such as automotive, banking and financial services, insurance, manufacturing and retail. Among its prestigious customers are:

Aflac, DaimlerChrysler, Danish Commerce and Companies Agency, Europe Assistance, Lawson Products, Los Angeles County Employees Retirement Association, Merrill Lynch, SDC Udvikling and TEMENOS. BluePhoenix has 13 offices in the U.S., UK, Denmark, Germany, Italy, Russia, Romania, Cyprus and Israel.

For more information, please visit our Web site at www.bphx.com.

SAFE HARBOR: Certain statements contained in this release may be deemed forward-looking statements, with respect to plans, projections, or future performance of the Company, the occurrence of which involves certain risks and uncertainties that could cause actual plans to differ materially from these statements. These risks and uncertainties include but are not limited to: market demand for the Company's tools, successful implementation of the Company's tools, competitive factors, the ability to manage the Company's growth, the ability to recruit and retrain additional software personnel, and the ability to develop new business lines.

Non-GAAP Financial Measures
To supplement BluePhoenix's consolidated financial statements presented in accordance with GAAP, BluePhoenix provides non-GAAP net income (loss) and non-GAAP net income (loss) per share data. The presentation of these non-GAAP financial measures should be considered in addition to BluePhoenix's GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. BluePhoenix's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain charges, gains and tax effects that may not be indicative of BluePhoenix's core business operating results. BluePhoenix believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing BluePhoenix's performance. These non-GAAP financial measures also facilitate comparisons to BluePhoenix's historical performance and its competitors' operating results. BluePhoenix includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Non-GAAP measures are reconciled to comparable GAAP measures in the table entitled "Non-GAAP Calculation of Net Income (Loss) Excluding Special Items" following the text of this press release.

Please refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.

All names and trademarks are their owners' property.

Company Contact:

Iris Yahal
+972-9-9526110

OR

Paul Holm
+1-212-888-4570