Second quarter results lose their magic, but company is still confident

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Magic Software’s Q2 results reveal that revenues and earnings fell short of analysts’ expectations for the quarter.

The Board of Directors of the provider of enterprise-level e-commerce has authorized the buyback of up to $5 million of its shares of Common Stock. The company says it remains confident that it can deliver a 40% annual growth rate over 1999.

Revenues for the second quarter 2000 were $20.06 million as compared to $15.32 million for the comparable period in 1999, an increase of 30.9% over last year, but a 7.3% decrease compared with the first quarter of 2000. Net income for the quarter dropped to $1.91 million from the $2.28 million posted for 1999.

Software license sales, which include the Magic core technology and applications, were $9.77 million for the second quarter, representing 48.7% of total revenues. Application license sales, at $3.21 million for the period, accounted for 32.9% of total software sales, up from 25.5%.

These results demonstrate the company’s transition into the solutions arena, despite a longer-than-anticipated application sales learning curve and lower-than-expected results from its Japanese and North American operations.

“We did not realize the complexity involved in turning an organization of many hundreds of employees dedicated to developing, selling and supporting tools into a service-oriented business focused on application sales issues,” said Jack Dunietz, chief executive officer of Magic. “It requires a major retooling and re-education process. We were not prepared to go after the Japanese and North American markets until it was too late in the quarter to close deals in our e-commerce and CRM pipelines, which continue to expand rapidly.”

The company plans to buy into North America to find the solutions sales expertise and geographic coverage needed to make an impact in the market. According to Dunietz, purchase of a systems integrator or service provider, with strong distribution channels and a seasoned sales force, could happen soon.

“Obviously, there is always room for improvement, especially when you have the strong portfolio of quality products and pool of talented people that Magic has,” added Dunietz. “That is why we are taking all necessary steps to build Magic’s solutions selling knowledge base and add even greater depth to our sales force. We are confident we can still show a 40% annual growth rate over 1999.”

Magic signed several important deals during the second quarter, including agreements with Compass, a major worldwide food service organization, the State of Nebraska, and Marconi Mobile.

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 at 1642 Kaiser Avenue, Irvine, California.

Magic Software

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