Magic Software Enterprises Ltd (MGIC) 2007 Q1 法說會逐字稿

Welcome to the Magic Software's third quarter 2007 results conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded May 14, 2007. Before I turn the call over to Mr. David Assia, Chairman and acting CEO, I would like to remind everyone that statements contained in this conference call which are not historical facts contain forward-looking information with respects to plans, projections, or future performance of the Company. The occurrence of which involve certain risks and uncertainties which could cause actual results to differ materially from those which are currently anticipated. Such risks and uncertainties include dependence on economic and political conditions in Israel, the impact of competition, supply constraints, as well as certain other risks and uncertainties which are detailed in the Company's filings with the various securities authorities. I would now hand over the call to Mr. David Assia. Mr. Assia, would you like to begin?

Thank you very much, ladies and gentlemen. Thank you very much for joining us on this conference call of the Q1 results for Magic Software Enterprises. Good morning. Good evening to whoever is on the line. Thank you very much for participating. We are very pleased with the results that we have presented today, they are exactly according to our internal projections and budget. We are growing as expected. The total revenues for the quarter was 16.35 million, a 7% growth over Q1 of last year and a 1% growth over Q4 '06, which normally the last quarter of the year has always a higher revenue than the first quarter of the following year. In this specific case, we were successful even to overcome that.

The operating income was 1.52 million versus 352,000 in Q1 '06. It's up 333% growth versus 172,000 in Q4 06 which is a 717% growth. Our net income of over $1 million was $1,004,000 million, versus a loss of $235,000 of net income in Q1 '06 and versus a profit of 155,000 in Q4 '06. With license sales of our core product, iBOLT and eDeveloper was $3.6 million versus $4.85 million, a decrease of 26%, our only disappointment this quarter. We will correct that and we will elaborate later on. Our applications growth of 35% from 1.4 million to 1.89 million in Q1 '06 mainly due to the growth of both Hermes and AOD, and what's also very nice to note is that we have a cash flow of $3.6 million of positive cash flow of $3.6 million versus Q4 '06 or $2.25 million versus the similar quarter last year. I would like to state that we all know that normally in the first quarter due to maintenance contracts, we are cash flow positive, but in this case, due to both the profits and the maintenance contracts, we had a massive inflow of cash which brings our total cash to $16.5 million including our marketable securities.

So from that perspective I think I've covered the key financials. I'd like to discuss a few of our operation highlights. In terms of SAP, we have already over 160 license relations of SAP -- of iBOLT special edition SAP Business One. We have signed up-to-date over 190 partners out of which more than a dozen of the nearly two dozen are already productive and have installed more than one installation or more than three installations, sorry. So that's a very good sign. We are developing two additional products around the SAP line. One which we launched a couple of weeks ago and we have already put out an announcement on the successful sale of it , was the SAP R-3 connector or iBOLT special edition for SAP R-3 which sells for a much higher price ticket than our regular sub Business One connectors and products, so that should bring some very successful deals with large scale system integrated and large scale Enterprises during this year. We already have quite a few additional deals in the pipeline, hopefully which will close this quarter also.

In addition, we will be announcing very shortly the Magic iBOLT template for SAP Business One which are basically semi-cook solutions ready made for partners. For example, the ability to consolidate accounts or consolidate inventory or consolidate cash flow in multiple installations of SAP Business One for a large corporate. We have had some installations of consolidated SAP Business One products but those were taylor made each time for each customer and now they are coming out with ready made template of products which will be installable by the partners. So with 190 SAP business models, possibly 200 by the end of this quarter, we think that this machine will start to generate higher revenues.

In addition, we're continuing to develop our iBOLT connector for the Series I platform, IBM System I platform. We are implementing a special product which is called iBOLT Integration Suite JDE Connect which is for the world for JD Edwards. We have already signed up more than seven partners in the U.S. to resell and install this product. We have not yet had a major installation except for one, for FMRP, hopefully we'll have more installations in the very very near future.

In addition we have strengthened our relationships with IBM for the System i market, we are considered an SOA specialty partner of IBM. Very few partners get that level of partnership with IBM. In order to have multiple products in the field or to have more uses for our product and more users trained, we have remained during the last quarter $1 million of business development software for the iSeries machine, the System i machine, at the University of Nebraska and hopefully we'll start getting known or more known and get more wins in vast markets.

Eitan Naor, our newly appointed CEO who will be joining us effectively next month already participated in our Board meeting of today and will participate in our worldwide branch Managers meeting starting tomorrow, so he is slowly working and entering into his position, and will be fully operational at the end of next month. With all that said, I'll be very happy to transfer the call to you for any questions and answers. So, thank you very much for joining us, and I'll be happy to answer any answers you may have.

Thank you, sir. (OPERATOR INSTRUCTIONS) The first question is from Charles Silk of C. Silk and Sons. Please go ahead.

Hi, David, congratulations on the improvement and looking forward to even healthier growth. I have several questions. Could you comment on the revenue and net for the three different divisions, (Inaudible) and Hermes and what does the future hold for these three subsidiaries for revenue and profits?

Let's start with Hermes. Hermes is a company that develops software for cargo handling at airports and for airlines. The Company signed up some very nice agreements. Unfortunately, the customers do not yet want us to announce them but the Company is breaking even. This year, it will do about $3 million worth of business and will make some money. The second subsidiary we have is advanced answers on demand or AOD, which develops software for CCRC's which is the long term care industry in the United States. They are doing extremely well, growing very nicely and are making very nice margins, in actual fact, this week, they have a user conference of their own in Florida starting tomorrow with over already 190 participants registered, all paying participants and hopefully this will help capital the Company even further. Third and last but not least is Cortek. That's our subsidiary in the King of Prussia in Pennsylvania. They're doing extremely well. This year they will do approximately $10 million of business or they are on a $10 million run rate. They are doing very well. They are doing nice margins for those type of companies, mainly catering to the financial and pharmaceutical world's in their geographic area.

And second question is you may have noticed, or the whole world noticed on Friday's Wall Street Journal, the front page article on SAP and it described the turmoil within the Company and it also talks about the rise and fall of (Inaudible) and when that announcement came out the design of the stock went down to 2.12 and I guess the news relating to the special edition for the RS-3 and SAP sort of revised the stock a little bit. What effect is it going to be with Magic and going forward?

Well, first of all, I was personally very disappointed that (Inaudible) left SAP. I had visioned him to become the CEO of that Company. I was quite friendly with him. He was a door opener within SAP at the very beginning; however, what has been very successful with SAP so far is that we are already within all the ranks of SAP. We are with all the branches we have 190 SAP partners so I don't think that his leaving the Company will have any adverse effect on our day-to-day business.

Well, that's good. And the relationship with Oracle who JD Edwards, what do you look for the future and I just noticed the sales power and the Seabolt they integrated very quickly. I guess they were asking the VP of Marketing, mentioned that they had a demonstration, on a blog he put up was the integration on the sales corp, I forget their full name, and then also I guess on the Oracle, you show how you can integrate on Seabolt. Could you explain and talk more about that?

I will ask Amit Ben-Zvi, our VP of Marketing and Products to answer that.

We participate and collaborate a few weeks ago and one of the highlights collaborated kind of applications at Oracle in person from Seabolt from JD Edwards and from PeopleSoft and then following the regimen of Oracle of those three lines of applications, Seabolt on demand came became the CRM on demand leading application not only for JD Edwards and PeopleSoft but also for the whole range of Oracle products. Now the JD Edwards community creates a unique opportunity for us as they do not typically run on the Oracle core products but they run on the core IBM System i products, and one of the challenges for Oracle is how to serve this community. Now, they made a committment last year about continuing the support of those products to combine I would say declaration both by the leading System i and IBM and Oracle folks and this year, the main theme of the event is that they are delivering on what they promised and introducing Seabolt CRM on demand for those long living applications. The benefit of Magic is our ability to move quickly into this white space and I think that JD Edwards, the Oracle, JD Edwards holds very surprises with our ability to comp with Seabolt CRM on demand integration into JD Edwards and there is no solution for that. So we don't, basically, we're tackling th (Inaudible - highly accented language).

And I noticed some of the articles in Oracle, they talk about their focus, try to integrate all the different 20 plus acquisitions. How does this fit in with you? Like Fusion, (Inaudible)?

I think Fusion currently is the main export. Usually the way that it's going to take them awhile until they will be able to cover the JD Edwards. Currently the next future, we think we see an opportunity for that.

Okay. The other thing is, David, I noticed in your news release you didn't announce any new significant deals. I know that people don't want it announced but were there new deals that occurred that were signed and worked on this last quarter?

Yes, there were quite a few major deals. One of them we announced a few weeks ago which was the first information of R-3 connector with Israel's largest medical center which is a major deal for us. There's another deal which we signed and since you didn't recognize it in the last quarter, we will be announcing it for the next couple of days. We have quite a few deals. We signed with a major bank in Germany but we did come out with the list maybe close to our VP Marketing here and maybe we'll announce some more deals in the very near future.

Okay, thank you. Looks good going for a great future.

Great. Thank you, Charles.

Thank you. The next question is from [Randy Culp], a Private Investor. Please go ahead.

Hi, David.

Hi, Randy.

What was the amount of sales directly attributable to Business One?

It's right now, not including services, just licenses, it's around $0.5 million.

Okay, is there any projection for the rest of this year and maybe for 2008?

Well, we don't want to give projections. We have our own internal business plan and we hope to grow quite, with quite (Inaudible), but we don't want to give out projections regarding that.

I guess I'm referring specifically with Business One, I mean, you keep saying that more and more partners and you talk about how you're doing better with them and that you have a couple dozen that are actually active and so we're up to 0.5 million per quarter. I'm wondering, is there some type of internal projection on that, on the 0.5 million number?

We would like to reach, it's not a projection but we would like to aim to reach around $3 million during this year, and grow even further next year, depending on the success of this new product line which we'll be adding.

Okay. Now besides the Oracle connection that you have, are there any other partnerships that are in the works perhaps maybe with taking advantage of Linux, with your new web client that might be coming out in the future?

We think that we didn't talk about this in the press release, but we are working diligently to release our Java based web client of what we call the rich Internet client. We announced it in the user group last week. We haven't made an official release announcement yet. We believe that that will bring us a whole set of new partners, manufacturers of PDA's, of people who develop software for different types of PDA handheld terminals because we think we have a very big advantage in that market area.

Okay, and at the start of the year, you were thinking of selling some of your subsidiaries but more directly related to iBOLT a new developer. Are you still going ahead with that?

Well, we've announced a general strategy in which we are focusing on our core products, i.e. eDeveloper and iBOLT. We've also announced that we're going to eventually put both those products in the combined technology stack and this will be the main focus of the Company and we've said that we'll opportunistically try to spin off or sell some of the subsidiaries, although we're not focused on that right now.

Okay. Well, thank you very much and best wishes.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) There are no further questions at this time. Mr. Assia?

Okay, thank you very much for joining our call, ladies and gentlemen. I'm very happy again with the results that we announced. We hopefully will have even better results within the next up coming quarters. I think what is very important to note is that we have returned to sustainable profitability and we believe that we now are on a growth path and hopefully when Eitan joins us, he will continue with his vision and he will be successful together with us to grow the Company further. Thank you very much.

Thank you. This concludes Magic Software's first quarter 2007 results conference call. Thank you for your participation. You may go ahead and disconnect.