Magic Software Enterprises Ltd (MGIC) 2003 Q3 法說會逐字稿

Good morning gentlemen and thank you for standing by, and welcome to the Magic Software Third Quarter 2003 Earnings Release Conference Call. At this time, all participants are in a listen-only-mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. If you require assistance during the call, please press "*" then "0". As a reminder, this conference is being recorded. Thank you, I would now like to turn the conference over to our host, CEO of Magic Software, Mr. Menachem Hasfari. Please go ahead sir.

Hello everybody. Good morning or good evening wherever you might be. I'm glad to welcome you all to Magic's third quarter earning conference call. I have here with me today Guy Bernstein. Magic's CFO; David Leichner, Vice President of Marketing; and Avikam Perry, Vice President of R&D. And you can address them with your questions later and I'm sure they will answer.

Today we've delivered another powerful quarter in keeping with the trends of recovery and profitability that we've been demonstrating since the beginning of the year. Our net profit for the quarter is the highest in the last three years and the licenses present a 12-quarter record.

Compared to the previous quarter in 2003 quarter number two, we grew in each of our business areas; licenses, applications, maintenance, and consulting services as well as in each of the margins gross, operating, and net [let alone] in comparisons with the third quarter of last year.

As I told in the conference call of the first quarter of the year, our goals for 2003 were to stabilize the Company, recover from the last [bad] two years, and to return to profitability. And above all to build the infrastructure and the tools that will enable growth in 2004. And so we did. During 2003, we've invested in our technology, in our people, in our strategic partners, and have changed the way we think, the way we approach our customers, and the way we invest and spend the money. And we've done all this while like [inaudible] from the [HP1] for the changing the engine on the fly - the [inaudible], sorry. Not only as we turned the Company around and returned to profitability, but we've also done that while developing and launching a completely new product line, the iBOLT suite of products and vigorously introducing it to the market. Magic is now I am happy to report to you stabilized and safe and ready to embark on our ambitious growth plans for 2004.

Let's now break down this a little bit our sales performance. Similar to many other leading companies in the IT businesses, sales of licenses and the maintenance contracts that go with them have accounted for 48% of our revenue while income for consulting services were at 41% in the quarter. In the geographical glance, Europe has performed extremely well growing 48% from the third quarter in 2002 and setting the pace and the infrastructure for continued growth in 2004.

Magic Inc. in Irvine, California has again delivered a record quarter since its inception in 1991 and accounting for 11% of total revenues. Japan, Magic's largest single entity, has done well and accounted for 14.5% of total revenue, while [inaudible] has [inaudible] Florida for 12%, Germany, our largest European branch for 10.5% and France, the second largest for 9%. CoreTech, our Philadelphia based subsidiary, is, I am glad to say, doing very well. After reconstruction process, we have taken it through, it started to show profit and has accounted for all the 10% of total revenues in the quarter.

Now let's talk about iBOLT. After only 6 months from product launch and we are already experiencing hectic activity. Our important network for [iBolt] is growing daily and we are already cooperating with leading system integrators like IBM, Accenture, Deloitte & Touche, and even [CSC], the largest system integrator in France. As you have seen from our releases during the quarter, the growing number of business partners have joined us as well, and we are on the right track in forging alliances that will help us push iBOLT forward. During the quarter, we have experienced iBOLT sales both in Europe and the United States, and you have seen some of those in being described in our press releases and the interesting phenomenon is that many of these sales were made to customers who have never been Magic customers.

This is what we meant some time ago when we said that iBOLT will open for Magic many doors that had been shut for us and will increase Magic's market penetration and exposure. Although 600 people have been participating during the third quarter in our iBOLT web [inaudible] as we provide frequently over the web, in cooperation with technology [gurus] from various fields. iBOLT's next version, [1.5], much improved and stable will be launched in one month and will present a strong contender to all living players in the EAI markets. Version1.5 we believe provides a better and much more comprehensive integration and business process management solution than the competition.

During the quarter, IBM has met both the attention and approval of leading research analyst groups like Gartner and Giga and we are definitely on the radar screens as a considerable player in the integration global scene. Our 2004, plans call for significant growth in iBOLT sales and our budget allow for adequate investments in its marketing, sales, and R&D efforts to enable such [planned] growth. As planned, we have lately renewed our dialogue with the financial community, multiple meetings with financial analysts and fund managers have taken place during the quarter and a large meeting with investors and money managers will take place tomorrow in Tel Aviv. Road shows are planned for the U.S. and Europe in the first quarter of next year and lately we feel that we are gaining back the attention of the investing community since we think we have a good story now to tell, efforts will be made in these directions starting January.

As you can see, this was an another good quarter this year, and all that is left is to continue the hard work hoping that the following quarters will be as successful and they will be. This concludes my presentation. Like I said, we at the Magic's management and employees together are optimistic about the future and our ability to make our plans work and to increase shareholders value. I truly hope to be able to bring you good news in the very near future. We will be glad to take your question now. David please.

Ladies and gentlemen, if you wish to ask a question, please press the "*" than "1" on your touchtone phone. You will here a tone that is indicating that you are being placed in queue. You may remove yourself from the queue at any time by pressing the "#" key. If you are using a speakerphone, we do recommend that you pick up your handset before pressing the numbers. Once again ladies and gentlemen, if you have a question please press "*" then "1" at this time. One moment for the first question. And we have a question from the line of Charles Silk with C. Silk and Sons. Please go ahead.

Congratulation on the progress you are making. First question I have is we talked about last two quarters. You had indicated that the back, not the backlog, the pipeline on iBOLT and eDeveloper was about 6m then last -- then you went to 8m in last quarter on the conference call. What is it now and how much of the past pipeline has contributed to revenue?

Yes the pipeline announced in June is little above $10m with the deals rated above 60% representing $2m. Sales of iBOLT in the quarter represented around 5% of total revenue. This will grow significantly not only in numbers but percentage-wise as well in 2004.

Next question is could you tell us more about CoreTech and it seems like a lot of the consulting firms that are public companies have moved up in price namely a company called IONA in Ireland and Diamond Crystal, which was a dollar stock, it's now at $10 and they were in the consulting field. How are you -- how is CoreTech feeling this; can you give some kind of guidance or color on what's going on there?

The CoreTech is like, I said, first of all stabilized and profitable; they have set this year on total revenues of around $8m and the future looks very bright. They have lately last week signed very large agreement with a government entity and with one of the world's largest pharmaceutical companies that we'll release in a week or two and they are doing very nice. As to the price, I am not priced separately so I can't tell you but the feeling is good.

Okay it sounds pretty good. Thank you.

Once again ladies and gentlemen, if you wish to ask a question please press "*" then "1" at this time. And we have a follow-up question from Mark Silk with C. Silk and Sons.

Yes, I am trying to quantify the iBOLT revenue. Can you kind of breakdown like your best case scenario whether there is recurring revenue of licenses, and then your worst case scenario, when you do close the deal but if it's a one-time thing because again it's -- when you mentioned iBOLT I want to be able to differentiate what's the positives and negatives or the positives and less positive?

First of all, almost in large majority of the iBOLT sales that we have made, the [model] sales that we've made, was to new customers that never worked with us before. So, it's not recurring. Unusually typically an iBOLT sale will be between and $100,000-150,000 with 60% of it being the large offices and 40% being the professional services around it. Of course the there is an opportunity for [recurring] the income from those specific clients after the initial project is finished, because usually companies will go for integration of two or three applications, and then if it works, then continue to more applications to bring -- to be brought into the integrations.

So, to be more specific like on this Avesta deal or the ISDC or the Gruppo Engineering -- is that basically you are talking about that they sign up a customer and then you hope to just sign up other clients and you keep getting that 100,000-150,000 and go from there?

No, engineering -- engineering is a system integrator, but let me give you another story that we've released at this time, the United States have released just last week which is another system integrator with the target of them taking us to the customers, which I am happy to say they did; the deal was closed last night, and we'll release it next week with one of the major customers. And that's a full-fledged project, iBOLT project.

Thank you.

And there appear to be no further questions at this time. Please continue.

So with no further questions, which I take it as a demonstration of the good situation the company is in, and the key information that we are providing you, I would like to wish you all good morning or good night, and we will meet you in our future, very soon, press releases in our next quarter earning releases. Thank you very much.

Ladies and gentlemen, this conference will be available for replay after 2.30 p.m. today and it will be available until November 20th at midnight. You may access this service by dialing 1800-475-6701 and entering the access code of 702493. Again that number is 800-475-6701 and the access code is 702493. That does conclude our conference for today. Thank you for using the AT&T Executive Teleconference Service. You may now disconnect.