Magic Software Enterprises Ltd (MGIC) 2007 Q4 法說會逐字稿

Thank you and good morning to those of you in the United States and Canada. Good afternoon to those of you in Europe, Israel and elsewhere. Welcome to Magic Software's Fourth Quarter and Full-Year 2007 Financial Results Conference Call, and thank you all for holding. (OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded today, February 28th, 2008.

Earlier today Magic Software issued its financial results for the fourth quarter and full-year of 2007. I trust that most of you have seen by now a copy of the press release. But if you have not, you may view it in the Investor Relations section of Magic Software's website at www.magicsofware.com.

On the call today are Eitan Naor, President and Chief Executive Officer, and David Zigdon, Chief Financial Officer.

Before we start, I would like to refer you to our Safe Harbor statement. Specifically, I advise you that some of the information we are providing during the conference call may contain forward-looking information with respect to plans, projections, or future performance of the Company, the occurrence of which involves several risks and uncertainties including, but not limited to, the Company's ability to successfully execute its growth plan, the ability to recognize revenue in future periods as anticipated, the unpredictability of the IT market, product and market acceptance risks, ability to complete development of new products, the impact of competitive pricing and offerings, fluctuation and quarterly and annual results of operations, commercialization and technological difficulties, risks related to our operation in Israel, and other risks detailed in the Company's Annual Report on Form 20-F, and other filings with the Securities and Exchange Commission.

Magic Software undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

With that, I would like to turn the call over to Mr. Eitan Naor, President and Chief Executive Officer. Eitan?

Thank you, Vena. Good morning and afternoon, everyone, and thank you for joining us today.

The fourth quarter was a very good end to a good 2007. Our revenues for the quarter were $15.7 million, which is up 14% year-over-year, and up 7% compared to the third quarter.

Our gross margin for the quarter is up nicely to 58% compared to 55% last year. Most important, this was our fourth consecutive quarter of profitability, a solid basis from which we intend to continue growing during 2008.

In Q4 we posted record revenues, achieving our fifth consecutive quarter of revenue growth, with a significant increase in license sales. At the same time, we continue to make progress in all of our efficiency and streamlining programs, resulting in improving our cost structure.

To start with our focus of our core business, at the end of the year we sold our subsidiary AAOD for $17 million in cash, recording a capital gain of $9.3 million. Our financial results reflect this as discontinued operations.

So, during 2007 the Company returned to growth and profitability while we increased our focus on our core business and identified new opportunities. In this conference call I'd like to discuss our progress in each of these areas.

The improvement in our financial results derived from our efforts over the past several quarters, which have been focused on reorganizing the Company in line with our strategic objectives, strengthening and executing on our product line sales, and enhancing our marketing channels. As a result, our momentum has been building on every front -- license sales, upgrades, and partner activities -- and we have also begun to move aggressively into new segments.

During Q4 we finalized our 2008 annual plan, which is our blueprint for building the Company in the future. During the next few minutes I would like to go into the plan in some detail to discuss recent accomplishments, and to discuss some market trends that we believe will drive our future growth. Then, I will pass the call over to David Zigdon, our Chief Financial Officer, to go over the financial results and open the line for questions.

I will start with a review of some of the major events of the quarter. During the fourth quarter we continued to take advantage of the growth of the service-oriented architecture trends, adding new OEM partners and increasing our penetration into the ecosystems of leading enterprise applications.

In the OEM space, I would like to highlight three new partnerships, one for the education market, second for the conference management market, and third for the government sector.

In the education market our iBOLT product was selected by a UK-based ISV that offered the specialized ERP college management solution. iBOLT will bring more flexibility to the core business functionality of their ERP solution.

In the contract management market, a France-based ISV has incorporated iBOLT into its compliance and record management system. iBOLT will improve their system's ability to manage (inaudible) banking documents, such as signatures and contracts.

And in the government sector, a U.S.-based ISV has incorporated iBOLT into its specialized ERP solution for all municipalities.

On a related subject, you may have recalled that in our Q3 call I related about W4, one of our OEM partners in France and its successful BPM (inaudible) project with a large telecom customer. We were very pleased that W4 was recognized by Forrester Research as a strong performer in human-centric BPM. The report clearly states that W4 adds comprehensive integration features, solid workflow resulting from W4's OEM partnership with Magic Software.

Our SAP partner channel continues to expand, becoming a more and more important source of business for Magic. During the fourth quarter 10 new partners joined our partner program for SAP. We are pleased to see the continuing adoption of eDeveloper V10 by existing and strategic customers.

I would like to change gears now to discuss an exciting new opportunity, the Software-as-a-Service area. We have identified SaaS as an interesting focus area a few months ago and, during the past quarter, we analyzed this potential in depth. We see two important trends here.

First, it turns out that many of the organizations that have adopted SaaS programs, such as (inaudible), turned to them because they could be deployed without implicating the organizational IT or entering into capital investments. The remarkable success of such initiatives rendered them strategic to the enterprise, resulting in an immediate requirement to integrate it with the (inaudible) IT systems. Hence, the high demand for business integration from SaaS users.

We have decided to make SaaS one of our focus areas and, in the last few months, have already started commercial activities targeting the Salesforce.com ecosystem.

First, we produced a special iBOLT position for Salesforce.com environment with a Salesforce.com [up-exchanged] certified adaptor. Then, to fine tune our message and market approach, we participating in five important Salesforce.com events -- customer events in the UK, the U.S. and Germany, and Salesforce.com internal SaaS kickoff event in the U.S.

Now, we are progressing on the first sales leads while concluding partnerships with key players. We plan the full-scale official launch in May during Dreamforce, the annual EMEA Salesforce.com users event.

A second trend relates to Software-as-a-Service Enabled Application Platforms, which is called SEAP. The success of the whole subsector is incentivizing application vendors to offer the application as a software service. However, this is not easy to do. The development and deployment of SaaS applications requires a new breed of application platform that offer rich internet client capabilities, very high scalability, fast and easy deployment, and personalization to mention just a few.

Magic is ideally positioned to meet these needs. We have an excellent track record as an application platform provider, and have already started developing the required SaaS features as the next major development following V10 of eDeveloper.

We provided a beta version to selected customers and partners a few months ago, and simultaneously began discussions with industry analysts concerning our positioning and packaging.

As part of this process, we have closely worked with a few partners. We've validated our technologies for remote application delivery in SaaS (inaudible). Based on the concrete feedback and industry input, we are enhancing our technology stock with the objective of adding some key features and functionality required for the operation of SaaS-Enabled Application Platforms.

This also led us to conclude the beta program for our code-named Rich Client Technology. We intend to make the new product, packaged as the SaaS-Enable Application Platform, available later this year, initially in Japan. Following this, we intend to extend availability worldwide.

This new product will include, among other features, the functionality of the current eDeveloper platform, in addition to Rich Client internet functionality.

But, this goes one step further. The growth of SaaS is also heading for a transformation of the system integration industry. In general, the practice of deploying subsystems is different than other enterprise software systems. They require fewer technical skills, but more skill in the area of business transformation and management consulting.

Organizations deploying subsystems tend to adopt their processes to the one offered by the SaaS drawback rather than customize and personalize the solution. As a result, the SaaS environment is creating a new breed of system integrators quite different from the current setup regarding the HR mix, on-site versus off-site work and revenue stream.

To expand our SaaS related business we want to form partnerships with this new next generation SI as our new sales channel to that market.

I would like to conclude with a discussion of our corporate structure and reorganization. We have made significant progress in this area during the fourth quarter.

In line with our goal to focus on our core business, at the end of the year we have sold our subsidiary AAOD for $17 million in cash. As part of the transaction, we entered into a three-year license agreement with AAOD under which AAOD will continue reselling our products. The sale, together with the other activities that we will be carrying out will enable Magic to focus on our core business priorities and to fortify our industry leadership.

Internally, we have implemented a number of organizational changes to align our structure with our objectives. We have formed a dedicated new product group to ensure the right attention and focus of the Company to our products, to develop the right mix of solutions for the right opportunities. I have appointed Mr. Avikam Perry, previously our Vice President for Research and Development, to head this new group.

During the quarter we also rationalized our territorial structure. As part of this effort we named Regev Yativ to be the President of Magic, Inc., and assigned him with the responsibility for our operations in North and Latin America.

We have named Amir Rosentuler to be our General Manager of our operations in the rest of the world, including EMEA and Asia-Pacific.

Looking forward, our primary objective is to assure profitability while growing the Company. Our strategy is designed to fully leverage our primary growth engine, maximizing profitability through the provision of the right mix of products, to the right markets, with the right cost structure.

To conclude, during the last year, and especially the last two quarters, we have focused on bringing the Company back to growth and profitability, improving our operations, and giving it the right mix of products to address high-growth opportunities. We have formed a comprehensive strategy that we believe will be the healthy, growing company over the long term, with short and medium-term milestones that will contribute even in 2008. I look forward to reporting our progress in the quarters ahead.

With that, I will turn the call to David Zigdon, our CFO, to review the numbers. After the financials, we will be able -- we will be available for your questions. David?

Thank you, Eitan, and hello, everyone. I will provide you with a summary of our financial results. You can find the results in more detail in the press release issued earlier today.

I would like to begin by providing you with information about the AAOD transaction. At the end of the year we sold our subsidiary AAOD to Fortissimo Capital for $17 million in cash, most of which was received in January, 2008. As part of the transaction, we have entered into a three-year license agreement with AAOD which allows AAOD to continue reselling our products.

In the fourth quarter we recorded $9.3 million one-time capital gain from this transaction. According to U.S. GAAP, we have recorded AAOD result as discontinued operations, not only for 2007, but also for 2006.

AAOD revenue for 2007 were $11.7 million, a 23% increase compared to $9.5 million in 2006, and its operating income for 2007 was $2.6 million compared to $2.3 million in 2006.

In our press release we have also included non-GAAP financial measurements, which we believe offers useful information and insight into our business. These measurements are not in accordance with the U.S. GAAP and not intended as an alternative for U.S. GAAP measurements. In my discussion today I will discuss only the results according to the U.S. GAAP. I will start with revenue.

This is our fifth quarter of consecutive revenue growth. On a GAAP basis, revenues for the quarter were $15.7 million, up 14% compared to the fourth quarter of 2006, and 7% compared with the third quarter of 2007. Our total revenue for the quarter, which include the contribution of AAOD for the period, were $19.2 million, up 19% compared with the fourth quarter of 2006, and 9% compared with the third quarter of 2007.

On a geographical basis, North America accounted for about 31% of our sales; 42% our sales were from Europe, 16% for Japan, and 11% for the rest of the world. On a GAAP basis, gross margin was 58%, up from 55% in both the third quarter of 2007 and the fourth quarter of 2006. With stronger revenue and improved gross margins, we are headed to continue building the bottom line.

Operating income for the quarter was $0.2 million. This is significant improvement from the fourth quarter of 2006 when the Company recorded an operating loss of $0.5 million.

As you can see, discontinued operations is a major feature in our results. It includes (inaudible) for AAOD net income for each period, which was $400,000 the fourth quarter of 2007, $700,000 for the third quarter of 2007, and $76,000 for the fourth quarter of 2006. For the reporting quarter it also includes the one-time capital gain associated with the sale, which was $9.3 million.

Net profits for the period were $10 million, or $0.32 per share compared to $900,000 or $0.03 per share in the third quarter of 2007. In the fourth quarter of 2006, we recorded a net profit of $30,000 or $0.00 per share.

Results for the year. Revenues for the full year were $58.4 million, which excludes $11.6 million for discontinued operations, compared to $52.6 million in 2006, which excluded $8.9 million for discontinued operations. So, we are moving to the right direction.

On a geographical basis, North American accounted for the year for about 31% of our sales, 42% of our sales were from Europe, 16% from Japan, and 11% from the rest of the world.

Gross margin for 2007 went up to 54% from 53% in 2006.

Operating income for the year increased to $1.3 million as compared to $6.7 million operating loss that was recorded in 2006.

Net profit for the year was $12.6 million or $0.40 per share. This is including the contribution of the capital gain. This compares to a net loss of $5 million or $0.16 per share for 2006.

And now we would be happy to take your questions. Operator?

Thank you, David. Ladies and gentlemen, at this time we will begin the question and answer session. (OPERATOR INSTRUCTIONS.) The first question is from Charles Silk of C. Silk and Sons. Please go ahead.

Hi, everybody. Things are going forward nicely. I have a lot of questions, but I'll interrupt them if anybody wants to ask any more.

On the last -- first of all, on the last quarter you had three new users of iBOLT Special for R/3. Have you gotten any permission to allow them to publicize the relationship with these accounts?

Hi, Charlie. No, not at this time. This is why we haven't come with any press release.

Will that be coming shortly, or--?

Sorry. I missed the last part.

Yes. Are there any coming very shortly so that we know what's going on?

What we usually do, as you've seen from this conference call, is that when some of the customers are not cooperating in that sense of releasing the PRs in time, so we are using this conference call to give you a more thorough update. So, once we get them, we'll obviously publish them.

Okay. Are there any significant revenues? Can you describe the significant revenues from these three R/3 clients in this last quarter?

No, actually the growth we obtained in the last quarter was coming from both the development sales. License went up very nicely. And on the iBOLT front, most of the increase was attributed to Business [One] sales, not R/3.

So, you haven't gotten any more new clients on the R/3 area for this last quarter.

Yes, we actually got, but the contribution to revenue this quarter was not that significant.

But those are in addition to the three that you mentioned the last quarter.

Yes. Yes.

Okay. Could you -- on the W4 deal, can you inform us how the revenue was shared and how -- who gets what when?

It's a (inaudible) reseller OEM type of deal. So, they actually -- every time they sell one of their solutions they buy the iBOLT license, which is actually white labeled into their solution. And obviously we have a discount mechanism agreement between the companies, so this is the way it's being done.

Are you able to sell the W4 and -- for your marketing group?

No, we are not selling W4. W4 are selling their product, which has iBOLT kind of white labeled, embedded within their product.

Okay. Now, in Japan, are they now buying maintenance contracts, or -- that they have not done in the past.

We've seen very much recovery in Japan in the fourth quarter. That actually is the largest, I would say, contributor in terms of the license growth was coming from Japan. And with regard of the soft opportunities I've described previously, some of the major ones are currently in Japan. So, we are quite happy with the performance there.

All right. On all things relative to Japan, I guess, are they publicized that they're going to have a further relationship with technology, etc. How would you get involved with it?

Again, Charlie, sorry. I missed the first part.

Okay. [Amit] is in Japan right now on a mission.

Yes.

And they've talked about the relationship with Israel going even stronger. How do you think it's going to affect you, that it's more positive?

Actually, I was supposed to attend this mission. The only reason I'm not there is because I'm attending this conference call now.

At this stage, we don't think this would have any impact on our business we have. Actually, most of the people joining this mission don't have a lot of business in Japan. Magic has a quite significant one. I don't think it will have a major effect.

Okay. Let's see, the last three press releases you put out are very encouraging and it seems like it's going to increase your revenue in the future. Can you say any more on those three different deals? Well, one of them is, I guess, the SaaS.

Right.

Can you expand a little more on them?

Yes. It actually affects two product lines. The first initiative is related to eDeveloper. This is -- we actually announced that we are going to release later this year, in that sense, a new product based on eDeveloper, a combination of eDeveloper and Rich Client Technology, an additional SaaS functionality that we've added to address the SaaS application platform.

Currently, we are working with a very large design partner in Japan on a significant opportunity. And the objective there is that this large design partner would actually adopt this new product stock, to build their own application based on SaaS.

So, we would first launch -- probably within a few months we would first launch this product in Japan. Once this bid has been done with this large partner, obviously we'll announce it. And afterwards we'll launch it in other parts of the world. So, that has to do with eDeveloper.

On the iBOLT front, as I've said, we've done I would say a very significant work with Salesforce.com. We came up with a new connector, an iBOLT special edition for Salesforce.com. We have done this quite silently, I would say, because we wanted to make sure that we actually build the relationship, get certified by Salesforce.com, which we did. Attended five of their events and started having a few kinds of leads that we are qualifying now.

So, what is going on with Salesforce.com is that we are working in part. On the one hand we are enhancing the relationship with Salesforce themselves, being I would say introduced to their partner community. So, we are currently working to establish some contracts with Salesforce partners that could actually implement iBOLT Special Edition for Salesforce.com.

And on the other front, we are working on concretely that I would assume within the next couple of months would result in actual sales. And that's a very encouraging step. We've also tried iBOLT Special Education for Salesforce.com with a subscription pricing for the license in total potential sales. So, that's another front I would say that we are trying to achieve.

I have some more questions, but I'll let somebody else get in.

Okay.

The next question is from Mark Silk of C. Silk and Sons. Please go ahead.

Hi. David, on the $11.6 million of discontinuing operations, am I to assume that's all of -- revenue for Answer on Demand in 2007?

Yes.

And what was the profit after the $11.6 million?

The profit in 2007 was $2.6 million for AAOD only.

So, that was 2.6. Okay. Here's the problem. We've owned this stock since 1994, basically. And the first three quarters of 2007 you made $0.10 a share. And since February of '06 your stock is down 30%. So, I know the market hasn't been great, but God forbid you lost money last year. Where would your stock be.

I'm marketing it. There's been no coverage since 2001. There's been no institutional ownership for at least three years. Formula owns 51% of Magic, which probably scares people away. I understand you sold your most profitable part of the business, which was okay because you got a nice chunk of money for it.

But I think as -- it's like when a tree falls in the woods and no one's there did it really fall? So, I think as -- the fiduciary responsibility of management of a public traded company is to increase shareholder value. And I'm afraid, because now the Answer on Demand is out, I know the first half of '08 is going to be tough to compare with what happened in the first half of '07.

I think it would make sense for you to at least hire an investment banker just to see if there's any interest Magic. I mean, SAP obviously needs you guys. Oracle, you'd be a great fit. I know you work with IBM. Even now Salesforce.com is seeing you.

And I think even just to test the waters just to see if there's any interest out there. Because obviously, you had a great year last year. The stock is down 30%. As I said, we're loyal shareholders, but I think at some point you guys at least have to test the market and see what's out there.

I couldn't agree more, Marc.

Okay. Does that mean you're thinking of doing something?

That means that, if you'll recall my first conference call with the Company, I said there -- and I'm being very consistent about it -- is that once we have our strategy and we have our things working for us, which is already happening, we will go out and meet investors and talk about Magic because we think we have a great story.

But, I said then and I still mean it, it's very important that we execute consistently and that we improve both the profitability and license sales and penetration to new markets, which we have started to do. And I think that once that's been reflected in our results, we will be out there talking to people and making sure that they hear about Magic. I'm quite confident that then, once the Company resumes performance, share price will follow.

All right. What are your plans for the $17 million?

Sorry, Marc?

The proceeds from Answer on Demand. Have you guys discussed what you're looking to do with some of that money?

Currently we have a bit over $30 million in cash. We'll use that money as part of our strategic plans once we actually announce them.

Thank you.

The next question is from Stephen Silk of C. Silk and Sons. Please go ahead.

Good morning -- or afternoon. Could you break out what the revenue from CoreTech was in the margins?

We don't disclose those numbers, between the different businesses of Magic.

Okay. My question regarding that is how does that fit into your core business?

How is that?

Yes. It doesn't seem like it would go along with--.

--The line is not that clear, so could you repeat the question?

It doesn't seem like CoreTech and what they're doing aligns with where you're trying to drive the Company as far as core business.

You're definitely right.

Right.

And I've said it numerous times that our major, and actually only focus, is our core business. So, we are -- this is why we actually sold AAOD. And we would continue to focus on the core business while trying to maximize the equity that we have on the other companies [inaudible].

So, to take it one step further, without breaking out CoreTech, how is one able to look at what your margins might be just in your core business?

You're right. That's quite difficult at this stage. But, we were very clear about the improvement of the core business. So, license sales that went up significantly this quarter are only attributed to the core business. CoreTech is not selling license. CoreTech is selling services only.

Most of the improvement in I would say the second half of 2007 was coming from the core business.

And wouldn't licensing have a much higher margin than what CoreTech is doing?

Sure. Sure.

So, by not breaking it out, you're kind of hiding the fact that your core business gross margins are really higher.

If you're asking whether CoreTech, as part of our overall business, lowers our gross margin the answer is a definite yes. It's a services--.

Right.

It's a services-only business. The core business margins are actually -- are I would say higher than 70%.

That's the point I'm trying to make. Wouldn't it benefit you to show people what your core business is really doing? Because any software company that has cost of sales that are what you're showing, is really a little bit misleading.

But let's go on to the next thing. The SG&A expenses look a little bit high around $8 million. Are there going to be any savings in that once -- as Answer on Demand is gone? And are you impacted on your expanse line because of Israeli -- paying in Israeli shekel as far as the weakness of the U.S. dollar?

Yes. Those are two different questions. We do expect to continue and improve the bottom line because we have done some restructuring and reorganization in the Company, some cost reductions that are part of the 2008 plan. And we have a definite plan which we are quite confident that we would like to -- we will see much better profitability of the Company this year. So, this is one thing.

The other thing, yes, we are definitely affected by the fluctuation of the dollar versus the Israeli shekel. And it definitely affects our bottom line. But, we are taking the right measures, both in terms of hedging and some -- I would say other measures that we take to either avoid that or try to minimize it.

Services or software, is that a new market for you or is that something that you see potential existing current customers going to and you have to follow them along?

That's obviously a new market for Magic. It's not a new market in the industry. It's a very growing market and we think that we have a very significant opportunity there with an excellent offering. So, our main approach to this market is being driven by iBOLT Special Edition with Salesforce.com and others that we are trying to actually work with now.

And on the eDeveloper front it's being driven by the major initiative I've mentioned previously in Japan. So, we are--.

--The point I was trying to get at is it wouldn't degrade your ongoing business, where you are now.

Is it?

It should not.

No.

Okay. And finally, I just wanted to follow with what my brother said. Because, if you look back at what happened with BluePhoenix when they got out from under Formula, it kind of took off. And I don't know if it was Formula that was holding BluePhoenix down, new people got interested because Formula wasn't involved. What do you get when you have directors' meetings as far as what is Formula's plan with the position that they have? I mean, either they bring you guys in-house perhaps, or they let you free to grow.

I think this is something you need to address to those specific shareholders. This is not a question I can answer.

Okay. Just wanted to get it out there. Thank you.

The next question is from [Randy Kolb], a private investor. Please go ahead.

Hi. With regard to the money you received from the sale of AAOD, I'm wondering if I can follow up on Marc's question. Can you be more specific on what you might spend that money on?

We might use that as a part of the strategic plans of the Company. We are currently very much focused into the organic growth, making sure that we build the Company and grow our business.

Having said that, we would not rule out M&As when and if they would be relevant. And for that, we would need some cash.

Can you rule out a dividend?

Again, this is not something I can address. This would be addressed on our board level.

Okay. If you do intend to spend the money on marketing, is it possible to spend it without showing losses for the next few quarters?

We don't intend to lose money in the next quarters. And we are not intending to use the cash, either. The Company has actually generated positive free cash flow in 2007 and we intend to continue to generate cash. So, there's no plan to burn that money for the operations. On the contrary. We intend to continue and generate cash.

So you're basically going to put the money in the bank and just maybe wait a while before -- and see if something comes up in the future, maybe an acquisition?

Yes.

Okay. And then another question about releasing the Rich Client technology in Japan. What was the rationale for doing that and not releasing this Rich Client technology in other parts of the world at the same time?

We are not releasing the Rich Client technology in Japan. This is why I was very specific. We are releasing a new product that has some of the Rich Client functionality in it, but has some other new functionality related to the SaaS environment.

The reason behind that is that we have -- I would say we managed to find a major design partner, which is a major customer, that could turn out to be a major thing for Magic in Japan. And besides, Japan is our largest license generator in any case.

So, in terms of focus and dedicating the right resources and spending or using the expenses that we spend on R&D in a very focused manner, given our size, the best option for us was actually to work with that specific design partner in the market that has a huge potential for Magic.

And that is different from the approach the Company has taken, I would say some years ago, in giving or releasing a product in general availability, spending a lot of marketing funds and getting low returns. We think that this approach with Japan might turn out to be a very significant return for the Company.

Okay. Just to make clear on that -- but do you plan on releasing the Rich Client later this year in Japan, as the difference between what you're working on now and the Rich Client being kind of a different product? Can we saw that?

We don't plan to release Rich Client at all. Rich Client was always -- was never a product. It was always an excellent technology that we used to find out way into something that could be eventually sold to a customer. We are using this research and this technology partially to build a new product that addresses a real customer need. We don't have any intention to release Rich Client as a product. It doesn't make any sense and it doesn't have a market.

Well, the product that you're working on would be part of eDeveloper then? Or the addition to eDeveloper where you would have the internet capability within eDeveloper?

That's true. The new product would have -- would be based on eDeveloper V10, would have the internet capabilities, would have some of the functionality related to Rich Client technology, but would have some other enhancements that are very much related to enable a partner, a software house, or an IT organization to use that product to build a SaaS platform.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS.) We have a follow up question from Charles Silk of C. Silk and Sons. Please go ahead.

Okay. I have some more questions. Now, on the Rich Client you just talked with Randy about, what happens if a firm has the eDeveloper and/or iBOLT and they want Rich Client, how would you provide it? And what will you generate from it as far as revenue?

Charlie, I thought I was quite specific, so I will repeat it. We don't have any intention to release Rich Client as a stand alone feature. We are continuously enhancing eDeveloper. And eDeveloper has a very concrete roadmap. However, we are coming up with a new product based on what I've said that addresses those issues. We are not going to release Rich Client as a product.

All right. So -- well, the people who have the eDeveloper and want -- how are they going to go and get the Rich Client involved if they already have the other products?

We don't think that's an opportunity for Magic.

Okay. All right. On Hermes, could you tell, are they profitable now?

Hermes is profitable, yes.

It is now. And KLM is working out very well?

As well.

Okay. Are there more down the line with the air cargo?

Yes, they have some -- Hermes has some new customers -- I would say a new pipeline in that sense, has some opportunities which we expect to close this year.

So, now on -- another part to this. How would you price the SEAP product when it's combined? Do you have any idea of pricing, of how would it -- got a feel for what the revenue will be?

Yes. We actually are finalizing in this stage the pricing model. And once it's out, we'll update you guys. It would have a part which is subscription based and would have also a perpetual based as well.

Okay. Salesforce announced -- reported last night. And their revenue was up -- let's see, $216 million versus prior year on quarter--to-quarter of $144 million. And (inaudible) went to $787 million up from $947 million. Do you have a relationship with Salesforce?

I actually described it in length. We have started our relationship with Salesforce.com and we have attended five of their events. We were certified already. I mean, iBOLT Special Edition for Salesforce.com got the up exchange certification. It's quite early in the process. We also -- we already have some leads and we are quite, I would say, encouraged by the fact that they think that our product is relevant.

Okay. How about Oracle? Is anything happening with -- can you explain on JD Edwards? Is it going to go further than JD Edwards in Oracle?

Yes. There's nothing happening on the Oracle front in terms of a relationship with Oracle. However, we are making some good progress in the U.S., and only in the U.S., with the JD connector. We've done some sales and we expect that to grow.

Okay. Now, you've got some real powerful products that are all coming out. What are your plans to let the rest of the world know what's going on with your products? Every time I come across IT people they don't -- they're not even aware of Magic. It's -- how will you--?

Charlie, we're trying to balance all factors, grow the Company, grow revenues, but still be very sensible about our marketing spending. So, we are using our marketing funds very carefully on targeted audiences and that's our approach.

Our -- really our prime concern is to be profitable while growing the Company. That's our priority.

Yes. I appreciate it. [Art Pennington] we talked about before. He's really going aggressively and promoting himself. And matter of fact, I got a client for him in the Boston area and they're going live very soon. And these people are happy so far and are very willing to [technical difficulty] what he's doing. And I don't know if you're aware of it. Art called me -- I was talking to him the other day. He's coming out with another book. So, that could be a great promotion for your people.

But, okay. Now, are there any forward-looking statements about the current quarter we're in?

About?

Are you going to give any guidance?

Any guidance about what, our future financials?

For this -- no, coming -- this quarter. How will it stand up? Are you going to -- any statements about forward-looking--?

No. We don't give any forward-looking statements at this stage, and no guidance.

Okay. All right. Well, thank you for the information. We got a lot more and hopefully other people are aware of what's going on with your company.

Thank you, Charlie.

The next question is from [James Torterese], a private investor. Please go ahead.

Hi, David. I've been a shareholder since the mid '90s and I'm just kind of disappointed with the statements that you guys have made. You came out on February the 4th saying you were going to have this earnings conference call last week and then you postponed it. And you never really gave us any reason for that.

And then -- I mean, you had two weeks to put this together. I don't see anything in this that's any different than any other conference call or earnings report that you guys have had. And as a result, I think it's really hurt our share price.

And I just wish you guys would be more forthcoming with information. And hopefully on the next conference call you give us a little more information on what some of the strategies are with some of the -- and some of the direction. I'm just -- I feel like we're kind of in the dark here. And as a result, I think our share price is reflecting that.

Well, I actually gave a very long brief about our strategy, about our way forward, about our focus. So, if you feel that something is missing, I would be happy to take this off line and brief you more. That's -- actually, we have provided I would say a lot of information, both in terms of financial and the direction of the Company. And I fully appreciate your view. If you feel that you need some more information, I'll be happy to give it to you.

Okay. Well, thank you, David.

The next question is from Marc Silk of C. Silk and Sons. Please go ahead.

Just a quick one. Are you still focusing on your strategy to sell the other two subsidiaries at some point?

Yes.

Okay. Thank you.

There are no further questions at this time. A replay of the call will be available on Magic Software's website, www.magicsoftware.com, approximately four hours after this call.

Also, a replay of this call is scheduled to begin in two hours. In the U.S., please call 1-888-326-9310. In the UK, please call 08-00-917-4256. In Canada, please call 18-66-500-5953. In Israel, please call toll free 1-800-270-077. Locally, please call 03-925-5930. Internationally, please call 972-39-25-5930.

Mr. Naor, please continue with your closing remarks.

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

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